A special commissioner granted the Revenue's application for consent to issue a notice under TMA 1970, s. 20 requiring the disclosure of information without naming the taxpayers concerned, where documents already obtained had raised serious questions that merited investigation which could not be carried out by any other means.

Facts

A financial institution (‘F1’) operated in a number of overseas jurisdictions. It held information on its computers in the UK relating to a number of individual customers with UK addresses and bank accounts in certain of those overseas jurisdictions. The Revenue were investigating the use of offshore accounts by UK residents, which they considered presented a significant risk to the proper collection of UK tax. The Revenue were aware from information obtained from a source (the identity of which was provided to the commissioner) relating to debit cards of a number of customers of F1 with offshore accounts of whom 22 per cent had completed the foreign income pages in their tax returns.

Out of the names identified by that source a sample, which was intended to be representative, was chosen of 461 cases (not only customers of F1) out of about 11,000 taxpayers who had made self-assessment returns, were UK resident and domiciled, and had not declared any foreign income. As part of a trial agreed with some of the accountancy bodies, letters based on one of four types of standard letter were sent to them in July 2005. Of those 461 cases, 252 enquiries had been opened, and in 113 cases (of which nine were being dealt with by Special Civil Investigations, which dealt with larger cases) further tax liability had arisen or could be estimated. Five further cases had been settled by a minor query approach. That made a total of 118 cases (26 per cent of the total sample of 461) with an expected yield (including interest and penalties) of £1.9m (an average of £16,100 per case), and many payments on account had been made. If granted, those notices would also provide further information about transactions entered into by such people. The remaining 204 cases in the sample had been cleared with no tax liability.

In a sample of investigations into ten cases relating to customers of F1 involving offshore accounts, the total yield was £2,758,120, an average of £278,000 per case. In all cases there was undeclared offshore bank interest and in eight cases there were also undeclared trading profits. The tax inspector accepted that those were unrepresentative and the yield from them was not included in his estimate of the yield if consent to the notice was granted. However, they demonstrated the likely connection between undeclared foreign bank interest and other undeclared profits.

Revenue and Customs applied for consent to serve a notice under TMA 1970, s. 20(8A) on F1. The notice sought documents about customers with UK addresses who held non-UK bank accounts with F1. The notice sought documents containing the names and addresses of customers of F1 (other than public limited companies, Governments, charities, churches, mutuals, trade associations and clubs) having a UK address and a bank account in three specified overseas jurisdictions, together with documents containing the following information about the customer: both correspondence address and residential address, date of birth, indicator denoting returned mail, customer deceased indicator, sort code, account number, date account opened, date account closed, and certain other information maintained by F1 on behalf of its offshore banking business.

Issue

Whether consent should be given to the issue of a s. 20 notice without naming the taxpayers.

Decision

The special commissioner (Dr John Avery Jones) (granting the application) said that the notice required documents showing the annual interest credited since September 2001 and the balance on the last day of August 2002, July 2003, January 2004, March 2005 and the date the information was extracted. Accounts with an average monthly balance of under £2,000 in each of the preceding 12 months were excluded. Also excluded were accounts where the account holders had authorised the exchange of information for the purposes of the EU savings tax directive or who were not subject to that directive. The notice also required documents showing details of credit cards where they were associated with certain specified jurisdictions including the total repayments and type of payments over the 24 months prior to extracting the information. No production of paper documentation was required. The inspector estimated that, if consent to that notice was granted, the total yield would be some £40m.

No allegation was made against F1. F1 had agreed the content of the notice as capable of being complied with but without agreeing that it should be issued. The Revenue had agreed a requested time-limit for complying.

In all the circumstances, the notice related to a class of taxpayers whose individual identities were not known. Secondly, in the light of the figures, there were reasonable grounds for believing that some of the class of taxpayers to whom the notice related might have failed (or might fail) to comply with any provision of the Taxes Acts. Thirdly, in the light of the figures and the inspector's estimate of a yield of £40m, any such failure was likely to have led (or to lead) to serious prejudice to the proper assessment or collection of tax. Fourthly, the information which was likely to be contained in the documents to which the notice related was not readily available from another source (and in particular most of the information required by the notice was not known even for those whose identities were known to the Revenue).

Accordingly, s. 20(8A) was satisfied.

Finally, under s. 20(7), in all the circumstances, weighing up the burden imposed on F1 with the benefit to the Revenue, the inspector was justified in proceeding under s. 20. The information that the Revenue had already obtained raised serious questions that merited investigation and could not be investigated by any other means. Accordingly consent would be given to the issue of the notice.

(200 7) Sp C 580.
Decision released 9 January 2007.