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

Facts

The Revenue applied ex parte to the special commissioners for consent to serve a notice under TMA 1970, s. 20(8A) on Financial Institution No. 2 (‘Fin2’). The notice sought documents about customers with UK addresses with non-UK bank accounts with Fin2.

Fin2 operated in a number of countries. It held information on its computers in the UK on a number of individual customers with UK addresses and non-UK bank accounts. 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 another source relating to debit cards, of a number of customers of Fin2 with offshore accounts of whom 16 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, had been chosen of 461 cases (not only customers of Fin2) out of about 11,000 taxpayers who had made self-assessment returns, were UK resident and domiciled, and had not declared any foreign income.

The Revenue had provided details of investigations of ten cases relating to customers of Fin2 involving offshore accounts. The total yield was £5,456,288, an average of £545,000 per case. In all cases there was undeclared offshore bank interest and in six cases there were also undeclared trading profits. The Revenue relied on those cases as demonstrating a likely connection between undeclared foreign bank interest and other undeclared profits.

The notices sought documents containing the names and addresses of customers of Fin2 (other than public limited companies, Governments, charities, churches, mutuals, trade associations and clubs) having a UK address and a non-UK bank account in a number of named jurisdictions or locations, together with documents containing the following information about the customer: whether the account address was noted ‘gone away’ or ‘not at this address’, the account holder's date of birth, the name of the bank at which the account was held, the branch at which the account was held, the sort code of the branch at which the account was held, the account number, the date that the account was opened and the date that the account was closed. The notice required documents showing the annual interest credited in the years 2000 to 2005 and the balance on 31 December 2000 and on 31 March in each of the years 2001 to 2005. Fin2 contended, first, that the notice was a request for information rather than documents as required by s. 20(3) and accordingly s. 20(8A) and that the notice did not relate to a proper class of taxpayers within s. 20(8A). It contended that there had to be proper linking factors for there to be a proper class and that the class was so wide that it was not even limited to taxpayers and was likely to include some with no obligations to pay tax in the UK.

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 a ‘document’ for the purpose of s. 20(8A) was defined to mean anything in which information of any description was recorded. In practice the case concerned information stored on a computer hard disc; indeed the notice provided that only documents held in electronic format were to be provided. In the circumstances the distinction between documents and information was much less clear cut than with paper documents. It seemed that the notice properly asked for documents containing certain listed information. It might be that Fin2 would find it more convenient to extract that information from a larger document (namely a computer file on the hard disc) rather than provide a document or documents containing the information. While one might regard the former as providing information rather than a document it did not alter the fact that the notice required a document and that that was merely a more convenient way of providing a document. If it had appeared that the Revenue were on a fishing expedition based on the likelihood of any large class containing members who had not complied with their tax obligations, consent would have been refused. But the present application was very different. The Revenue had quite a lot of information about persons with offshore bank accounts derived from their sample of credit and debit card cases showing that only 16 per cent of customers of Fin2 with UK addresses and non-UK accounts completed the foreign income pages of their tax returns. From the representative sample of the card cases, which included some customers of Fin2, the inspector concluded that 26 per cent of the taxpayers affected by the notice would yield tax totalling £55m. The inspector's estimates were the best estimates that could be made of the likely result of the issue of the notice. Taxpayers with UK addresses having bank accounts in a number of named jurisdictions formed a proper class of taxpayers, not withstanding that it might contain a few who were not in fact taxpayers, because those with UK addresses were likely to be UK taxpayers. There was no other way of eliminating those who were not UK taxpayers at this stage, particularly as some of them might be people who were not, but should be, taxpayers. None of the objections raised were sufficient to prevent the issue of the notice which related to a class of taxpayers whose individual identities were not known. 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 to comply with provisions of the Taxes Acts. According to the figures and the inspector's estimate of a yield of £55m, any such failure was likely to have led to serious prejudice to the proper assessment or collection of tax. Moreover, 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, TMA 1970, s. 20(8A) was satisfied.

In all the circumstances the inspector was justified in proceeding under s. 20. Weighing up the burden imposed on Fin2 with the benefit to the Revenue, the information that the Revenue had already obtained raised serious questions that merited investigation and could not be investigated by any other means.

(2007) Sp C 581.
Decision released 9 January 2007.