The special commissioners decided that the validity of discovery assessments was not affected by the fact a letter sent to the taxpayer's former accountants in the course of an enquiry contained questions which were outside the scope of the enquiry.

Facts

The taxpayer appealed against an amendment to his self-assessment for 2002-03 and discovery assessments for four other tax years.

The taxpayer was a musician who played the guitar in pubs. He claimed that he played only on Friday and Saturday evenings and earned about £100 per night. He had not previously made any returns and instructed accountants to regularise his tax position. They filed returns for the six years up to 2002–03.

The inspector opened an enquiry into the 2002-03 return by sending a notice to the taxpayer under TMA 1970, s. 9A within the permitted time-limits. The inspector's letter enclosed a copy of a letter to the accountants, which asked a number of questions relating to the return and three questions relating to capital gains on his private residences disclosed in the other returns. The inspector accepted that the capital gains tax questions were outside the scope of the enquiry since by s. 9A(4) the enquiry extended to anything contained in the return. No capital gains tax assessments were issued as the inspector was satisfied with the answers to those questions.

The taxpayer contended that the s. 9A notice was fundamentally flawed so that anything that flowed from it was also flawed.

The Revenue accepted that the capital gains tax questions were outside the scope of the enquiry but contended that at the highest that enabled the taxpayer to refuse to answer, in which case the inspector would have had other remedies such as a s. 20 TMA notice, and that nothing else was affected by the questions.

Issues

Whether the fact that the inspector asked questions outside the scope of an enquiry opened under TMA 1970, s. 9A invalidated the whole enquiry and the discovery assessments for the other years; whether the inspector had made a discovery that would justify the discovery assessments; and whether there was negligent conduct on behalf of the taxpayer.

Decision

The special commissioners (Dr John Avery Jones and Ian Huddleston) (dismissing the appeal) said that a s. 9A notice was a notice to the taxpayer that had to be given within a particular time-limit, that enabled the inspector to enquire into the return. The enquiry then extended to anything contained in the return. The letter to the accountants was not a s. 9A notice but contained the questions that the inspector then had on the return. At that stage there was no sanction for not answering any of the questions. If they were not answered, a s. 19A notice was likely to follow, but was not used in this case as the accountant did answer the questions. In other words, the s. 9A notice was the mechanism for stopping time running out for any enquiry into the return; it did not contain any enquiry itself. A s. 9A notice was not a demand for information at all and there was no sanction for not answering the questions that were raised following the giving of the notice. Accordingly the inspector's additional questions were irrelevant to the validity of either the enquiry into that return or the discovery assessments. If the same questions had been contained in a s. 19A notice, the notice would to that extent have been invalid (whether the whole notice would be invalid was not a question raised in this appeal where there was no s. 19A notice).

The taxpayer contended that there had been no discovery, and no negligent conduct on the part of the taxpayer, which were pre-conditions for an assessment under TMA 1970, s. 29. He argued that there could not be a discovery at the time a s. 9A notice was issued. However, the negligent conduct comprised the taxpayer's originally failing to notify that he was chargeable to tax, and failing to maintain any records of his income. He also attempted to mislead the inspector in his answers about a Spanish property and bank account. So far as negligent conduct was concerned, the taxpayer's failing to notify chargeability to tax or to keep records of his income was negligent conduct, although he had instructed an accountant to regularise his tax affairs before the Revenue made any enquiries. In all the circumstances, his answers relating to the Spanish property and bank account amounted to negligent conduct and his explanations for other unexplained lodgements in the taxpayer's bank accounts were improbable.

In all the circumstances, the closure notices and discovery assessments were confirmed.

(2007) Sp C 596.
Decision released 5 March 2007.