A special commissioner decided that it was not appropriate to direct that a closure notice should be issued in respect of an enquiry into a taxpayer's tax returns where the taxpayer had provided insufficient information to enable the tax inspector to complete her enquiries.

Facts

The taxpayer applied for a direction for the closure of the enquiry into his tax returns for 2004 and 2005 under TMA 1970, s. 28A.

The taxpayer traded as a self-employed roofing contractor. His self-assessment tax return for the year ended 5 April 2004 was filed via the internet and received by the Revenue on 6 October 2004. The tax return included details of profits from the roofing business for the year to 31 October 2003 and income from property and interest received for the year to 5 April 2004. An enquiry under TMA 1970, s. 9A was opened by the Revenue by letter issued to the taxpayer and copied to his agent on 2 January 2007. On 18 July 2007 an application under TMA 1970, s. 28A(4) was made by the agents to the special commissioners requesting that the Revenue be directed to close their enquiries into 2003–04 and 2004–05. On 23 August 2007 the Revenue served on the special commissioners and copied to the agents a statement of grounds for not issuing a closure notice in respect of the enquiries into the tax returns for the years 2003–04 and 2004–05. The taxpayer ceased to trade as a roofing contractor on 30 September 2006 and retired. The tax inspector gave as reasons for not closing the enquiries that she had concerns about the sales and purchases of the taxpayer's roofing business, and some unidentified deposits into the taxpayer's or his wife's bank or building society accounts.

Issue

Whether the Revenue should be directed to issue a closure notice.

Decision

The special commissioner (Dr John Avery Jones) (dismissing the application) said that the test in s. 28A(4) was whether the tribunal was satisfied that there were reasonable grounds for not issuing the closure notice within a specified period, which the taxpayer had put at 30 days. One item was a proposed notice under TMA 1970, s. 20 that would have been applied for if the taxpayer had not applied for the closure notice. Since the taxpayer's wife had declined to provide further information, the inspector was justified in pursuing a s. 20 notice. In any case time for that would be allowed before directing the issue of a closure notice and since it might show other accounts it was not possible to put a time on the closure at this stage.

The more difficult item was the inspector's concerns about the business accounts. Those had been shown to be possibly justified in relation to a cash payment of £300 to £400 from a customer, and a purchase invoice that did not apparently relate to any recorded work. Those seemed to be reasonable concerns. Until the taxpayer dealt with the inspector's queries about deposits into bank accounts (including deposits into the wife's account because it was possible that unrecorded sales might have been deposited there) the inspector was not in a position to put a figure on her view of any under-declaration. The answers to the source of those deposits might disclose further accounts which in turn might contain business receipts.

If the taxpayer wanted to put a stop to the enquiry he would have to meet the inspector's concerns in a way that went beyond what he and his wife had already done. Accordingly, in relation to the 2004 return, there were reasonable grounds for not issuing the closure notice within a period that could sensibly be specified. So far as the enquiry into the 2005 return was concerned, while at first sight it seemed to follow that, if the inspector did not intend to ask any questions, there were no grounds for not issuing a closure notice, that was not the correct approach. The situation was not unique. If the inspector's concerns about the business accounts relevant to the 2004 return turned out to be well-founded, she would have the same concerns about the accounts relevant to the 2005 return. The two years were related and if a closure should not be issued for the 2004 return, the same would follow for the 2005 return.

(2007) Sp C 646.
Decision released 15 November 2007.