When deciding whether there were reasonable grounds for failing to issue a closure notice, the special commissioners were entitled to take account of the fact that a taxpayer had failed to disclose the identity of directors of a related company even though he might not be under a legal obligation to do so.

Facts

The enquiries in issue arose from the activities of four overseas companies (‘the GJS companies’). K and A were directors of M Ltd and they accepted that M Ltd acted on behalf of the GJS companies in respect of financial transactions in respect of works done to properties bought and sold by those companies and the Revenue had traced 202 such properties. The Revenue formed the view that the taxpayers had not accounted for all their income since K and A had both declared considerably less income than had been deposited in their bank accounts.

The taxpayers applied for directions requiring an officer of the Board (in the case of the individuals) or the Inland Revenue (in the case of the company) to issue closure notices. K and A applied under TMA 1970, s. 28A for a closure notice in respect of an enquiry notified under s. 9A into their personal tax returns for the year ended 5 April 2003 and 5 April 2005 respectively. M Ltd applied for a similar notice under FA 1998, Sch. 18, para. 33 in respect of its return for the period 1 April 2002 to 31 March 2003. The taxpayers argued that it was appropriate to issue closure notices since the Revenue had produced no evidence of any tax loss. K explained that he had not been able to account for all of the deposits into his account as his wife had destroyed his papers during divorce proceedings. He insisted that he had only handled money on behalf of the overseas companies for work done on their properties by M Ltd but failed to explain why money due to M Ltd had been paid into K's own account. Revenue and Customs asked for a further six months to allow them to complete their enquiries.

Issue

Whether, on the information before the commissioner, it was reasonable to allow the enquiry to continue.

Decision

The special commissioner (Richard Barlow) (dismissing the applications) said that there were reasonable grounds for not issuing a direction for the issue or giving of closure notices to have immediate effect. As the Revenue asked for only six months to continue the enquiries, at least that length of time was reasonable. Accordingly, a closure notice should be given in each case within six months.

The Taxes Management Act 1970, s. 28A and FA 1998, Sch. 18, para. 33 provided that a direction for a closure notice would be given unless there were reasonable grounds for not issuing a closure notice within a specified period. Since the purpose of an enquiry was to establish whether there had been an under-declaration of tax, it was not sufficient to persuade a commissioner that a closure notice should be directed merely to say that no under-declaration had yet been established.

The question was whether there was enough material to establish that it was reasonable for the Revenue to continue to make enquiries to establish a liability to tax and the amount of that liability. In any event, in the present case, there was still a question as to why certain moneys had been paid into K's account rather than M Ltd's account. It remained unclear why payments to tradesmen working on the properties should have been handled through K's personal accounts and not directly through M Ltd's accounts. The failure of K and A to disclose details of the identity of the persons they dealt with from the GJS companies, assuming such persons existed, and of the nature of the instructions received was relevant regardless of whether they were under any legal obligation to make those disclosures. If a person signed on behalf of a company as a director they had at least raised the possibility that they were a director and it was reasonable for the Revenue to want to be satisfied whether that had any tax consequences.

Where, as in the present case, persons claimed to have acted on instructions, they could only have done so by having contact with the true directors or directing minds of the company. Since they had not produced those instructions or disclosed the identities of those directing minds, it was reasonable for the Revenue to want to satisfy themselves about the true situation by making further enquiries.

(2008) Sp C 660.

Decision released 15 January 2008.