The High Court held that a special commissioner was entitled to uphold the issue of a notice under TMA 1970, s. 19A where the production of documents was reasonably required by the Revenue for the purpose of determining whether, and if so the extent to which, the tax return under investigation was incorrect or incomplete.

Facts

The taxpayer filed a tax return for 2004-05 showing income of £4,650 from employment with a company and no other income. By notice to the taxpayer dated 22 May 2006 an officer stated his intention of enquiring into the taxpayer's tax return for 2004-05 and made an informal request for certain information. Not having received the information the officer issued a notice under TMA 1970, s. 19A requiring the following information within 30 days: all bank and building society statements for the year to 5 April 2005, in respect of all accounts that the taxpayer held or on which he was named; all statements for all credit, debit or store cards that he held for the year to 5 April 2005; all documents relating to the sale of property that took place during the year and all documents relating to the mortgage (including mortgage application) which was in existence at the date of sale. The taxpayer was also asked to provide his capital gains tax computation and say why that was not included in the tax return together with a statement showing all of the income and outgoings (i.e. accommodation costs, food, entertainment, etc.) for the year.

The taxpayer appealed against the notice, electing for it to be heard by the special commissioners. His letter stated that the information and documents requested were superfluous for the Revenue's declared intent. He purported to appeal against the notice to enquire into the tax return which after some correspondence the Revenue (and the special commissioners) had taken to be a request to close the enquiry. The taxpayer contended that the Revenue had no power to enquire into items where there was no entry in the tax return. The officer did not reasonably require the information. It was an enquiry into his lifestyle, not into the tax return. The return was complete. He had ordered his affairs in a way so as not to pay any tax. The Revenue contended that the officer had explained the reason for the questions in a letter of 5 September 2006 which stated:

1. ‘However the remainder of your return is blank, showing that you are stating that you have no taxable income other than your salary. I need to check that this is in fact the case (and this will necessarily mean that I will need to look at whether such a salary is sufficient for you and your family to live on) and the only record which I could possibly look at in order to be satisfied of this would be the kind of documents which I have asked for.’

No information had been given in reply to the s. 19A notice except that the property disposed of was the taxpayer's principal private residence, which the Revenue had not accepted because the disposal was not of the house in which he was living before the disposal. The taxpayer appeared to have outgoings on the mortgage alone in excess of his income and it was reasonable for the officer to require answers to his questions. Since the officer knew no more than when the enquiry opened it was not appropriate to close the enquiry.

A special commissioner upheld the issue of the notice ((2007) Sp C 621). The taxpayer appealed arguing, inter alia, that the information requested by the s. 19A notice was not reasonably required for purposes of the investigation into his return.

Issue

Whether the special commissioner had erred in deciding that the production of the documents or the furnishing of the accounts or particulars was reasonably required by the officer for the purpose of completing his enquiry.

Decision

Floyd J (dismissing the appeal) said that the Revenue's ability to investigate a tax return was not restricted to positive entries made by the taxpayer. Nil returns were equally proper areas of investigation. The provisions of s. 19A(2)(a) specifically made provision for an enquiry to determine whether a tax return submitted by the taxpayer was incomplete or incorrect. In the present case, the taxpayer had effectively declared that he had no income other than the £4,650 received from the company. It would be absurd if his declarations of nil returns shielded the taxpayer from enquiries into whether his tax return was complete and accurate.

Accordingly the special commissioner had been entitled to uphold the s. 19A notice.

Chancery Division
Judgment delivered 23 June 2008.