Julie Cameron examines the case of Marylin Phillipou, who resisted demands to produce 58 different items of information about her business.
Ms Phillipou’s 2014 tax return was the subject of an enquiry by HMRC, centred on the accounts of her fish and chip shop business. Phillipou had provided various records including bank statements, daily takings and record book, following which HMRC disputed the cash flow position. HMRC asked for a meeting with Phillipou, which she declined. HMRC then requested a “raft of information”, much of which was not supplied.
This led in March 2016, to HMRC serving information notices under Schedule 36 FA 2008. The first-tier tribunal considered the appeal (TC05586) against these notices.
What is reasonable?
The tribunal saw the sole matter for their consideration to be whether the information notices complied with the statutory test, that they were “reasonably required…..for the purpose of checking the taxpayer’s tax position”.
The “raft of information” included details of portion size, wastage and own consumption, the handling and recording of cash and catering for outside events. It ran to almost sixty items.
Phillipou’s appeal stated was that the information would be unduly onerous to provide, due to its range and extent. The information sought indicated that HMRC were set on a business economics exercise, but, it was maintained, HMRC had agreed that the business records were not flawed and had accepted that the gross profit rate was in line with industry norms.
HMRC had outlined that their concerns, apart from the negative cash flow test, including the sources of capital introduced, low profitability and payment of casual workers in cash. They admitted that the information sought might seem onerous but in their view, it was not unreasonable. Much of the information could have been given verbally if Phillipou had agreed to a meeting, and it could only be provided by her from her knowledge of how the business was run.
The tribunal was sympathetic towards the appellant being asked to provide such non-statutory information as wastage and portion size, but concluded that its provision would not be unduly onerous.
Had Phillipou agreed to the meeting with HMRC, the tribunal felt sure that she would have provided the information with “little difficulty”. They pointed out that Phillipou had already provided similar information to the tribunal, for example her “regime for buying potatoes”. Such detail as was not historically available, could be ascertained in real time, based on current trading, with Phillipou identifying any changes to trading methods between the two periods of time.
In coming to their decision, the tribunal also discussed the significance of a closure notice (under TMA 1970, s 28A), which HMRC would issue at the end of their enquiry. There needed to be a sound basis for this, which HMRC could not achieve without checking the accuracy of the business records, as was their statutory entitlement. HMRC could employ a number of methods, and a business economics test, shown to have long been part of HMRC’s collection of checking mechanisms, was a reasonable approach.
The Tribunal decided that the information was reasonably required, as it would explain specifically how Phillipou ran her business. They varied the notices slightly, to instruct Phillipou to make her “best guess” of the current position where she did not have records for the earlier period and explain what factors might have changed between the present and the period in question.
This case is notable for the scale of information sought and the tribunal’s decision that the notices demanding production of that information were neither unreasonable nor onerous. The tribunal’s decision can also be contextualised by their emphasis on the robustness of the future closure notice, which would set the shape and limit of any appeal against it. Although there is no statutory basis for requiring a taxpayer to attend a meeting with HMRC, a fact-finding meeting can move things forward for both sides.
We don’t know the extent of the informal attempts by either party to discuss matters in this case, but in an ideal world, formal notices might be prevented if the channels of communication between agent and HMRC are set up at an early date in the enquiry. However, it is perceived that the current trend is for HMRC to pursue more formal routes at an earlier stage of the enquiry, despite informal approaches being made.
Challenge always possible
FA 2008, schedule 36 gives HMRC wide-ranging powers to obtain information. Although in this case, the tribunal decided in favour of HMRC, taxpayers and their agents should always consider reasonable requirement and be aware that an appeal process is available to challenge excessive requests.