Tax Writer
Share this content

HMRC right to request joint bank statements

As HMRC could not tie-up the purchases and sales for a cash-based vehicle repair business it required sight of the owner’s personal bank statements, including for jointly held accounts.

11th Aug 2020
Tax Writer
Share this content
Joint bank statements were central to a disputed HMRC tax investigation
iStock_Bank statement_bluestocking

In November 2018, HMRC launched an enquiry into Gordon Ferris’ 2016/17 tax return.

A review of a three-month (and subsequent six-month) sample period of business records for his vehicle repair business found that numerous sales did not have corresponding purchase invoices for the parts required for the specific job, and that there were numerous purchases for which there was no apparent sales invoice to match the parts bought.

Subsequently, HMRC requested information to check the accuracy of Ferris’ tax return by alternative methods (a takings build up and a business economics model).

Following a withdrawal of co-operation by Ferris, HMRC issued an information notice (under FA 2008, Sch 36). An internal review of this decision upheld the information notice, although two items were withdrawn as the information requested was covered elsewhere in the notice.

Grounds of appeal

Ferris lodged an appeal [TC07742] on these grounds:

  • The information was not reasonably required to determine the tax position.
  • HMRC had already been provided with all necessary documents to check Ferris’ tax position; the information notice was a fishing exercise.
  • The bank statements of other people in Ferris’ household are third-party documents and were not in Ferris’ power to produce.

Incomplete records

The FTT noted that a taxpayer running a business is expected to keep adequate business records, and that these records (if complete and accurate) should be sufficient for checking a taxpayer’s tax position. However, in Ferris’ case, the business records provided were incomplete and unreliable.

Ferris’ garage and repair business only made cash sales, but not all cash receipts were banked. Further, the amount of cash deposited was typically only enough to cover bills. Wages were also partly paid in cash and drawings were taken in cash.

While all jobs carried out by the business were said to have been recorded in a duplicate book, which detailed the date, work carried out and amount charged, the duplicate book and purchase invoices did not match.

The first tier tribunal (FTT) found that the business records were inadequate for the purposes of checking Ferris’ tax position and dismissed the ground of appeal that HMRC had already been provided with all necessary records to conclude its enquiry.

Personal and third-party documents

Ferris argued that the bank statements requested were personal records and that HMRC had no right to request “third-party” documents (referring to a request for “all bank, building society, and credit card statements for all accounts, held in sole or joint names” for 2016/17).

The FTT noted that it had only been necessary for HMRC to resort to requesting personal financial records as an alternative basis for checking Ferris’ tax position due to his failure to maintain adequate and reliable business records in the first place.

In fact FA 2008, Sch 36 para 19(3) provides for personal records to be brought within an information request, so long as any personal information contained therein is suitably omitted.

Whether the bank statements were third-party documents was addressed on the basis that the statements were in the taxpayer’s power.

FA 2008, Sch 36 para 18 only requires a person to produce a document if it is in the person’s possession or power. HMRC had requested statements for accounts of which Ferris was the only, or a joint-holder, thus Ferris was in possession or in the power to produce those statements. Therefore, the third-party argument did not have merit.

Appeal dismissed

The FTT concluded by stating that, to close an enquiry, HMRC needs to be in a position to issue a closure notice, which requires HMRC to state the conclusions of the enquiry. Further, HMRC has a public duty to assess a taxpayer to the correct amount of tax to the best of its judgment in the light of available information.

As a result, all items requested on the information notice were found to be reasonably required in order to provide HMRC with alternative bases for checking Ferris’ tax position.

The appeal was dismissed.

Comment

As the FTT noted, the items requested on the schedule 36 information notice were necessitated by the fact that the taxpayer’s statutory business records were incomplete and unreliable. As such, this case is yet another reminder of the importance of complete and accurate record keeping.

Replies (0)

Please login or register to join the discussion.

There are currently no replies, be the first to post a reply.