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Request for taxpayer’s bank statements was reasonable

The first tier tribunal has dismissed a taxpayer’s appeal against an HMRC information request on the basis that there were reasonable grounds to suspect an underassessment.

30th Sep 2019
Tax Writer
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bank statements in an envelope

Bhapinder Matharu is the director and sole shareholder of Matharu Delivery Service Ltd, which was the subject of related case TC07347 when the company challenged HMRC’s request for a full breakdown of the director’s loan account.

While HMRC was reviewing the company’s bank statements, it found the company had paid £40,060 in ‘wages’ to Matharu. This stood in contrast to Matharu’s self assessment tax return, which declared a salary of £8,786.76 and a dividend of £23,000. In addition, large amounts had been transferred between Matharu Delivery Service Ltd and betting companies.

In January 2018, HMRC issued an information notice to Matharu under paragraph 1 of Schedule 36 of Finance Act 2008 in respect of his 2015/16 self assessment tax return. Matharu appealed against this notice [TC07324].

Part of HMRC’s information notice included a request to view Matharu’s personal bank statements, which was an attempt by HMRC to get to the bottom of the discrepancies found between the amounts of income declared in Matharu’s tax return and the amount of ‘wages’ transferred between Matharu’s company bank account to his personal account.

Condition B in question

Although Matharu did provide some additional information to HMRC, including a dividend voucher for the £23,000 and a P60 showing a salary of £8,786.76, he did not supply HMRC with his personal bank statements.

Instead, the information notice was appealed on the basis that no condition under A to D, paragraph 21, Part 4 of Schedule 36 of Finance Act 2008 had been met. Specifically, the taxpayer submitted that condition B – the condition upon which HMRC relied – was not satisfied.

This says: “Condition B is that, as regards the person, an officer of Revenue and Customs has reason to suspect that an assessment that ought to have been assessed to relevant tax for the chargeable period may not have been assessed…”

The taxpayer argued that no non-disclosed source of income had been identified and that all information to corroborate the entries on Matharu’s tax return had been provided.

What are wages?

The taxpayer also submitted that it was normal for small companies to describe drawings by a company as wages and claimed that a Judge at the appeal by Matharu’s company [TC07347] had accepted ‘wages’ covered more than pure salary.

The FTT found that HMRC was entitled to consider the term ‘wages’ at face value, and that, even if a judge had accepted a wider definition of the term ‘wages’ the decision was not binding on the FTT.

Betts not applicable

The taxpayer referred to the decision of Kevin Betts [TC02824] to support his appeal on the basis that HMRC did not have reason to suspect that the figures on his tax return were wrong.

In Betts, the taxpayer’s appeal against an information notice was successful on the grounds that HMRC had not met condition B. In that case the FTT judgment stated:

“But it is clear, in our judgment, that in order for condition B to be met, there has to be reason to suspect that an amount that ought to have been assessed to relevant tax for the chargeable period may not have been assessed as regards the appellant. That is the plain and ordinary meaning of paragraph 21(6)(a) and we see no reason to go behind that. Seeking information or documents in order to meet condition B is simply the wrong way round in our judgment.”

When considering the appeal of Matharu, the FTT found that the decision in Betts was distinguishable, as in this case “HMRC clearly had evidence which gave […] ‘reason to suspect’ in accordance with condition B […]”

As the FTT held that condition B had been met at the time the information notice was issued by HMRC, Matharu’s appeal was dismissed.

Replies (3)

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By johnjenkins
02nd Oct 2019 10:17

Forgone conclusion. I wonder just what he doesn't want HMRC to see. He's obviously got the money to take it further. On a tangent, although not tax allowable, is a limited company, as it is a separate legal entity, able to make bets. Can it be written in the mem and arts?

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Replying to johnjenkins:
By sammerchant
02nd Oct 2019 10:55

Hedging foreign exchange?

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Replying to sammerchant:
By johnjenkins
02nd Oct 2019 11:16

HMRC would probably already know about that. Naming and shaming could be the next step.

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