Keith M Gordon MA(Oxon) FCA CTA(Fellow)
Appealing against that service company question
28 April 2011
Taxation article explains the history of the case. According to the podcast (starting after about 2 mins 20 secs), the editor thinks "HMRC must sometimes get fed up with Keith ... but I think he's great". I can honestly say that I do not intend to annoy anyone, merely want to ensure that taxpayers pay the right amount of tax in accordance with the law and that HMRC carry out their duties and exercise their powers in accordance with the law.
28 February 2011
HMRC write to me to say:
"a Notice under Section 8 Taxes Management Act 1970 to file a return is not an Information Notice under Para 1, Schedule 36, Finance Act 2008"
Therefore, my protective appeal can be withdrawn.
Furthermore, HMRC state:
"I can give you confirmation that we (HMRC) will not change that position without making a clear statement to that effect."
Therefore, I will not be required to make a protective appeal in future years.
Of course, that means, that one still needs to address the question as to whether or not the question needs to be answered so as to make a return complete. In the meantime, I am still of the view that the question need not be answered and will not answer it.
January 2011
I have been asked a number of times this month about any developments in this regard. I can confirm that something is happening behind the scenes concerning my appeal, but it is probably best to wait until things progress a little further before I say any more.
In the meantime, I am still of the view that the question need not be answered.
September 2010
Still heard nothing. So I unilaterally notify my appeal to the Tribunal. Perhaps that will get things moving.
June 2010
I get the call back but the person still does not understand. Because of the backlog of post, he agrees that I should fax him a copy of my appeal and says he will try to get it dealt with ahead of the queue.
June 2010
I thought I would give it 6 weeks. I then called my tax office which did not seem to understand the technical nature of my question. I ask to speak to a manager who is also baffled. However, he promises to get someone to call me back.
I also learn that it is possible that my appeal is sitting in a pile of post that is subject to a 2-month backlog.
May 2010
Appeal went in just within the 30-day period. To save time, I also ask for internal review. That means I should hear something within 30 days.
April 2010
The question has reappeared. I will appeal against it to protect myself.
September 2009
My return has now been submitted with the question explicitly unanswered. My white space declares the question ultra vires.
Update 14 May 2009 - we have a result!
Day 30. I have now received a response from the Appeals and Reviews Unit, which I reproduce below.
Thank you for your letter of 14 April which has been forwarded here.
I have to inform you however that the service companies question within the 2009 self asssessment tax return does not constitute a notice under Schedule 36 Finance Act 2008. This being the case, no right of appeal arises under paragraph 29 of Schedule 36 and section 49A TMA 1970 does not apply.
HMRC consider that the service companies question is intra vires Section 8 TMA 1970.
The normal time limit will apply for the submission of your return.
So, we are back to where we were last year. Assuming that HMRC will honour the contents of the letter they sent me in every other taxpayer's case (and it would seem most unreasonable if they didn't), we can be assured that non-completion of the service company question will not give rise to an automatic £300 penalty.
For the reasons set out in my article in Taxation, 18 September 2008, I remain firmly of the view that the question is not a lawful tax return question and need not be answered. Unless someone persuades me otherwise, I do not propose to answer it (and will state the fact on the return itself).
Should HMRC deem my return incomplete and seek to penalise me, I will be prepared to defend myself.
I will naturally keep everyone informed of developments. In the meantime, thank you to everyone who expressed their support. Common sense has prevailed and we didn't need to recruit Joanna Lumley.
Update 13 May 2009
Still no response from HMRC. But they do have until tomorrow. Or even longer if they consider it reasonable to take the extra time. However, one person has told me that his appeal letter had been received and "sent to a more experienced officer to review".
Update 3 May 2009
I have had considerable feedback since first announcing my appeal - on the whole it has been positive. The only questionable comment was from a former colleague (a senior HMRC official) who told me that he and his colleagues had had "a good laugh" when reading this blog. Perhaps, he was merely telling me that there are some people at HMRC who appreciate witty and well-written articles on tax practice.
I had omitted to tell readers what they ought to write if they were intending to appeal the purported information notice. So the following link to a copy of my own letter should help: http://www.taxationweb.co.uk/tax-news/personal-taxes/tax-barrister-appeals-against-service-company-question.html. Other possible objections to the question include the fact that (being in the form of a tax return question), if the boxes are left blank, it is impossible for HMRC to know whether the question has been answered in the negative or simply ignored. In my view this reinforces the arguments that the question is not a valid use of the new information powers.
Anyway, no official response from HMRC to my appeal. But 19 days is not that long in the circumstances.
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Early 2009
My sources confirmed that the service question that caused so much confusion last year would be repeated on individuals' 2009 returns. Fearing a backlog of work in April, I penned a draft letter of appeal which I filed away pending the issue of my 2009 return.
A bit later in 2009
After consulting my diary, I realised that my tax return might not get the prompt attention I would have hoped to give it. After all, it would ordinarily be issued on 6 April (a Monday this year) but I was going to be travelling on the Wednesday to spend the Easter Bank Holiday weekend with my in-laws and would then be travelling to Manchester to take a VAT case at the First-tier Tribunal there.
It would not be unheard of for the issue of the tax return to be delayed because of software difficulties, yet I wanted my appeal to be looked at without any delay.
8 April 2009
The sun was shining on me that morning and the postman delivered a brown envelope that would send shivers down the spines of most ordinary people. However, in between my packing and further preparations for the case in Manchester, I was able to revisit my draft appeal letter.
As many readers will be aware, I am firmly of the view that a tax return should be designed so as to include only questions that are statutorily permitted: in the main, this means the questions on the return should be directly relevant the calculation of an individual's tax liability for the year under review.
To put it another way, a return is not incomplete if no answer is provided to a question that does not go to the heart of establishing a person's tax liability for the year.
Or to put it a third way, HMRC do not have the right to ask additional questions merely on the grounds that it is administratively convenient (for them) for such questions to be addressed.
(Those readers who are familiar with the contents of the tax return might think of other questions that would fall within this category – for example, the questions that ask non-residents for the number of days that they spent in the UK or the question that asks for the number of one-off charitable donations in the year Whilst the latter question has some sort of justification (it ensures that an employee's PAYE code reflects only the employee's regular charitable giving), the former is designed merely to give HMRC fuel for any subsequent enquiry.)
This year, however, things are slightly different. Whilst the rules governing the content of a tax return are the same as in previous years, HMRC have new powers that came into force on 1 April 2009. In short, they permit HMRC to ask any taxpayer for any information "reasonably required by [HMRC] for the purpose of checking the taxpayer's tax position" (FA 2008, Schedule 36, para 1). To use old (i.e. pre-1 April 2009) terminology, Schedule 36 gives HMRC extended rights of enquiry, sometimes referred to as the 'Martini provisions': "any time, any place, anywhere".
Arguably, therefore, HMRC can justify asking me about the nature and sources of my income, although such requests must be reasonable. What is totally unclear, however, is whether an information notice under Schedule 36 can be embedded inside a tax return. Similarly, it strikes me as wholly unreasonable for every recipient of a personal return to have to address the issue.
Failure to respond to an information notice will give rise to a penalty of £300 (paragraph 39(1)(a), (2)), with daily penalties of up to £60 thereafter. In my mind, those penalties are a good enough reason to focus one's mind on the legality of the question. Furthermore, whilst it would be possible to raise some objections to the question at any penalty appeal hearing, the safer course of action would be to deal with the issue at an early stage, by appealing against the purported information notice itself under appeal provisions located in paragraph 29.
Such appeals must be made within 30 days of the purported information notice being given. Assuming that most tax returns would have arrived on 8 April 2009, this means that appeals ought to be made by 7 May 2009, although cautious taxpayers might aim for 5 May to be safe.
14 April 2009
Noting that my tax affairs are dealt with by a tax office in Manchester, I hand delivered my notice of appeal at the tax enquiry counter at Albert Bridge House, about 200 yards away from the tribunal which I was attending. I shall leave it to readers to decide whether or not that little distraction jeopardizes my claim for a deduction in respect of my travelling expenses on the grounds that I might have breached the "wholly and exclusively" test.
My appeal is a protective appeal on the basis that I do not believe that the question forms a valid request under Schedule 36. In fact, HMRC have not formally suggested that it is such a request. However, if they are to assert that the question is justified because of Schedule 36, then my letter stands as an appeal under the provisions of that Schedule.
Being a reasonable individual, I have not yet exercised my option to have the matter directed to the First-tier Tribunal. Instead, I have taken advantage of the new procedures that require an independent part of HMRC to review the case (sections 49A and 49B of the Taxes Management Act 1970).
The waiting period
The ball is now firmly in HMRC's court. Under section 49B(2) and (5), HMRC must set out and notify me of their view of the matter by 13 May 2009, or such longer period as is reasonable. The review must then be completed within 45 days of me being notified of HMRC's initial view (section 49E(6), (7)).
I will then have 30 days (should I so wish) to notify the First-tier Tribunal that I wish to have the matter determined by them (section 49G(2), (5)(a)). (If I apply to the Tribunal out of time, I might still be able to have the case heard but I would then have to ask the Tribunal's permission first. It is best not to go down that route if I can at all avoid it.)
When I hear any more, I shall let readers know.
Sharkey v Wernher - was Parliament misled?
28 February 2011
I was dissatisfied with the February response as it did not address the question (or deliberately side-stepped it). So, through my local MP, I made a further complaint in March 2010.
In June 2010, I received a letter from my MP advising me that my complaint had been dealt with. As I had not received anything from the Treasury, I enquired as to how the matter had been dealt with. It transpired that the alleged response to my March 2010 complaint was the February 2010 about which my March 2010 letter was complaining. I was getting the feeling that the Treasury were trying to avoid addressing the matter. So I pressed them further.
In October 2010, I received a letter via my MP from the Permanent Secretary at the Treasury. He claimed that if Parliament was given the wrong information, it was at least "not materially misled". Personally, I am not sure whether that was an admission that Parliament was misled to a lesser extent. However, once again, the justifications did not stack up when looked at with the facts. So I pressed again.
No response by 28 February 2011, despite a chaser letter earlier in the month.
5 February 2010
The Treasury has responded to me. They say that Parliament was not misled. However, they fail to explain why the Minister claimed (wrongly) that the rules had been requested by trade associations and the legal and accountancy professions. See http://www.publications.parliament.uk/pa/cm200708/cmpublic/finance/080520/am/80520s04.htm, column 311.
13 January 2010
A brief background: I am concerned that Parliament was misled during the committee stages of the Finance Act 2008 when the rule in Sharkey v Wernher was legislated.
Eventually, I made a formal complaint on 22 February 2009. That and a chaser in March were ignored. In April 2009, I asked the Treasury (under the Freedom of Information Act) how many other such complaints have been ignored. That request at least generated a response: I was told that my 22 February letter would be responded to "shortly".
Well today, I have been given an assurance that the response will be with me by 5 February 2010 - a mere 49 weeks after my complaint was made.
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