Tribunal allows taxpayer's appeal against information notice

In Sangha v HMRC [2024] UKFTT 00564 (TC), the First-tier Tribunal considered an appeal against an information notice and set aside or varied all of the items requested by HMRC, as they were not 'reasonably required' or in the taxpayer's 'possession or power'.

Background

HMRC issued an information notice to Mr Surat Singh Sangha, under paragraph 1, Schedule 36, Finance Act 2008 (FA 2008) (the Notice). The Notice concerned enquiries opened by HMRC under section 9A, Taxes Management Act 1970 (TMA), into Mr Sangha's tax returns for the years 2015/16 and 2016/17 and in particular his income from certain property and directorships. 

Mr Sangha requested a review of the Notice. The Notice was upheld on review but after some items were removed from it. Mr Sangha then appealed the Notice to the First-tier Tribunal (FTT). 

FTT decision

The FTT set aside some of the items requested in the Notice and varied the others.

The FTT held that:

• The Notice should be varied so that it only related to the 2015/16 and 2016/17 tax years as there was no evidence of HMRC having opened an enquiry into tax year 2018/19.
• The Notice was given with the approval of an authorised officer and therefore requests for documents originating more than six years before the date of the Notice was valid (paragraph 20, Schedule 36, FA 2008).
• The information and documents requested by the Notice in relation to Mr Sangha's tax position for tax year 2016/17 were not required to be limited to items relating to his income from property and directorships, as the wording of section 9A, TMA, is such that an enquiry extends to anything contained in a taxpayer's return, or anything required to be contained in their return.
• The extended time limit, under section 12B, TMA, that requires a person to preserve records until the completion of an open enquiry, did not apply because HMRC failed to demonstrate that any of the documents required by the Notice in relation to Mr Sangha's tax returns for 2015/16 or 2016/17, were statutory records. Specifically, HMRC had failed to discharge its burden of proof in respect of section 12B, which required it to have issued notices to file tax returns in order to trigger the requirement to preserve records until the completion of any enquiry.
• The burden was on HMRC to establish that the information and documents requested in the Notice were 'reasonably required' for the purpose of checking Mr Sangha's tax position. 
• An information notice only requires a person to produce a document if it is in that person's 'possession or power'. Power means both legal and de facto power to obtain documents or information.

The effect of the above analysis was that HMRC's request for:

• bank statements and accounts in relation to Evolution Drinks Hong Kong Ltd (Evolution) was set aside because HMRC had failed to establish a prima facie case that such information was in Mr Sangha's 'possession or power'.  
• a copy of Mr Sangha's Chase bank account statements was varied to limit the request to the years under enquiry. 
• details of other overseas bank accounts was varied on the basis that, while the information was reasonably required, the request should be limited to the years under enquiry and limited to the accounts which Mr Sangha had the power to operate. 
• information in relation to Mr Sangha's investment in Yagna Ltd was varied in order to limit it to the years under enquiry. 
• information in relation to Mr Sangha's disposal of shares in Asiana Ltd (Asiana) was set aside because HMRC had failed to establish that the information requested was reasonably required to check Mr Sangha's tax position for the years under enquiry. 
• information in relation to Mr Sangha's role in Octavian Securities Inc was varied on the basis that it was too vague. 
• information in relation to Mr Sangha's income from Asiana was varied on the basis that the original request incorrectly requested information relating to Mr Sangha's wife. The Notice could not require Mr Sangha to disclose information relating to the tax position of a third party. However, as the account was a joint account, HMRC could enquire about the account in order to clarify Mr Sangha's tax position.
• information in relation to Mr Sangha's Nat West credit card was set aside on the basis that HMRC had failed to demonstrate that the information was reasonably required to check Mr Sangha's tax position for the years under enquiry.

Comment 

This decision provides a helpful indication of the analysis that the FTT is likely to adopt when examining the appropriateness of information requested by HMRC in a formal information notice. 

The decision also highlights the importance of carefully considering the information requested by HMRC, in order to ensure that it is entitled to request the information and, in particular, whether the information which has been requested is 'reasonably required' in order to check the taxpayer's position. The FTT concluded in this case that many of the items requested by HMRC were not reasonably required. 

The decision can be viewed here.