Taxman no longer limited to six-year look back
The taxman can go back beyond the six-year limit and even as far as he likes if he wants information to determine a company’s liability, lawyers say a tribunal ruling suggests.
Businesses are therefore being urged that, due to the ruling in favour of HM Revenue & Customs, they must be cautious about discarding documents, regardless of when they were drafted.
They should exercise that caution where the documents, whether or not they date back six years or more, have been handed to HMRC as part of an investigation that is yet to conclude.
This guidance from a host of legal advisories, such as Latimer Hinks, Oxley & Coward and Miller Hendry, comes too late for Whitefields Golf Club Ltd, the taxpayer who lost the case.
Following the club’s decision in 1999 to restructure its activities, the company was subject to a routine VAT inspection in 2003, and some documents were requested by the tax inspector.
The company obliged, in that by February 2004 the inspector had been handed everything he requested – minutes of Whitefields’ board meetings, its service agreements and leases.
But the company heard nothing back for years on end and, in effect, the investigation ground to a halt, largely because the inspector heading it left the Revenue to retire.
It was only following a further visit to the club in November 2010 that the newly named HM Revenue & Customs sought to pick up the VAT investigation, which resumed in July 2011.
In the meantime, the documents that Whitefields had initially supplied had been lost or destroyed by HMRC, prompting the new inspector to ask that a second batch be handed over.
Clearly unimpressed by what the tribunal called a “dilatory” taxman, the taxpayer declined, but the inspector issued them with formal notices under Schedule 36 of the Finance Act 2008.
This gives tax officers the power to obtain information and documents “reasonably required” to establish a person’s correct tax liability, where the document is in the person’s possession.
The taxman being slow to act didn’t make the documents any less required, nor did supplying them once only for them to be lost or destroyed by HMRC, the firm was effectively told.
In other words, in this case HMRC’s conduct – losing documents and sitting on an investigation for almost a decade – is not relevant to assess the “reasonably required” test.
In his ruling, First Tier Tribunal judge Kevin Poole explained: “HMRC… have quite clearly been dilatory in following up that information, as well as losing or destroying it.
“Whilst this might be a valid reason for some embarrassment on HMRC’s part, we do not consider it is sufficient reason to allow the appeal”.
Legal experts say that, problematically for Whitefields, the power of the FTT is relatively narrow so it cannot consider HMRC’s conduct unlike a judicial review, which can consider it.
But the ruling doesn’t just spell trouble for the golf club, according to Elizabeth Armstrong, partner in the private client department at Latimer Hinks Solicitors.
“This [judgement] is a challenge for both business and individual taxpayers, as it suggests that HMRC can go back as far as they want for information,” she warned.
“It will probably be a little while before we know how it will be interpreted … [so] it would be wise for businesses to remain cautious when discarding documents, regardless of how long ago they were drafted.”
Editor's Note: Further Reading -
8th September 2014