Taxpayer successfully appeals information notices as information requested not reasonably required
In Yerou and another v HMRC [2022] UKFTT 79 (TC), the First-tier Tribunal (FTT) allowed an appeal against information notices as the information requested was not reasonably required.
Background
Jack George Yerou (JY) and Panayiota Yerou (PY) (collectively, the Appellants) were the sole director and company secretary, respectively, of Ascot Sinclair Associates Ltd (the Company). The Appellants were also shareholders in the Company.
In 2012, 100 B shares in the Company were transferred to JY's father (GY). GY was resident in Cyprus. Between 2013 and 2016, the Company paid various dividends to JY, PY and GY. HMRC opened enquiries into JY and PY's tax returns and later issued two information notices to JY under paragraph 1, Schedule 36, Finance Act 2008 (the information notices). The relevant requests were for a schedule of UK and overseas bank accounts, UK building society accounts and the corresponding bank statements for accounts in JY's name or in the names of his minor children.
The Appellants' advisor informed HMRC that the majority of the dividends paid to GY had been made available to JY and PY by way of loans or as a payment towards their children's' school fees.
The information notices were appealed on the grounds that the information sought by HMRC was not reasonably required and/or the statutory conditions for their issue were not met. JY also appealed on the basis that the information notice requested documents which were more than six years old.
By the time the appeal against the information notices was heard, HMRC had also issued discovery assessments to the Appellants for tax years 2013/14 to 2016/17, inclusive, which were also appealed.
HMRC was of the view that the Appellants were liable to tax under the transfer of assets abroad legislation (section 721, Income Tax Act 2007), or either directly as beneficial owners of the 100 B shares, or indirectly under the settlements legislation (Chapter 5, Part 5 Income Tax (Trading and Other Income) Act 2005).
The Appellants position was that they had provided sufficient evidence for HMRC to determine any tax liability arising from the dividends paid by the Company and the requests for bank statements were unreasonable as HMRC had already reached final conclusions.
FTT decision
The appeal was allowed.
The FTT was of the view that the information requested by HMRC was not reasonably required in order to check the Appellants' tax position or their explanations as to what they considered to be their tax position.
The FTT interpreted the word 'reasonably' in the context of proportionality and the overriding objective (referred to in Rule 2 of the FTT Rules).
Comment
HMRC had argued that the information requested was needed in order to prove that the Appellants did not beneficially own the shares nor use the dividends. In allowing the appeal, the FTT said that as the discovery assessments were under appeal, no useful purpose would be achieved by ordering compliance with the information notices.
The FTT's conclusion that the information requested by HMRC was not reasonably required is to be welcomed. It is difficult to see how information requested of a taxpayer can be reasonably required in order to check the taxpayer's position when HMRC has formed a clear view of the taxpayer's liability and issued a discovery assessment setting out that conclusion. Taxpayers in a similar position to the Appellants who receive an information notice from HMRC should consider appealing the notice to the FTT on the ground that the information requested is not reasonably required in order to check the taxpayer's position, even if the information requested is ostensibly relevant to the substantive issues in dispute.
The decision can be viewed here.