Appeals, disputes and investigations

Information notice varied by FTT

In a careful analysis of items requested in an information notice, the First-tier tribunal (FTT) found that some were not reasonably required to check the tax position, for example, as HMRC had not proved that they were statutory records in the foreign jurisdiction.

HMRC opened an enquiry as it wished to check the taxpayer’s income from property and directorships. An information notice was issued that referred to a number of companies, the taxpayer’s level of involvement with which was unclear. The taxpayer disputed every item requested in the notice.

The FTT partially upheld the information notice, after assessing each element. HMRC had failed to prove that bank statements and accounts for one Hong Kong registered company were statutory records, or that they were in the possession or power of the taxpayer, so they were removed from the notice. HMRC had not brought evidence about the company records laws in Hong Kong. One item, which requested information about a credit card, was not sufficiently clear so was not a valid request. HMRC could not explain why it wanted information about the taxpayer’s payments to this credit card, so could not prove that the information was reasonably required to check the taxpayer’s tax position. 

The FTT was critical of deficiencies in HMRC’s bundle. It also kept focused on the actual enquiry, rejecting nearly all requests for information for periods before the 2015/16 tax year, as that was the year for which the enquiry was open, so HMRC had to show that information was reasonably required for its actual period of enquiry.

Sangha v HMRC [2024] UKFTT 564 (TC)

From Tax Update July 2024, published by Evelyn Partners LLP

Penalties

Appeal dismissed on CGT penalty

A taxpayer who was a financial adviser and long term director has lost his appeal on a capital gains tax penalty, with the First-tier Tribunal (FTT) finding that he should have known he needed to take independent advice.

The taxpayers, a married couple, gave away some of their shares in a company in 2019 to other shareholders. This took their holdings below 5% each. Twenty days later, they disposed of their remaining holdings and claimed entrepreneurs’ relief (ER, now business asset disposal relief) on the disposals. It was agreed with HMRC on enquiry that these claims were invalid and they withdrew them.

HMRC then issued penalties of 15%, more than £16,000 each, for careless behaviour. It refused to suspend them, as the situation was unlikely to arise again so making the penalty conditional on it not happening again was not a suitable condition. The taxpayers contested the penalties, arguing that it was reasonable for them to have relied on professional advice provided to the company on ER entitlement. The advisers were only engaged by the company, not the taxpayers, but the taxpayers considered that it was always clear to the advisers that ER was a priority.

The FTT upheld the penalty. HMRC argued that as an experienced director the husband should have been aware that he could not rely on advice to the company and needed his own advice. The tribunal agreed that it was not reasonable to rely on advice to the company, and given the taxpayers’ attributes, being company directors and the husband a financial adviser, they had not behaved reasonably.

Cox v HMRC [2024] UKFTT 510 (TC)

From Tax Update July 2024, published by Evelyn Partners LLP