[2010] UKFTT 502 (TC)

TC00757

Appeal number: TC/2010/03089

Appeal brought under Section 20(8B) of the Taxes Management Act 1970 against a Section 20(8A) Taxes Management Act 1970 notice - whether the notice was onerous and should be confirmed, varied or cancelled

FIRST-TIER TRIBUNAL

TAX 

	RINCHAM LIMITED	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

		TRIBUNAL: 	MRS.S.M.G.RADFORD (TRIBUNAL JUDGE)						MS.S.C.O’NEILL			

Sitting in public at Holborn Bars, London EC1N 2NQ on 7 and 8 September 2010

Leolin Price CBE QC for the Appellant

Dennis Dixon Solicitor to HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.	This is an appeal brought under Section 20(8B) of the Taxes Management Act 1970 (“TMA”) by the Appellant in respect of an information notice given under Section 20(8A) of the TMA on 20 February 2009.
Background and Facts
2.	On 19 February 2009 Dr Avery Jones, then a Special Commissioner, gave his consent to the issuing of a notice under Section 20(8A) (“the Notice”) by Dr N.P. Branigan.  It requested:

1. All policies or contracts, whether described as capital redemption policies or contracts, Endowment Trust Instruments, Growth Instruments or Deferred Annuity Certain Contracts, issued by the company to any person whether for cash, other consideration or no consideration, in the period 6 April 1998 to the date of this Notice inclusive.

 2. Any document that gives the name and address of any person that subscribed for any policy or held any contract (as defined in 1 above) in the period stated in 1 above. For this purpose, “any document” includes letters, including any attachments, contracts, deeds, agreements, notes of meetings, notes of telephone conversations, memoranda, faxes, telexes, emails, computer records, marketing material, planning and proposal documents. Computer records are those described by S127 Finance Act 1988. Where more than one such document exists in respect of any person, I only require you to deliver or make available with one document that contains the most recent address of the holder of the policy or contract. If the most recent address known to the company is that shown on the contract or policy specified in 1 above, then it is not necessary to provide any further documents in respect of that person.

3.	Before issuing the Notice on 20 February 2009 Dr Branigan had previously by letter dated 6 June 2008 informed the Appellant that consideration was being given to obtaining a Special Commissioner’s consent to issuing a Section 20(8A) notice requesting the Appellant within 45 days to deliver or make available to him documents as set out in the schedule to that letter and by letter dated 4 September 2008 he told the Appellant that, in the absence of a response within a further 14 days, he would commence the process for seeking the consent of a Special Commissioner for the issue of a notice. The documents set out in the schedules of the letters were those which were eventually requested by the Notice.
4. The Notice was sought in relation to policies and contracts from 1998 onwards because it was believed by Dr Branigan that this was the year in which capital redemption policies were first marketed by the Appellant. 
5.  Dr Branigan’s letter of 4 September 2008 asked for “any written representations that [you] would wish me to present to the Commissioners on the Appellant’s behalf”. In response the Appellant’s written representations against consent being given were provided in its letter of 23 September 2008.
6.   0n 18 March 2009 the Appellant objected to the Notice on various grounds. This was rejected by Dr Branigan and the Appellant requested a review of this decision and stated that it would prepare papers for the review.
7. The Appellant’s objection under Section 20(8B) was referred to a reviewing inspector, Mr Jacobs, who wrote to the Appellant on 3 March 2010 asking the Appellant to send him the papers to which reference was made in the request for a review. 
8. The Appellant responded with a letter in the form of a memorandum dated 8 March 2010.
9. Mr Jacobs rejected the objection on 15 March 2010. In rejecting the objection to the Notice Mr Jacobs stated in his letter that his reasons for doing so were:
•	The Commissioner considered the representations made by the Appellant in its letter of 23 September 2008 before giving consent to the issuing of the Notice.
•	The Appellant’s objection under Section 20(8B) was on the grounds that complying with the Notice would be onerous. Mr Jacobs was reviewing the decision of Dr Branigan that it would not be unduly onerous for the Appellant to comply with the Notice so he could not consider the points made in the Appellant’s notice of objection concerning the extension of the period of the Notice from 6 June 2008, which was the date of Dr Branigan’s original request, to 20 February 2009 the date the Notice was issued or the points the Appellant made concerning Section 20B(5) of the TMA.
•	According to the annual accounts for the period ended 31 March 2009 the Appellant’s principal activities were “to purchase or otherwise acquire, hold and deal in any insurance policies or annuity contract…” and “to carry on capital redemption business”. Mr Jacobs did not believe that it would be unduly onerous for a company involved in that type of business to identify the particular types of contract specified in the Notice and to identify the names and addresses of the subscribers for those contracts. Once the name and address of the subscriber was identified Mr Jacobs did not see how identifying documents giving that name and address would be onerous.
•	He noted that the Appellant had no direct employees and paid its directors fees of £400,000 in 2008 and 2009. He expected that the staff that the Appellant used to carry on its normal activities would be able to identify the particular types of policy specified in the Notice and to identify the subscribers to those policies.
•	Neither the Appellant’s letter of objection dated 18 March 2009 nor the letter to him dated 8 March 2010 had set out any particular circumstances why the Appellant would find complying with the Notice more onerous than any other company in the same sort of business.
10. On 25 March 2010 the Appellant appealed against the Notice.
11.  As can be seen in the section below where the legislation is set out, under the former section 20 of the TMA there were four types of information notice:
-	Section 20(1) – an ordinary first party notice, which would be issued to taxpayers in respect of their own tax affairs;
-	Section 20(2) – a Board’s notice, which would be issued to taxpayers in respect of their own tax affairs;
-	Section 20(3) - an ordinary third party notice, which would be issued to persons in respect of another’s tax affairs;
-	Section 20(8A) – a ‘without names’ third party notice, which would be issued to persons in respect of another’s tax affairs where the identity of that third party was unknown to HMRC.

12. There were five requirements for issuing a notice under section 20(8A):
i)	Identity of the taxpayer or class of taxpayers is unknown;
ii)	Reasonable grounds that the taxpayer or any of the class have or may fail to comply with the Taxes Acts;
iii)	Probability of serious prejudice to the assessment or collection of tax;
iv)	Information not readily available from other sources; and
v)	The Tribunal was “satisfied in all the circumstances” that the notice is justified.

13. The only right of appeal against a Section 20 notice was under Section 20(8B).  This applied only to notices issued under Section 20(8A).
14. This is the first appeal under Section 20(8B) and it appears that the question of onerousness under this provision or an equivalent provision under the new regime of Schedule 36 of the Finance Act 2008 issue has not previously been considered by the Tribunal.
The Legislation
15. The relevant legislation is the former section 20 information powers regime under the TMA. 
16. Section 20(1) –
“Subject to this section, an inspector may by notice in writing require a person –
(a)  to deliver to him such documents as are in the person’s possession or power and as (in the    Inspector’s reasonable opinion) contain, or may contain, information relevant to –
(i)	any tax liability to which that person is or may be subject or
(ii)	the amount of any such liability or
(b) to furnish to a named officer of the Board such particulars [as therein mentioned].
17.  Section 20(3)
Subject to this section, an inspector may, for the purpose of enquiring into the tax liability of any person (“he taxpayer”) by notice in writing require any other person [e.g. the Appellant] to deliver to the inspector or … to make available for inspection by a named officer of the Board such documents as are in his possession or power and as (in the inspector’s reasonable opinion) contain, or may contain, information relevant to any tax liability to which the taxpayer is or may be, or may have been, subject, or to the amount of any such liability …”.
18.  Section 20(7)
	Notices under subsection (1) or (3) above are not to be given … 
             (a)	… except with the consent of a General or Special Commissioner; and
(b) the Commissioner is to give his consent only if satisfied that in all the circumstances the   inspector is justified in proceeding under this section”.
19.  Section 20(8)
Subject to subsection (8A) below a notice under subsection (3) above shall name the taxpayer   with whose liability the inspector … is concerned”.
20. Section 20(8A)
If, on an application made by an inspector and authorised by order of the Board, a Special    Commissioner gives his consent, the inspector may give such a notice as is mentioned in subsection (3) above but without naming the taxpayer to whom the notice relates, but such consent shall not be given unless the Special Commissioner is satisfied --
(a) that the notice relates to a taxpayer whose identity is not known to the inspector or to a class of taxpayers whose individual identities are not so known;
(b) that there are reasonable grounds for believing that the taxpayer or any of the taxpayers to    whom the notice relates may have failed or may fail to comply with any provision of the Taxes Act;
(c) that any such failure is likely to have led to serious prejudice to the proper assessment or collection of tax; and
(d)	(d) that the information which is likely to be contained in the documents to which the notice relates is not readily available from any other source”.
                                   21.  Section 20(8B)
 A person to whom there is given a notice under subsection (8A) above may, by notice in writing given to the inspector … object to the notice on the ground that it would be onerous to comply with it; and if the matter is not resolved by agreement, it shall be referred to the Special Commissioners who may confirm, vary or cancel that notice”.
22.  Section 20B 
(1) Before a notice is given under section 20(1) or (3) or (8A) the person must have been given a reasonable opportunity to deliver (or in the case of section 20(3) to deliver or make available) the documents in question; and the inspector must not apply for consent under section 20(7) or (8A) … until the person has been given that opportunity”.
              (5) A notice under section 20(3) does not oblige a person to deliver or make available any document the whole of which originates more than 6 years before the date of the notice.
(6)  But subsection (5) does not apply where the notice is expressed to exclude the restrictions of that subsection and it can only be so expressed where -
(a)  the notice being given by the inspector with consent under section20(7),             
the tribunal has also given approval to the exclusion

The Appellant’s Submissions

23. The Appellant submitted that without any relevant tax liability of its own in issue, to have imposed on it such burden and trouble is not reasonable; is obviously “onerous” within the meaning of that word in section 20(8B); and cannot have been within the intention of Parliament as expressed in the relevant statutory provisions.
24. The Appellant submitted that the exercise of complying with the Notice would involve examining and considering files, records and papers covering a period beginning as long ago as 6 April 1998; and deciding whether they contained or included any “… policies or contracts … issued by the Appellant to any person, whether for cash, other consideration or no consideration, in the period 6 April 1998 to February 2009”. That would call for a time-consuming review of files, records and papers during a period of nearly 11 years. The utilisation of staff used by the Appellant or the employment of temporary staff or advisers to conduct that search and identify such documents is not only “onerous” within that word’s meaning in the context of Section 20(8B) but is also manifestly oppressive and potentially a massively onerous diversion of man hours away from the conduct of the Appellant’s business. Even if it turned out not to be “massively onerous”, compliance with the requirement that the Appellant conducts such an investigation extending over such a long period would be unavoidably “onerous”. The Appellant and any advisers would be doing this work for HMRC and not for the benefit of the Appellant. It would be work in connection with what might be the tax liabilities of other taxpayers and not work in connection with any tax liability of the Appellant.
25. The Appellant submitted that as the examination of all these things to see if they disclosed a relevant name and address was to extend over nearly 11 years past, it could not be certain that everyone engaged in the investigation would know how to examine computerised records. The Appellant further submitted that the range of documents falling within the definition of “any document” was such that in order to comply, the Appellant of necessity would be forced to examine all its paperwork and records and decide whether particular documents disclosed a relevant “name and address”. That this exercise would be “onerous” was obvious. It was potentially a difficult and expensive exercise.
26. The Appellant contended that a notice given under Section 20(3), and that included a notice so given with a Special Commissioner’s consent under Section 20(8A), could only require the delivery or making available for inspection of documents and did not include, as might a Section 20(1) notice, the furnishing of information or particulars. The Appellant’s obligation extended only to documents and not to the furnishing of particulars of transactions.
27. The Appellant contended that that the wording of Part 1 of the Notice:
“All policies or contracts, whether described as capital redemption policies or contracts, Endowment Trust Instruments, Growth Instruments or Deferred Annuity Certain Contracts”,
restricted the “policies or contracts” to those so described so that persons conducting the required investigation would need support and advice to help them recognise a “policy” or “contract” as falling within any of those categories.
28. The following words in Part 1 of the Notice “issued by the Appellant to any person, whether for cash, other consideration or no consideration …” were also calculated to raise questions as to whether a particular policy or contract was in the Appellant’s “possession or power”. Did the Appellant have to decide and seek legal advice on whether a particular document which has been “issued” was in its “power”? Did this involve deciding whether, in order to comply with the Notice, the Appellant had power to recall a policy or contractual document after it had been issued? What was required by Part 1 of the Notice was potentially difficult and compliance with it a serious and potentially expensive burden. The Appellant objected to the Part 1 requirement as onerous and indeed unreasonably onerous.
29. The Appellant argued that Part 2 of the Notice was even more onerous. In addition to looking for policies and contracts falling within the Part 1 requirement the Appellant was required to recognise (and make available for delivery or inspection) –
“Any document that gives the name and address of any person that subscribed for any policy or held any contract (as defined in 1 above) in the period stated in 1 above that is in the period 6 April 1998 to the date of this notice (19 or 20 February 2009)”.
The range of documents referred to in Part 2 of the Notice was indicated by definition: “For this purpose “any document” includes letters, including any attachments, contracts, deeds, agreements, notes of meetings, notes of telephone conversations, memoranda, faxes, telexes, e-mails, computer records, marketing material, planning and proposal documents …”.
30.  The Appellant was also concerned that if in compliance with the Notice it were to disclose to the Revenue documents which it was not bound, or was arguably not bound, to deliver or make available to Dr Branigan, the Appellant might face claims for damages from the holder of a relevant policy or contract who had properly complied with his or her or its tax obligations but had been put to trouble and expense, including the cost of legal advice, in dealing with an HMRC investigation triggered by the delivery or making available of  documents which it was not, or arguably was not, bound to deliver or make available. The Appellant could not be expected to comply with the Notice without taking advice about this; and faces a burden of trouble and expense which would not be incidental to or connected with any tax liability of the Appellant. There has been no helpful guidance about this from Dr Branigan and that is still the position. The point must surely have arisen in connection with other notices and Section 20(3) or Section 20(8A) and it was unfair that the Appellant had felt bound to incur expense in obtaining expert advice about this risk. The advice to the Appellant was that there was a risk that the holder of a policy or contract falling within paragraph 1 of the Notice could make, and might make, such a claim. This was an additional burden making the Notice “onerous”.
31. The Appellant contended that parallel with that risk was that the Appellant might face penalties or prosecution for failing to comply with the Notice. That risk added to the burden of complying with the Notice and made compliance additionally “onerous”.
32.  In his letter of 16 February 2010 Dr Branigan referred to the 18 March 2009 Appellant’s Notice of Objection to the Notice which was issued by him on 20 February 2009 stating that in his opinion compliance with the Notice would not be “unduly onerous”. The Appellant observed that the phrase “unduly onerous” did not appear in Section 20(8B) or in the Appellant’s Notice of Objection or in the Appellant’s representations letter of 23 September 2008 and that by using the phrase “unduly onerous” Dr Branigan appeared to have been improperly adopting a test or standard which differed from the unqualified statutory word “onerous”. It might be accepted that the unqualified word “onerous” carried a reference to something more than “burden” or “legal obligation” which was the dictionary description. The Appellant did not accept that his rejection of its objection on the ground that what the Notice required was not “unduly onerous” was authorised by Section 20(8B).
33. In Dr Branigan’s letter of 16 February 2010 the only reason stated for rejecting the Appellant’s objection was that “The documents should have been readily available”.
34. The Appellant had previously explained in its Notice of Objection dated 18 March 2009 what would be involved for the Appellant in the long investigation and review of the Appellant’s files, records and papers as from 6 April 1998 when attempting to comply with the Notice. Saying that the documents “should have been” available without such a long investigation is not saying that “of course they were” or “must be” so available. Dr Branigan did not refer to and did not have before him any material upon which he could reasonably reject or be understood to have reasonably rejected, the Appellant’s explanation about the extent and the burden of the work which compliance with the Section 20(8A) Notice would involve. Dr Branigan’s phrase “readily available” did not imply any rejection of the Appellant’s explanation that there would have to be such a long investigation and review. “Ready availability” in the course of such a long investigation and review does not imply that this investigation and review would not be “onerous”. The question whether it is “unduly onerous” does not arise under Section 20(8B).
35. The Appellant had responded to the letter of 3 March 2010 from Mr Jacobs, the reviewing inspector, which informed the Appellant that he would be reviewing Dr Branigan’s decision to reject its objection and which requested the papers which the Appellant had stated it would prepare for the review, with its solicitors’ memorandum of 8 March 2010. This drew Mr Jacobs’s attention to the brief sentence in Dr Branigan’s letter of 16 February 2010 rejecting the Appellant’s objection on the grounds that “The documents should have been readily available”. The memorandum stated that the Appellant had explained what would be involved in looking for and identifying “documents” required by the Section 20(8A) Notice. There had been no indication that Dr Branigan had before him any evidence contradicting what had been said in the Appellant’s Notice of Objection about the employment of the Appellant’s staff to conduct the search for and to identify the “required” documents and the extent and difficulties of that work. The memorandum further contended that Dr Branigan had dismissed all that had been stated and carefully explained in the Appellant’s Notice of Objection and previous documents, without bothering to deal with the material so provided by the Appellant about the extent and difficulty of the exercise required. The Appellant contended that dismissing the Appellant’s reasoned and careful objection on the speculative ground set out in the brief sentence already referred to above was an error.
36. The Appellant submitted that for purposes of the review, Mr Jacobs, who was in the same position as Dr Branigan, had no material before him upon which to reject the Appellant’s view of the task involved and its extent and effect on the Appellant and the conduct of its business.
37. The Appellant’s solicitors had therefore advised the Appellant that there was no point in incurring expense in seeking evidence from an adviser or expert to support the Appellant’s own assessment of the extent of the burden of complying with the Section 20(8A) Notice and that there were therefore no additional materials which, on behalf of the Appellant, its solicitors considered necessary to provide in response to Mr Jacobs’s letter of 3 March 2010.
38. The Appellant disputed the assertion in Dr Branigan’s letter of 20 February 2009 that the six year time limit in Section 20B(5) “does not apply to a notice under Section 20(8A)”. That assertion also appeared in paragraph 2 of the Notice as served. The Appellant disputed the assertion on the grounds that:
•	Section 20(8A) provides for the giving of “such a notice as is mentioned in Section 20(3).
•	The Notice so given is a Section 20(3) notice but does not have to comply with Section 20(8).
•	That it is a Section 20(3) notice is made clear in Section 20(8) which begins:
“(8)	Subject to subsection (8A) below, a notice under subsection (3) above shall …”
•	Section 20B(5), in saying that a Section 20(3) notice does not oblige a person to deliver or make available “any document the whole of which originates more than 6 years before the date of the notice”, therefore applies or naturally and rationally applies to that category of Section 20(3) notice which is provided for in Section 20(8A). There is no apparent reason for excluding from Section 20B(5) a Section 20(3) notice which, in accordance with Section 20(8A), does not name the “taxpayer”.
•	The disputed assertion may perhaps be referable to an interpretation of the opening words of Section 20B(1) as if a Section 20(8A) notice is not a Section 20(3) notice. But that interpretation cannot override what is made clear in Section 20 namely that a notice under Section 20(8A) is a notice under Section 20(3).
•	The disputed assertion therefore adds, and adds unreasonably, to the burden of dealing with the Notice. The Appellant contended that it was not obliged to look for any document which originated before the beginning of the six year period. Dr Branigan for HMRC and the Notice mistakenly asserted that it must.
39. The Appellant continued that in this connection its attention had been drawn to the interpretation of Section 20B(5) by Special Commissioner Dr Avery Jones in a different case decided on 4 April 2006, SpC533 A Tax Haven Company v Revenue & Customs Commissioners, also reported at Simon’s Tax Cases [2006] STC (SCD) 31. He was the Special Commissioner who, on 19 February 2009, consented to the Notice now under objection. Dr Avery Jones’s interpretation provided a measure of support for Dr Branigan’s assertion but that decision did not create a binding precedent. The Appellant adhered to the analysis above and submitted that the Special Commissioner’s interpretation of Section 20B(5) was not correct or at least was arguably incorrect.
40. If a policy-holder or contract-holder claimed that what is delivered or made available by the Appellant in purported compliance with the Notice was not lawfully so required and compliance has caused him damage, trouble and expense that policy-holder or contract-holder would be free to contend that Special Commissioner Avery Jones had misinterpreted Section 20B(5). The Appellant noted that whilst Section 20B was amended in places where a notice under Section 20(8A) was referred to as if it was not a notice under Section 20(3), Section 20B(5) was left as it had been since 1976. It seemed therefore that the Notice, by requiring the Appellant to deliver or make available documents originating more than 6 years before 19/20 February 2009, left the Appellant at risk of a claim which could, as in the Appellant’s submission it should, cause Section 20B(5) to be interpreted in court as applying to a Section 20(8A) notice on the simple footing that a Section 20(8A) notice is, as Section 20(8A) states, a notice given under Section 20(3). The Appellant submitted that that risk added to the burden of what was “required” by the Notice making it additionally onerous and “onerous” within the meaning of Section 20(8B).
41. The Appellant submitted that whether or not Mr Jacobs’s functions were restricted as his letter suggested, the Tribunal in dealing with this appeal was not so restricted. It was part of the burden imposed by the Notice that in attempting to comply with it the Appellant and its staff and advisers would be at risk of an extensive search for and disclosure of “documents” over a period longer than the relevant statutory provisions allowed. They would have to decide what disclosure was properly required and what, if the requirement was excessive, would be the effect on any contractual duty and liability of the Appellant in particular to any client not involved in the investigation.
42. Further in relation to Mr Jacobs’s letter the Appellant also noted that the reviewing inspector referred to the description of the Appellant’s business in its annual accounts for the period ended 31 March 2009 and then proceeded to formulate a reason against the appeal to him on the basis of what he believed or did not believe.
43. The Appellant contended that any documents within the description “All policies or contracts … issued by the company” as in part 1 of the Notice and precursor letter were not obviously in the possession or power of the issuer once issued unless and until they subsequently came into the Appellant’s possession or power. A copy might have been retained but the original document had gone into the possession or power of the person to whom it has been issued. The wording of the notice demanded policies and documents not copies and the Appellant did not have the originals. Disclosure of the issued document was not therefore within what could be required of the issuer. Mr Jacobs’s “belief” or “non-belief” had not apparently either taken this into consideration or considered the scale and difficulty of the search for what was to be disclosed under Part 2 of the Notice. The Appellant contended that its objections, incorporated representations and its memorandum should not to be overridden by reference to what the reviewing inspector believed or did not believe. This reason could not properly override the Appellant’s view of the extent, trouble and burden for the Appellant in complying with the Notice.
44. Part 1 of the schedule to Dr Branigan’s letter of 6 June 2008 letter specified documents issued in the period 6 April 1998 to the date of that letter, a period of nearly 10 years; in Part 1 of the schedule to Dr Branigan’s letter of 4 September 2008 letter the period was stated as 6 April 1998 to the date of that letter, a period of more than 10 years; in Part 1 of the Notice this period has become 6 April 1998 to the date of that Notice, a still longer period. The Appellant submitted that the Notice was therefore given without compliance with Section 20B(1). The period specified in the Notice was, by more than five months, longer than that stated in Mr Branigan’s precursor letter of 4 September 2008 and over eight months longer than that stated in the 6 June 2008 letter. Further, the Appellant submitted that for documents issued in any extension of the period stated in the precursor letter’s schedule there had not been compliance with Section 20B(1) TMA 1970. The Notice was therefore unauthorised and unlawful.

HMRC’s Submissions
45. HMRC submitted that the appeal related to the onerousness of the Notice on the Appellant and nothing else. There were five requirements for issuing a notice under Section 20 (8A) and these requirements were not subject to the appeal. Whether the requirements were satisfied was a matter for the approved officer of HMRC who issued the notice and the judge or judges who consented to it. The presumption of regularity applied as stated by Lord Lowry in R v IRC ex parte Coombs & Co [1991] STC97 :
	“The case for the validity of the second notice or any section 20(3) notice is supported by the presumption of regularity, which is strong in relation to the function of the commissioner under section 20(7). He is an independent person entrusted by Parliament with the duty of supervising the exercise of the intrusive power conferred by section 20(3) and "in the absence of any proof the contrary" credit ought to be given to public officers, who have acted prima facie within the limits of their authority, for having done so with honesty and discretion: Earl of Derby v Bury Improvement Commissioners (1869) LR 4 Exch 222, 226. The commissioner must be taken to be satisfied that the inspector was justified in proceeding under section 20 and hence that the inspector held, and reasonably held, the opinion required by section 20(3). The presumption that that opinion was reasonable and that the commissioner was right to be satisfied can be displaced only by evidence showing that at the time of giving the second notice the inspector could not reasonably have held that opinion. In order to decide whether the applicants succeed in this task, the court must consider all the evidence on both sides and all the available facts, one of which is that the commissioner, having heard an application, consented to the giving of the notice."

46. HMRC submitted that the Appellant is a company whose business is described by it in the 2005 audited accounts as follows: “The company is empowered to effect and carry out capital redemption contracts in the course of capital redemption business and as incidental to acquire by purchase or subscription life assurance policies, life annuity contracts and capital redemption policies issued by third parties.”

47. The request by HMRC was for the Appellant to produce the policies and contracts it had issued and the latest name and address for its clients.  It presumably had ready access to the policies and contracts it issued and it presumably had a record of the name and address of its clients.  The name and address would be recorded on a document (paper or computer record) and Part 2 of the Notice required only the latest record.

48. If the Appellant’s records were in total disarray, then it should describe how they were in disarray. HMRC noted that systematic record keeping of old documents would appear to be inherent in the Appellant’s line of business.

49. Although the Appellant had taken objection to the lengthy definition of “document” were there no such definition then doubtless objection would be taken to the word being ambiguous. The definition served to underline that “any document” meant precisely that.

50. Objection had been taken to the definition of “policies or contracts”.  HMRC submitted that were there no such definition, then doubtless objection would be taken to the words being ambiguous.  Whilst a notice might become onerous due to vagueness, the wording of this notice was primarily addressed to the stated business activity of the Appellant with an elaboration for the avoidance of doubt.  

51. HMRC submitted that it was accepted by Judge Ockleton (sitting as a Deputy High Court Judge in R (Parisses and others) v Grinyer [2009] EWHC 3734 (Admin) at paragraph 33 that:

“HMRC are entitled to write for sensible readers”

52. HMRC contended that the Tribunal should not accept arguments that seek to discover difficulty where the sense is plain to any sensible reader.  The Appellant objects to the words such as “issue”, “policy”, “contract”, “power” and “possession” when they are used on their own; but the Appellant also objects to “any document” when it is defined.  HMRC contended that no sensible reader could be in the least bit confused.

53. HMRC submitted that the Appellant had administrative staff capable of identifying policies and contracts issued by it.  Such staff must be capable of identifying and copying a number of policies per day without undue disruption to their ordinary duties.  The same applied to identifying the latest known addresses of those who were its clients.  It should be possible for the Appellant to suggest a time-scale for such a process that would allow for all policies or contracts required by the Notice to be copied and the latest known address identified.  If there were a large number of policies and a small relevant administrative staff then longer might be required to prevent an onerous burden.

54. HMRC drew the Tribunal’s attention to the directors’ report for the years 2008, 2009 and 2010.  This underlined that the business of the Appellant was in policies of long duration, often 80 years.  Presumably therefore the Appellant’s record keeping was adequate to the task of locating policies or contracts that it had issued in past years and contacting clients who had subscribed to them.

55. It had been argued by the Appellant that if it complied with the Notice it might face claims from its clients. The claim was that the Appellant could not obey a notice approved by the Tribunal because if the notice proved to be wrongly given, then the Appellant could be at risk for damages.  HMRC did not understand how a person might face legal liability for compliance with a court authorised information notice nor did it understand how a party could be absolved of its duty to obey such a notice through such a legal paradox.  If the Appellant’s quarrel was with the validity of the notice then it should have challenged the validity of the Notice. 

56. The Appellant argued that the Special Commissioner had no jurisdiction to consent to a notice requiring documents going back more than six years. The argument was that onerousness results from facing a notice some of whose requirements may be invalid. If this was accepted, the remedy would be to vary the notice so that it only dealt with documents from within the six year limit.  HMRC believe however that this argument should be rejected.

57.  They contended that as a matter of law, the reasoning set out in the decision A Tax Haven Company [2006] SPC 533 and 537, paragraph 11, by Special Commissioner Avery Jones was correct:

“The Revenue very properly drew my attention to an argument (with which they do not agree) that a subs (8A) notice cannot require documents more than 6 years old. Their principal argument against such an interpretation is that when s 20(8A) was inserted by the Finance Act 1988 a number of consequential amendments were made to the restrictions in s 20B, adding a reference to subs (8A) to references to subs (3) in s 20B(1), (2), (4), (8), and (9) (but not to those in subs (1A), (1B), (3), (5), (7)), thus leaving the 6-year restriction in s 20B(5) to refer only to s 20(3) and not to s 20(8A), implying that where only s 20(3) is mentioned a restriction is not intended to apply to s 20(8A). This, they argue, is logical because the 6 year limit can be set aside by s 20B(6) if there are reasonable grounds for believing that there is fraud, and subs (8A) is comparable in requiring serious prejudice to the proper assessment or collection of tax. They also contend that (if s 20B(5) did apply) it would be difficult to be satisfied in accordance with s 20B(6) that tax has or may have been lost owing to the fraud of unknown taxpayers. If they are wrong so far, they contend that there are reasonable grounds for believing that tax has, or may have been lost, through the fraud of members of the class, although they accept that it may be argued that there is avoidance rather than evasion. I prefer the argument on interpretation that where s 20B(5) refers to s 20(3) it means that section alone and not that section as extended by s 20(8A) to unnamed taxpayers. The conditions for subs (8A) to apply are serious, including that the failure is likely to have led to serious prejudice to the proper assessment or collection of tax, and so it is likely that Parliament did not intend to restrict its operation to 6 years…”

58. This decision accepted that on its construction the six year limit under Section 20B(5) simply did not apply to section 20(8A) notices and the Tribunal should give due weight to the reasoned decision of Judge Avery Jones on this point.  Whilst not binding authority, it is highly persuasive.  HMRC contended that the focus of an onerousness appeal should be on the effect of the notice on the recipient and that the Tribunal should be slow to allow such a challenge to become a collateral attack on the Tribunal’s jurisprudence.

59. Section 20B(1) required that the recipient of a notice be given a reasonable opportunity to provide the documents requested without a notice.  The Appellant had received requests on 6 June 2008 and 4 September 2008. The Appellant did not comply. HMRC had therefore not repeated its requests in respect of documents from 4 September 2008 to the date of the Notice in light of the fact that their previous requests as regards the directly equivalent documents for the previous ten years had been ignored.  HMRC contended that the recipient had been given a “reasonable opportunity” to provide a response to the original requests without responding and was therefore unlikely to respond to any new requests.

60. However HMRC’s principal response was that it was clearly the scheme of the legislation that, insofar as any part of the notice could be analysed as imposing an onerous burden on the Appellant, the remedy was to vary the notice so as to remove that burden.  The legislation anticipated that such a variation may be by the agreement of the parties or by order of the Tribunal. The statutory scheme did not however anticipate the “all or nothing” scenario set out by the Appellant.

61. If a discrete part of a notice goes beyond what can lawfully be required (whether by reason of ultra vires or unreasonableness), then the remedy is to excise that part of the notice.  For example in R v Grossman (1981) 73 Cr App R 302, 308 part of the request only was struck down by reason of extra territoriality, per Lord Denning MR:

“I think the appeal should be allowed and the order set aside so far as it relates to the entries in the books of the branch in the Isle of Man: but it should stand so far as it relates to the branch at Bristol.”

62. HMRC stated that they were content to agree that the Notice be varied so that it did not apply to documents generated between the final precursor notice and the actual Notice; that is documents after 4 September 2008.  

63. The essential point was that the Notice requested that the Appellant should produce the policies and contracts issued to its clients and the latest names and addresses it held.  The Appellant purported not to understand the request.  It also asserted that it would be onerous to do so but the Appellant had brought forward only assertions without any proof.  The best approach to a question of onerousness would be for the Appellant to give HMRC an idea as to how many policies or contracts fell within the scope of the Notice; for the Appellant to make a sensible suggestion as to the amount of policies or contracts which could be copied per day without disrupting their business; and for HMRC to give them the necessary time to comply. Currently, no material has been brought forward by the Appellant to assist.  Nor, particularly given that it issues policies with a long life, is there any reason to believe that its record keeping would make it impossible for the Appellant to locate policies and contracts, names and addresses.

Findings

64. We have reviewed all the cases in the bundle of documents together with the Appellant’s representations, its solicitor’s memorandum sent to Mr Jacobs and its objections. These were largely repeated in the Appellant’s submissions. We are mindful that in accordance with Section 20(8B) the Appellant’s appeal right exists solely on the question of onerousness and our powers are to confirm, vary or cancel the Notice.

65. In its submissions the Appellant repeatedly referred to the heavy burden placed on it by the Notice and the time it would take to look for and identify the relevant papers. In its final submission HMRC made helpful suggestions as to a way forward in dealing with the Notice and offered to give the Appellant time to comply.

66. We examined the Appellant’s audited accounts and the reported size and details of the capital redemption fund. In the year ended 31 March 2006 it was £37,294,103 and in 2007 it had been reduced to £19,917,644. The accounts state that a number of clients partially surrendered their contracts in that financial year and also in the previous year; 2005/06. We asked whether the Appellant had any record of these redemptions and the Appellant’s representatives did not know. Contract loans had also been made in these two years. The fund, which is invested in properties, is not a collectively managed fund but the Appellant’s representatives were unable to confirm to us whether the auditors had access to information concerning each individual contract which is what we might expect when the auditors were completing the audit. As these policies will require redemption or surrender at some time we find that the Appellant must have some way of contacting the policy holders. 

67. We asked how many policies were actually represented by the capital redemption fund and what the average size of each policy was but the Appellant’s representatives did not know.

68. We noted that the capital redemption fund had been £41.66 million in the year ended 31 March 2005 and £28.32 million in 2004. We asked whether the capital redemption fund had been of a larger size during the period from 1998 to 2003 for which we did not have the audited accounts. The Appellant’s representatives did not know but agreed that it was likely that the fund had been growing in size during that period.

69. We looked at the case of David Roy Collins v Revenue & Customs [2008] UKSPC00675 and noted that in that case the size of the capital redemption policy purchased was £2,400,000. We understood from HMRC that this was a company in which Mr.T.P.D.Taylor was also involved. T P D Taylor, a company, was a director of the Appellant at least from 2005 until 30 May 2008. We found it probable that the policies issued by the Appellant were of sizeable sums and Dr Branigan who was present at the hearing confirmed that this too was his belief. Mr Price, Leading Counsel for the Appellant accepted that each contract was likely to be for a “substantial” amount. However even if they were each only for £1,000,000, the fund at its likely maximum size in 2005 and 2006 would represent only around 40 clients.

70. We asked how the Appellant contacted its clients. We were told that the Appellant was recommended to the clients by tax advisers or accountants. The audited accounts state that Appellant employs no staff and the Appellant’s representatives stated that they had no knowledge as to how the Appellant operated or how much contact the Appellant had with a client each year or who provided this contact.

71. The Appellant chose not to provide any witnesses as to the operation and administration of the Appellant’s business and so we find that it difficult to form a view of the extent of the records held on each client or as well as of the number of policy holders. The company’s profits have been paid away in fees of £400,000 to the two corporate directors in the last three years and thus we find that it should be a relatively inexpensive matter for them to employ, if necessary, a temporary or part time person or persons to provide the details of some 40 policies. We also do not find that the amount of time needed to complete the task would be onerous.

72. We find Dr Avery Jones’s interpretation of the law as set out in the case of A Tax Haven Company in which he decided that where Section 20B(5) refers to Section 20(3) it means that section alone and not that extended by Section 20(8A) to unnamed taxpayers to be more acceptable and logical than the interpretation submitted by the Appellant. Dr Avery Jones stated that the conditions for Section 20(8A) to apply were serious, including that the failure was likely to have led to serious prejudice to the proper assessment or collection of tax and so it was likely that Parliament did not intend to restrict its operation to six years and we agree with this.  

73. Additionally as stated by Lord Lowry in R v IRC ex parte Coombs the presumption of regularity applies. There were five requirements for issuing the Notice and whether those were satisfied or not was a matter for Dr Avery Jones and this would include requiring the Appellant to deliver or make available documents originating more than six years before 19 February 2009. The requirements are not subject to the appeal.
74.  The Appellant contended that a Section 20(8A) notice could only require the delivery or making available for inspection of documents and did not include, as might a Section 20(1) notice, the furnishing of information or particulars. The Appellant’s obligation extended only to documents and not to the furnishing of particulars of transactions. We find that here too the presumption of regularity applies and that this contention does not reflect on the onerousness or otherwise of the Notice.
75. We accept HMRC’s submissions regarding the wording of the Notice and find it unlikely that Dr Avery Jones would have given his consent to a notice which did not specify in an easily understandable way what was required of the Notice. As stated Judge Ockleton said in R (Parisses and others) v Grinyer, “HMRC are entitled to write for sensible readers”. We find that the wording of the Notice makes plain what is required of the Appellant in complying with the Notice. 

76. We find it unlikely that the Appellant might face claims from its clients if it complies with the Notice. The Appellant would be complying with a court authorised document. We concur with HMRC’s submission that if the Appellant doubted the validity of the Notice then it should have challenged that validity. 

77. After our thorough review of all the documents in the bundle including the skeleton arguments from both parties we have chosen only to deal with those submissions which might be admissible grounds for appeal on the basis that the Notice is onerous. We were mindful that the focus of an onerousness appeal should be on the effect of the notice on the recipient.

Decision

78. The Notice is not onerous and we hereby confirm it in its totality with the one exception that it should be varied so that it does not apply to documents generated between the final precursor notice and the actual Notice, that is documents after 4 September 2008.

79. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

			     MRS.S.M.G.RADFORD

TRIBUNAL JUDGE

RELEASE DATE: 18 October 2010