Doomed to be misquoted?

Doomed to be misquoted?

Mon 11 Aug 2014

Occasionally a Tax Case is published and, even at its first reading, the heart of the experienced tax investigations practitioner sinks as he realises that the case is likely to be misquoted by HMRC as supporting such-and-such a principle.

For instance, the recent case of Daniel Pittack v HMRC ([2014] UKFTT 670) which was heard on 27 June 2014, decided whether or not HMRC could require a taxpayer to provide a statement of his ‘worldwide assets and liabilities’.

As with many similar tax investigations, there is a long background to the correspondence which in this case goes back to September 2010 when HMRC opened a tax enquiry into Mr Pittack’s 2007/08 and 2008/09 self-assessment returns. One of the aspects  exciting HMRC’s interest was that in 2007-08 Mr Pittack claimed personal private residence (“PPR”) on three different properties and that he was entitled to relief from capital gains tax on their sale. This resulted, eventually, in HMRC’s Investigator  issuing a Schedule 36 FA 2008 Notice to Mr Pittack on 31 May 2011 requiring him to provide various documents and information including a list of his worldwide assets and liabilities.

The basis of HMRC’s information powers under Sch 36 is that an Inspector can issue a Notice requiring the taxpayer (or, where relevant, a third party) to provide him with documents and information that he ‘reasonably requires for the purpose of determining the taxpayer’s tax position’. A taxpayer’s tax position is defined in paragraph 64 of the Act as including his ‘past, present or future liability to pay any tax’.

The taxpayer’s argument

The essence of Mr Pittack’s argument regarding the list of his worldwide assets and liabilities was twofold :

  •  he could not be required to provide an item that does not actually exist; and
  • such a list could not be ‘reasonably required’ because it would have “no bearing on the completion of my tax returns”.

Unfortunately, on the first point he was completely wrong. The inclusion of the word ‘information’ was specifically introduced into the legislation in 2008 so that HMRC could require the taxpayer to provide information that might not already exist in a documented form – the taxpayer, therefore, might have to bring a document into existence.

On the second point, of the ‘reasonable requirement’, Mr Pittack had something of a stronger argument – and one that might well have succeeded were it not for the fact that he had made the triple claim to Private Residence Relief. It was known to HMRC that Mr Pittack had offshore investments and interests and this, coupled with the multiple claim to PPR, enabled HMRC to suggest that he might have other overseas properties which he could have resided in during the year. Without knowing the full picture of his property ownership, onshore and offshore, how could HMRC reach a conclusion about his PPR claims?

Given that argument, his worldwide property ownership might be relevant to determining his UK tax position. However, as the Tribunal Judge Anne Redston noted, “HMRC made no submissions to support the reasonableness of their request in relation to any assets other than property assets” and “They made no submissions at all in relation to liabilities.”

Anne Redston resolved the problem admirably by varying the terms of the Notice so that it required Mr Pittack to provide details of any residential property in which he might have an interest (whether personal, beneficial, through a company  – whether owned or controlled by himself, a spouse, civil partners, sibling, parent or grandparent – or via a trust or that he might have occupied under license or with consent of the owner – An excellent and all-encompassing piece of drafting!) and Mr Pittack had 30 days from the decision to comply with the revised Notice.

So what, you may ask?

The downside – and the part that makes the tax practitioner sigh – is the prospect that HMRC will quote this case to support the issue of a Notice for details of global assets. Well, no, it doesn’t. What it does is quite simply follow the principles of Sch 36 which enables HMRC to seek those documents and that information that are relevant to the determination of the taxpayer’s tax position. In this case, because of the triple claim to PPR and the existence of offshore assets, it was possible for HMRC to argue that the details of his global residences were relevant – but it needs be recalled that the Judge concluded assets other than property, and liabilities, were not relevant.

What do you think?

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