Conduct of HMRC is not relevant in deciding whether documents should be produced
Alarm bells are ringing after a tax tribunal has decided that it was “reasonable” for HMRC to demand copies of certain documents that taxpayers had already provided eight years earlier.
The case involved Whitefields Golf Club and associated companies. A restructuring of their activities in 1999 came to the attention of H M Customs and Excise, as it was then known, during a routine VAT inspection in June 2003. As a result, Whitefields were asked to supply copy documents which they handed over in February 2004, including copies of minutes of board meetings, service agreements and leases.
But then the investigation ground to a halt and nothing happened until HMRC, in its new guise, tried to resume the investigation in July 2011, following another VAT inspection in November 2010. In the meantime, HMRC had either lost or destroyed the copy documents that had been supplied and so they asked for further copies to pursue their investigation. The request was made under paragraph 1 of Schedule 36 to the Finance Act 2008, which gives officers of HMRC powers to obtain information and documents.
Whitefields argued that it would be unreasonable for them to deliver documents and information that had already been supplied once, when HMRC had been slow to follow up that information, as well as losing or destroying it. But their argument was rejected when the case reached the First Tier Tribunal.
In making the decision, the Tribunal said that HMRC’s conduct – which in this case meant losing documents and sitting on an investigation for almost a decade – was not relevant in deciding whether documents are “reasonably required” under Schedule 36 in order to establish the correct tax liability of a taxpayer. The role of the tribunal, they said, was not to carry out a supervisory review of HMRC’s conduct; it was simply to decide whether the requests were reasonable.
But the Tribunal did say that HMRC can only require a person to produce a document if it is in that person’s possession or power.
Tom Chiffers, taxation expert with Mogers Drewett: “This is a challenge for both business and individual taxpayers, as it suggests that HMRC can go back as far as they want for information. We are all comfortable with the six year rule, so this stands things on their head and it will probably be a little while before we know how it will be interpreted.
“We may have to be a little more cautious about consigning documents to the shredder.”
Whitefields Golf Club Ltd and others v HMRC  UKFTT 458 (TC)