Article by Colin Davis, a CIOT Technical Officer, published in the February 2002 issue of Tax Adviser. The Revenue’s current view is that the‘normal’ information powers under Taxes Management Act 1970 (TMA 1970), s. 19A and para. 27 and the ‘special’ powers under s. 20(3) are ‘complementary powers, to be used as appropriate depending on the circumstances of the case’.
The Chartered Institute of Taxation (CIOT) has recently had correspondence with the Revenue on the circumstances in which a notice will be issued under TMA 1970, s. 20 in pursuance of an enquiry into an income tax or corporation tax return. The circumstances under consideration are where an enquiry is initiated under TMA 1970, s. 9A in the case of an income tax return, or Finance Act 1998 (FA1998), Sch. 18, para. 24 in the case of a corporation tax return – i.e. a ‘normal’ enquiry rather than a case where a discovery assessment is made.
It will be recalled that, in relation to an income tax enquiry, information can be obtained from the taxpayer under TMA 1970, s. 19A, and in the case of a corporation tax enquiry, information can be obtained from the company under FA 1998, Sch. 18, para. 27. In the case of a director-controlled company, the Revenue may well decide to enquire into the directors’ returns as well as the company’s return. Apart from time limits, there is no restriction on the Revenue’s power to do this. So why should the Revenue need to use TMA 1970, s. 20 in relation to such enquiries?
Taxes Management Act 1970, s. 20(1) enables the Revenue to obtain information from the taxpayer not just in respect of a particular return, but in respect of ‘any tax liability to which [he] may be subject’. Section 20(2) is of similar scope, but enables the Revenue to demand that the information be delivered to ‘‘a named officer of the Boardrather than the inspector to whom the return is issued. It is not to be used unless the Revenue believe that there is ‘serious prejudice to the proper assessment or collection of tax’ (s. 20(7A)).
Taxes Management Act 1970, s.20(3) enables the Revenue to obtain information from third parties who have documents in their possession or power that may contain information that is relevant to the taxpayer’s liability.
The present correspondence with the Revenue arose in connection with a case where the inspector issued a notice under para. 27 in respect of the return of a director-controlled company, but did not issue enquiry notices in respect of the returns of the controlling directors. Instead, the inspector has asked the company to produce the bank statements for the private bank accounts of the directors pursuant to the enquiry under para. 24. He has threatened the issue of a notice under s. 20(3) if the company does not comply.
Two questions arise. First, are the directors’ private bank statements in the company’s possession or power (para. 27(1)(a))? This is essentially a question of fact and is not considered further here. The second question is whether the inspector would be justified in issuing a notice under s. 20(3) in the above circumstances where the alternative of enquiring into the directors’ returns is open to him.
It is worth noting that, although the Revenue could obtain the information from the directors by issuing enquiry notices in respect of their returns, s. 19A could only be used if the documents were required for the purposes of enquiring into whether the directors’ returns were correct. Therefore, this procedure was considered inappropriate in the context of an enquiry into the company’s return.
As regards s. 20, there was a broad understanding amongst tax practitioners that, in practice, it would be used only in the more serious cases. This is based on statements made in the House of Commons by Joel Barnett in 1976. However, this is not the case. The present text of the Investigations Handbook (IH)makes it clear that s. 20 should not be used in ‘trivial or unsuitable’ cases, but that the inspector should not hesitate to use it ‘to overcome delay or resistance to his reasonable requirements’ (IH 8052).
You have been warned!
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February 2002 by