24 January 2001
No Fishing Allowed
Zafar Rezvi of Howard Kennedy considers whether an Inspector can require production of documents in order to review a settled appeal.
In this short article, I consider whether or not sections 20 and 54, Taxes Management Act 1970 are mutually exclusive. Can an Inspector issue a notice by virtue of section 20 in order to obtain documents or particulars in respect of a matter that was in issue in an appeal which was determined under section 54?
Zafar Rezvi of Howard Kennedy considers whether an Inspector can require production of documents in order to review a settled appeal.
In this short article, I consider whether or not sections 20 and 54, Taxes Management Act 1970 are mutually exclusive. Can an Inspector issue a notice by virtue of section 20 in order to obtain documents or particulars in respect of a matter that was in issue in an appeal which was determined under section 54?
No Fishing Allowed
Zafar Rezvi of Howard Kennedy considers whether an Inspector can require production of documents in order to review a settled appeal.
In this short article, I consider whether or not sections 20 and 54, Taxes Management Act 1970 are mutually exclusive. Can an Inspector issue a notice by virtue of section 20 in order to obtain documents or particulars in respect of a matter that was in issue in an appeal which was determined under section 54?
The issue is perhaps best considered by way of a hypothetical example. Mr Smith, a partner in the Smith Partnership, appealed against an assessment in respect of the year 1995-96; the issue in the appeal was whether certain expenses claimed to be deductible were wholly and exclusively incurred for the purposes of the business. In 1997 the Inspector accepted that the expenses were deductible and a section 54 agreement was entered into determining the appeal. In 1998 a new Inspector raised an enquiry in respect of Mr Smith's self-assessment form for the year 1996-97 and, at the same time as requesting information in respect of the year of enquiry, the Inspector asked Mr Smith to provide records in respect of the expenses incurred in 1995-96. While Mr Smith provided the information in respect of the year of enquiry, he refused to provide the records, on the basis that they were irrelevant to the year of enquiry. The Inspector threatened to issue a notice under section 20, Taxes Management Act 1970 to obtain the records.
Documents, please
In essence section 20(1)(a) provides that an Inspector may by notice in writing require a taxpayer to deliver to him any documents in his possession or power which in the Inspector's reasonable opinion contain or may contain information relevant to the actual or possible tax liability of the taxpayer. Section 20(1)(b) provides that an Inspector may issue a similar notice to require a taxpayer to provide such particulars as the Inspector may reasonably require as being relevant to any such liability. A section 20 notice cannot be issued by an Inspector unless he is authorised by the Board of Inland Revenue to do so, and he has obtained the consent of a General or Special Commissioner. A commissioner is to give his consent only on being satisfied that in all the circumstances an Inspector is justified in proceeding under section 20 – see section 20(7).
A done deal
Where an appeal is settled by virtue of a section 54 agreement, the like consequences shall ensue as if it had been determined by the General or Special Commissioners (section 54(1)). Once a section 54 agreement has been entered into, then, subject to misleading information, the Revenue cannot open up that agreement and vary its terms in respect of matters that may objectively be regarded as being at its disposal at the time of entering into the section 54 agreement. The fact that the Revenue has made a mistake or misunderstood something is irrelevant – Scorer v Olin Energy Systems Limited 58 TC 592.
Broadly, a person misleads another by an act or omission which he knows, or ought reasonably to have known, would create in the mind of that other a belief which is materially different from that which would have been created but for that act or omission, (1998 Supplement to the 3rd edition of Words and Phrases Legally Defined at page 196).
Single code
The judgment of Lord Justice Buxton in Regina (on the application of Morgan Grenfell & Company Ltd) v Special Commissioner of Income Tax [2000] STC 965 also contains a pertinent finding:
'In our judgment, therefore, the relevant provisions of the 1970 Act do pass the first requirement set out in B (a minor) v DPP, in that they can properly be regarded as a single code, legislated by Parliament in that form, and intended to serve as such.'
Finality
The objective of section 54 is to provide peace of mind and finality. Unless it can be demonstrated that an Inspector who entered into a section 54 agreement was misled, a commissioner ought not to be satisfied that in all the circumstances an Inspector is justified in proceeding under section 20. In my view, it would not be legitimate for section 20 to be used as a tool for ascertaining whether a taxpayer might have misled an Inspector (for the purposes of obtaining a section 54 agreement). To permit such use would fundamentally undermine the objective of section 54 and enable the Revenue to circumvent its utility.
Furthermore, as it was held in the Morgan Grenfell case referred to above, sections 20 and 54, Taxes Management Act 1970 are part of a single code and must be applied in a manner by which their operation is reconcilable. The two provisions are not mutually exclusive.
In the above example, it was open to the Inspector who entered into the section 54 agreement to have requested and considered the records in respect of the expenses before entering into that agreement. For whatever reason, he did not do so. Provided that Mr Smith did not mislead the Inspector, in my view, the section 54 agreement could not now be opened up and, moreover, a section 20 notice could not be properly issued to explore further the deductibility of those expenses.
S Zafar A Rezvi is head of tax at Howard Kennedy and may be contacted on: 020 7546 8924; and by e-mail at ZafarRezvi@taxlawyer.co.uk.
Zafar Rezvi of Howard Kennedy considers whether an Inspector can require production of documents in order to review a settled appeal.
In this short article, I consider whether or not sections 20 and 54, Taxes Management Act 1970 are mutually exclusive. Can an Inspector issue a notice by virtue of section 20 in order to obtain documents or particulars in respect of a matter that was in issue in an appeal which was determined under section 54?
The issue is perhaps best considered by way of a hypothetical example. Mr Smith, a partner in the Smith Partnership, appealed against an assessment in respect of the year 1995-96; the issue in the appeal was whether certain expenses claimed to be deductible were wholly and exclusively incurred for the purposes of the business. In 1997 the Inspector accepted that the expenses were deductible and a section 54 agreement was entered into determining the appeal. In 1998 a new Inspector raised an enquiry in respect of Mr Smith's self-assessment form for the year 1996-97 and, at the same time as requesting information in respect of the year of enquiry, the Inspector asked Mr Smith to provide records in respect of the expenses incurred in 1995-96. While Mr Smith provided the information in respect of the year of enquiry, he refused to provide the records, on the basis that they were irrelevant to the year of enquiry. The Inspector threatened to issue a notice under section 20, Taxes Management Act 1970 to obtain the records.
Documents, please
In essence section 20(1)(a) provides that an Inspector may by notice in writing require a taxpayer to deliver to him any documents in his possession or power which in the Inspector's reasonable opinion contain or may contain information relevant to the actual or possible tax liability of the taxpayer. Section 20(1)(b) provides that an Inspector may issue a similar notice to require a taxpayer to provide such particulars as the Inspector may reasonably require as being relevant to any such liability. A section 20 notice cannot be issued by an Inspector unless he is authorised by the Board of Inland Revenue to do so, and he has obtained the consent of a General or Special Commissioner. A commissioner is to give his consent only on being satisfied that in all the circumstances an Inspector is justified in proceeding under section 20 – see section 20(7).
A done deal
Where an appeal is settled by virtue of a section 54 agreement, the like consequences shall ensue as if it had been determined by the General or Special Commissioners (section 54(1)). Once a section 54 agreement has been entered into, then, subject to misleading information, the Revenue cannot open up that agreement and vary its terms in respect of matters that may objectively be regarded as being at its disposal at the time of entering into the section 54 agreement. The fact that the Revenue has made a mistake or misunderstood something is irrelevant – Scorer v Olin Energy Systems Limited 58 TC 592.
Broadly, a person misleads another by an act or omission which he knows, or ought reasonably to have known, would create in the mind of that other a belief which is materially different from that which would have been created but for that act or omission, (1998 Supplement to the 3rd edition of Words and Phrases Legally Defined at page 196).
Single code
The judgment of Lord Justice Buxton in Regina (on the application of Morgan Grenfell & Company Ltd) v Special Commissioner of Income Tax [2000] STC 965 also contains a pertinent finding:
'In our judgment, therefore, the relevant provisions of the 1970 Act do pass the first requirement set out in B (a minor) v DPP, in that they can properly be regarded as a single code, legislated by Parliament in that form, and intended to serve as such.'
Finality
The objective of section 54 is to provide peace of mind and finality. Unless it can be demonstrated that an Inspector who entered into a section 54 agreement was misled, a commissioner ought not to be satisfied that in all the circumstances an Inspector is justified in proceeding under section 20. In my view, it would not be legitimate for section 20 to be used as a tool for ascertaining whether a taxpayer might have misled an Inspector (for the purposes of obtaining a section 54 agreement). To permit such use would fundamentally undermine the objective of section 54 and enable the Revenue to circumvent its utility.
Furthermore, as it was held in the Morgan Grenfell case referred to above, sections 20 and 54, Taxes Management Act 1970 are part of a single code and must be applied in a manner by which their operation is reconcilable. The two provisions are not mutually exclusive.
In the above example, it was open to the Inspector who entered into the section 54 agreement to have requested and considered the records in respect of the expenses before entering into that agreement. For whatever reason, he did not do so. Provided that Mr Smith did not mislead the Inspector, in my view, the section 54 agreement could not now be opened up and, moreover, a section 20 notice could not be properly issued to explore further the deductibility of those expenses.
S Zafar A Rezvi is head of tax at Howard Kennedy and may be contacted on: 020 7546 8924; and by e-mail at ZafarRezvi@taxlawyer.co.uk.
