[2011] UKFTT 402 (TC)

TC01257

Appeal number TC/2010/0640, TC 2010/1547

PENALTY – FAILING TO PRODUCE DOCUMENTS – General Commissioners confirmed the issue of the notices – Appellants not entitled to challenge the contents of the notices – Appellants made no genuine attempts to comply with the notices – Appellants deliberatively obstructive to the proper enquiries of HMRC  – the penalties were due and valid – no grounds for mitigation – penalties upheld – Appeal dismissed 

FIRST-TIER TRIBUNAL

TAX 

	TALLINGTON LAKES LTD	Appellants
TALLINGTON HOLDINGS LTD

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

				TRIBUNAL: Michael Tildesley OBE (Tribunal Judge)
						Gordon  Marjoram

Sitting in public at Employment Tribunal 4th Floor, Byron House, Maid Marion Way, Nottingham NG1 6HS on 23 May 2011

The Appellants did not appear

Mrs Jackie Phillips and Mrs Kay Walker for HMRC

© CROWN COPYRIGHT 2011

DECISION

The Appeal
1.	A fixed penalty of ₤50, and daily penalties of ₤1,200 and ₤3,900 were imposed against each Appellant on 12 August 2009, 23 September 2009 and 2 February 2010 respectively for failing to produce documents in accordance with paragraph 29, schedule 18, Finance Act 1998 (the 1998 Act). The Appellants were appealing against the penalties.
2.	HMRC contended that the penalties for failing to produce documents were due and valid. The Appellants, on the other hand, argued that they had answered HMRC’s enquiries to the very best of their abilities and could not simply supply information and documents to which they could not get access. The Appellants considered the penalties vindictive, spiteful, excessive, wholly unnecessary, totally oppressive and disproportionate. 
3.	On 29 April 2010 the Tribunal Registrar directed  the Appeals be heard together at the same time by the same Tribunal. The Appeals were allocated to the standard track with the parties required to exchange their statements of case. The Appeals were listed for hearing on 10 December 2010 which was postponed at the Appellants’ request. The Appellants did not attend the adjourned hearing on 23 May 2011. HMRC applied for the Appeal to be heard in the absence of the Appellants.
4.	The  Tribunal decided to hear the Appeals in the absence of the Appellants in  accordance with rule 33 of the Tribunal Rules 2009 because:
(1)	On 28 February 2011 the Tribunal notified the Appellants of the hearing dates by e mail at the direct and preferred e mail address given by Mr Morgan, the Appellants’ director. He indicated his preference for communication by e-mail.
(2)	On 5 May 2011 HMRC sent the Appellants by recorded delivery copies of the bundle which stated the hearing date of 23 May 2011. HMRC did not send documents by e mail. HMRC used recorded delivery because the Appellants have previously denied receipt of HMRC mail sent by ordinary post.
(3)	The Appellants gave no reason for their non-attendance on 23 May 2011. On the morning of the hearing the Tribunal contacted the Appellants by telephone on two separate numbers without receiving a response.
(4)	HMRC commenced its enquiries into the Appellants’ tax returns for the period ended 31 December 2005 on 21 February 2008. Since then there have been five listings before the General Commissioners, and two listings before the First Tier Tax Tribunal in connection with the dispute between the parties. A further delay in the hearing of this Appeal would be contrary to the overriding objective of dealing with cases fairly and justly.
The Facts Found on the Chronology of Events
5.	On 21 February 2008 HMRC opened an enquiry into the Appellants’ corporation tax returns for the period ended 31 December 2005. HMRC also requested informally information in connection with the returns by 2 April 2008.
6.	HMRC received the relevant tax returns on 19 November 2007. Under paragraph 24 schedule 18 of the 1998 Act HMRC may enquire into a company tax return provided HMRC gives notice of its intention to do so. Any enquiry into a company’s tax return extends to anything contained in the return or required to be contained in the return. HMRC has wide powers of enquiry into the returns. The statute does not require HMRC to have grounds of any impropriety or suspicion of undeclared tax on the part of the Appellants before enquiring into their returns.
7.	The Appellants did not respond to HMRC’s informal request for documents. On 9 April 2008 HMRC issued formal notices of production of documents as listed on an attached schedule in accordance with paragraph 27 schedule 18 of the 1998 Act. HMRC required the information by 14 May 2008.
8.	On 25 April 2008 the Appellants appealed against the notices of production, which was heard by the General Commissioners on 10 December 2008. The notes of the meeting recorded that
“The Chairman stated that the Commissioners had decided to defer their decision until the next hearing at Stamford on 28 January 2009. They acknowledged there were problems with Mr P, but suggested to Mr Morgan that he go through the list and decide which items were in his possession and talk to HMRC to try and make some progress.
The Clerk explained that the Commissioners had given Mr Morgan the opportunity to clarify matters with HMRC to try and settle the case. The Clerk confirmed that Mr Morgan would be sent a notice of what had been decided today, but in the meantime he should make contact with HMRC. Mr Morgan provided his telephone number”.
9.	Following the General Commissioners meeting, HMRC was unable to contact Mr Morgan by telephone. A letter was sent to Mr Morgan on 18 December 2008 explaining the position and asking Mr Morgan to call the Inspector in the New Year. On 24 December 2008 Mr Morgan replied by e mail stating amongst other matters:
“The foregoing typifies the complete nonsense that goes on. You get paid to torment us and we have to deal with and answer all of the nonsense you produce.
We do not want you to correspond with “G” (the Appellants’ new accountants) and generate even more nonsense because we will then get a bill and we will have to pay for it.
The last paragraph of your letter is breathtaking. You appear to suggest that we are preventing you from having a basis upon which to bring the enquiry to a conclusion.
There is no enquiry. What there is instead a nasty fishing expedition whereby you get to make the absurd and excessive demands from us in the hope that you might find something. It is all part of a planned campaign against us by yourselves, and it is a horrible abuse of position. Your demands are completely unacceptable….
In short Ms Williams you are deliberately targeting and victimising us for no good reason whatsoever. This is not a proper function of the Revenue. The Revenue is meant to be impartial, objective, fair and honest. You are none of these things.
Your demands are wholly excessive, they are unreasonable and they have been made for improper and unacceptable motives.
Mr Clark said to the Commissioners that he would ask the girl in Wales … presumably to moderate your demands and come up with some more reasonable proposals. We are still waiting to consider any. When you do come up with a small list of documents, please ensure that you explain why you require each one of them”.
10.	On 6 January 2009 HMRC issued revised notices which reduced the requested information and documents. The notices required the information by 28 January 2009, the date of the next meeting of the General Commissioners.  On 21 January 2009 Mr Morgan for the Appellants wrote to the General Commissioners requesting that they uphold the Appeal or to adjourn the hearing. Mr Morgan apologised for not attending the hearing. Mr Morgan made no reference to receipt of HMRC’s revised notices of 6 January 2009.
11.	On 28 January 2009 the General Commissioners adjourned the hearing of the Appeal. The Clerk’s letter of 30 January 2009 stated that
“The Commissioners considered your appeals under paragraph 28 schedule 18 of the 1998 Act. They had before them your letter of the 21 January 2008, in which you asked that either the Appeals be allowed, or that the hearing be adjourned.
The Commissioners also had before them the copy of a letter dated the 6 January 2009, a copy of which is enclosed and which you see was addressed to Tallington Lakes Ltd, at the correct address. They were informed that they had received no reply from you to that letter. In view of the fact that in your letter of the 21 January, you make no reference to that letter, HMRC will send a further copy to you with an amended date by which they would hope to receive a response from you.
Having considered the situation, the Commissioners decided to adjourn your appeals to their next meeting, which will be held on 18 March 2009 in Spalding. You will receive a notice of the meeting in due course. The Commissioners have asked me to make it clear that it would be their intention, if at all possible, to make a decision on your appeal at that meeting and they, therefore, very much hope that you will arrange to attend.
12.	On 31 January 2009 Mr Morgan e-mailed HMRC stating that the revised notices did not address any of the points as stated in his letter of 24 December 2008. He referred to HMRC’s letter of 6 January 2009 as a cheat saying that it had not been sent to the Appellants. Mr Morgan stated that the Appellants intended to appeal the revised notices.
13.	On 18 March 2009 the General Commissioners considered the Appellants’ appeal against the revised notices. The Appellants did not attend the meeting. The Commissioners’ decision letter stated that
“The Commissioners were first notified that Mr Morgan, who was to represent the company at the appeal, had requested an adjournment of the hearing. HMRC were represented at the hearing by Mr A Clark and he opposed the application. The Commissioners considered your application, but decided that the Application should not be granted and that the Appeal should proceed.
The Commissioners then heard representation from Mr Clark in support of the notice that had been issued. They considered all the documentation that had been submitted to them in the form of correspondence and e mails and decided to dismiss your appeal and made the following order –
That within 30 days of the 18 March 2009 you comply with the notice as amended by the letter dated the 6 January from HMRC to Mr Morgan of your company and the schedules that accompanied that letter, copies of all of which are enclosed with this letter. The period of 30 days from the 16 March is substituted for any deadlines that may be stated in those documents”. 
14.	On 30 April 2009 HMRC advised the Appellants that they had not complied with the General Commissioners’ decision. HMRC gave the Appellants a further 14 days to produce the documents. HMRC warned the Appellants that this letter constituted a final warning and if the information was not received penalties would be imposed. 
15.	On 13 May 2009 Mr Morgan sent a letter to HMRC questioning again what he saw as the excessive and ridiculous information demands. Mr Morgan supplied a response in relation to the documents requested. In relation to Tallington Lakes Limited, he said:
(1)	Preparation of Accounts: Mr P, the Appellants’ former accountant, had prepared the Appellants’ accounts for approximately 16 years from 1990 to 2006. In the period 2004-2007 Mr Morgan understood that Mr P suffered from a long term illness and was hospitalised several times. According to Mr Morgan Mr P became forgetful, disorganised, disorientated and made numerous mistakes. As a result of Mr P’s illness the Appellants instructed another firm of accountants, “G”, from 1 January 2008. Mr Morgan stated that Mr P had retained the Appellants’ records which had been used for preparing the 2005 accounts. The Appellants had made ongoing and persistent efforts over many months to retrieve these documents and records from Mr P without success. Mrs Jones, the Appellants’ accounts manager, had physically attended at Mr P’s home and work address on three occasions to collect records but found his offices in total disarray. Mrs Jones apparently conducted a search on Mr P’s computer but found none of the Appellant’s files. The ongoing problems with Mr P also caused friction between the Appellants and their new accountants. Mr Morgan directed HMRC to apply direct to Mr P for the documents required under the heading of Preparation of Accounts.
(2)	Balance Sheet: Mr Morgan told HMRC to apply to Mr P for a full breakdown of the creditors. Mr Morgan admitted that the amount owed to him recorded in the directors’ loan account was wrong. Mr Morgan also advised HMRC that Mr P retained the basis of any stock calculation or stock-take.
(3)	Books and Records: Mr Morgan informed HMRC that it could inspect the records on the Appellants’ premises on the strict understanding that only the records would be inspected, and that no interrogation would take place of any of the Appellants’ staff in relation to any mater. Any questions that HMRC had must be set out in writing by way of letter. Mr Morgan stated that the Appellants used Sage Line 100 software for their accounts records. Two of the Appellants’ employees used the accounts software, Mrs Jones, the accounts manager, and Mrs I, accounts assistant.
(4)	 Tax Computation matters: Mr Morgan advised HMRC to apply to Mr P for computation of the capital allowances claimed.
16.	Mr Morgan said in relation to Tallington Holdings Limited:
(1)	Interest: Mr Morgan advised that the interest was due on a loan from Lloyds Bank. Mr P apparently held the bank statements, and the other documents relating to the interest payments.
(2)	Balance Sheet: Mr Morgan said the bank loan of ₤2.5 million was borrowed from Lloyds Bank for the development of a site for 150 additional mobile homes. Mr Morgan imagined that the sundry creditors for Tallington Holdings Limited were either himself or Tallington Lakes Limited but to apply to Mr P for clarification.
17.	On 28 May 2009 HMRC sent a letter to Mr Morgan confirming that it would accept his invitation to visit the Appellants’ premises, and requesting Mr Morgan to provide him with a selection of dates. Mr Morgan did not respond to the letter.
18.	On 10 July 2009 HMRC sent another letter advising Mr Morgan that the visit would take two days. HMRC supplied a selection of three sets of dates for the inspection. HMRC warned Mr Morgan that if it did not hear from him within 14 days, HMRC would have no choice but to charge a penalty. No response was received from Mr Morgan.
19.	 On 12 August 2009 HMRC imposed a fixed penalty of ₤50 against each Appellant for failing comply with the notice for production of documents issued 9 April 2008.
20.	On 23 September 2009 HMRC imposed a penalty of ₤1,200 against each Appellant for their continuing failure to comply with the notice for production of documents issued 9 April 2008.  The penalty was calculated on the basis of ₤30 for each day in default from 12 August 2009 to 23 September 2009.
21.	On 26 September 2009 Mr Morgan wrote to HMRC in response to the imposition of penalties. Mr Morgan stated that he had answered the questions in the notices to the very best of his ability. Mr Morgan could not answer what he did not know. Mr Morgan suggested to HMRC that if it still wished to view the 2005 business records to liaise with Mrs Jones at the Appellant’s offices. Mr Morgan indicated that the Appellants wished to appeal against the penalties.
22.	Following Mr Morgan’s letter of 26 September 2009 Mr Penman of HMRC made several attempts to liaise with Mrs Jones over a possible date to inspect the Appellants’ 2005 business records. On 5 October 2009 Mr Penman phoned the Appellants’ offices and advised that Mrs Jones was unavailable. On 15 October 2009 Mr Penman returned his phone call but told that Mrs Jones was not in the office. On 20 October 2009 Mr Penman phoned again and advised that Mrs Jones had just arrived in the office. Mr Penman left a phone number for Mrs Jones to call back which she did. Mrs Jones explained there may be problems getting the records for the period. Mr Penman requested information on what records the Appellants held. Mrs Jones promised to get back to Mr Penman with the information on the records. Mr Penman said that he would issue further penalties if Mrs Jones did not get back by next Friday.
23.	After the phone conversation Mrs Jones sent an e mail to Mr Penman requesting clarification of the records requested by HMRC.  On the same date Mr Penman confirmed in a letter to Mrs Jones that the documents and information required remained the same as in the notices for production. Mr Penman expressed his view that under the heading books and records maintained by the Appellants in the conduct of their trade HMRC was not restricted to inspecting those books specifically listed in the notice but could examine any of the Appellants’ records provided they were connected with the Appellants’ trade.
24.	On 30 October 2009 Mr Morgan replied by e mail to Mr Penman’s letter addressed to Mrs Jones. Mr Morgan told Mr Penman to respond to the nine points in his e mail of 13 October 2009.  At points 4 and  5 Mr Morgan said:
“4. You complain that the information you are asking for still has not been made available to you. We repeat we cannot supply you with what we do not have. We have already answered your questions to the best of our ability in our letter of 13 May 2009.
 5. You purport to be so anxious to want and to come and inspect our records and you suggest that we are preventing you from inspecting (hence the penalties that you seek to apply), but yet you are completely silent in response as to when the inspection should and could take place as set out in our letter of 26 September 2009. Your failure to respond to our suggestions for inspection dates, whilst at the self same time aggressively pursuing penalties, is absolutely typical of what you do and the way that you behave as a public organisation”.
25.	On 24 November 2009 Mr Penman responded to the nine points in Mr Morgan’s letter of 13 October 2009. Mr Penman’s replies to points 4 and 5 were as follows:
“4. I note your comments. Unfortunately I do not consider that your letter of 13 May 2009 constitutes compliance with the notice under paragraph 27, schedule 18 of the 1998 Act that was issued to each company on 9 April 2008. The notice requires that certain documents and information are made available to me and, to date, this has not happened. I also do not consider that the documents and information requested are no longer within the power and possession of the company simply because they are currently held by the company’s former accountant, but I accept that you do not agree with this view. Again, I believe this is a matter on which further debate between us is unlikely to be productive, and I will await the outcome of the HMRC review and any subsequent Tribunal hearings.
5. I note your comments, but would point out that your letter of 26 September 2009, in which you asked me to liaise with Janet Jones to arrange an opportunity to review the records was not sent until after the penalty determinations had been issued by me and received by the company – it is therefore unreasonable to suggest that this letter somehow invalidates the penalty determinations made,
As you are aware I contacted Janet Jones on 20 October 2009 to arrange dates to review the books and records, and asked her to get back to me by 30 October 2009 with details of the books and records that the company holds and suitable dates for review. To date I have not heard from her”.
26.	  On 1 February 2010 HMRC imposed a penalty of ₤3,900 against each Appellant for its continuing failure to comply with the notice for production of documents issued 9 April 2008.  The penalty was calculated on the basis of ₤30 for each day in default from 24 September 2009 to 1 February 2010.
27.	 On 3 February 2010 Mr Morgan emailed Mr Penman asking for the penalties to be withdrawn. Mr Penman replied on 19 February 2010, explaining that he could not withdraw the penalties.
Notices for Production of Documents
28.	The terms of disputed notices were as follows:
Schedule of Information required for the period to 31 December 2005 from Tallington Lakes Ltd
A Preparation of Accounts
(1)	Full particulars of any estimated figures included in the accounts, stating the basis of calculation adopted.
(2)	Full particulars of all adjustments made to the figures extracted from the prime records in arriving at the final entries in the accounts. To include the extended trial balance.
(3)	Full particulars of all journal entries made by the company or you in preparing the accounts.
(4)	Cash and bank analyses for the accounting period.
(5)	A copy of the bank reconciliation together with particulars of all adjustments made to the closing balances shown on bank statements at 31 December 2005 in arriving at the relevant balance sheet entries.
C. Balance Sheet
(1)	Analysis of other creditors (₤1,039,341), including the accounts and to whom the monies were owed.
(2)	Copy of the stock take as at 31 December 2005. If no stock take was undertaken, please provide all records from which the figures of closing stock were ascertained along with a full explanation of the basis of calculation.
D. Books and Records
I require the books and records maintained by the company in the conduct of its trade, to include the following:
(1)	Purchase invoices/credit notes;
(2)	Sales invoices and till roles;
(3)	All ledger accounts including any contra accounts;
(4)	Receipts and vouchers for all claimed expenditure;
(5)	Sales daybook, purchase daybook, cash book and petty cash book (including receipts and vouchers);
(6)	Statements for all company bank and credit card accounts for the year to 31 December 2005;
(7)	Chequebook stubs and paying in books;
(8)	Copies of selling price lists covering the accounting period specifying the operative period if not for the whole of the period to the 31 December 2005;
(9)	The wages records.
(10)	If any of the records were computerised please provide, on loan, copies of the back up discs for the accounting year ending 31 December 2005 together with the following –
a.	The name and version of both the computer operating system and the accounting/payroll software used (Please use the attached pro-forma to provide this information).
b.	The name of the person(s) who operated the system during the accounting period and if more than one, their respective roles and responsibilities.
c.	Any passwords needed to access the system.
E. Tax Computation Matters
(1)	Can you please provide a computation of the Capital Allowances claimed showing the rate applied? I also require a schedule of the additions added to the pool.
Schedule of Information required for the period to 31 December 2005 from Tallington Holdings Ltd
A. Interest ₤92,306
(1)	Can you please provide an analysis of this amount.
(2)	Please provide documentary evidence to show to whom this amount was paid and the method of payment. For example the company bank statement showing the payment to the creditor.
B.  Balance Sheet
(1)	Bank loan ₤2,500,000, from whom was this money borrowed and why?
(2)	Sundry creditors ₤66,203, to whom is this money owed and why?
The Appellants’ Tax Returns for year ending 31 December 2005
29.	The tax return for Tallington Lakes declared profits before charges and group relief of ₤92,306 which was set off against losses of ₤92,306 declared by Tallington Holdings under group relief.  The financial statements which accompanied the tax return declared a turnover of ₤2,160,973 with ₤1,108,196 and ₤1,009,460 incurred respectively on cost of sales, and administrative expenses. The balance sheet declared a stock valuation of ₤347,666 which increased from ₤22,099 in the previous year. The corporation tax computation for Tallington Lakes showed values of ₤211,169 for the capital allowances pool, and of ₤90,668 for capital allowances .
30.	The tax return for Tallington Holdings declared no profit. The accompanying financial statements showed a loss of ₤92,306 which was attributable to interest payments. The notes to the accounts revealed a bank loan of ₤2,500,000.
31.	The Appellants made no payments of corporation tax for the year ending 31 December 2005.
Witness Statements
32.	The Appellants submitted witness statements from Mr Morgan and Mrs Jones dated 10 July 2010 in support of their Appeals against the penalties. The witness statements repeated the Appellants assertions that they were unable to produce the requested documents because of Mr P’s incapacity. Mr Morgan and Mrs Jones recounted their efforts to obtain the required information from Mr P. They stated that HMRC’s investigations only commenced following their complaints about the conduct of bailiffs instructed by HMRC to collect small amounts of tax due. They contended that HMRC’s conduct has been vindictive, spiteful, excessive, wholly unnecessary, totally oppressive and disproportionate. The contents of the two witness statements were identical in many respects.
33.	Mrs Jones  and Mr Morgan testified at paragraph 4 of their witness statements stated that
“The Revenue have asked some detailed and technical questions which only our previous accountant – Mr P – can answer. Unfortunately Mr P has been seriously ill over period of a few years resulting in hospital referrals.
Reasons
34.	Under paragraph 24(1) schedule 18 of the 1998 Act HMRC was entitled to enquire into the Appellants’ tax returns for 2004/05. HMRC gave notice of its enquiry within the prescribed time period.  
35.	HMRC’s initial notice for production of documents on 8 April 2008 was made in accordance with the provisions of paragraph 27(1), schedule 18 of the 1998 Act.  Paragraph 27(1) enabled HMRC to require the Appellants to produce documents in their possession or power and provide such information as HMRC may reasonable require for the purposes of its enquiry into the Appellants’ 2004/05 tax returns. On 6 January 2009 HMRC issued an amended notice which was confirmed on Appeal by the General Commissioners on 18 March 2009.
36.	HMRC imposed penalties against the Appellants for their failure to comply with the notices approved by the General Commissioners on 18 March 2009. The Tribunal is satisfied that the penalties met the requirements of paragraph 29(1), schedule 18 of the 1998 Act. On 12 August 2009 HMRC levied a fixed penalty of ₤50 against each Appellant for their initial failure to comply with the notice within 30 days of the 18 March 2009. The penalties of ₤1,200 and ₤3,900 imposed on 23 September 2009 and 1 February 2010 against each Appellant were authorised under paragraph 29(1)(b) which permitted HMRC to charge daily penalties not exceeding ₤30 per day for their continuing failure to comply with the notices after the imposition of the fixed penalties. The quantum of the daily penalties was correctly calculated applying the maximum rate of ₤30 for the period of continuing default. The fixed and daily penalties were determined by an authorised HMRC Officer in accordance with section 100(1) of the Taxes Management Act 1970 (1970 Act).
37.	The Tribunal’s powers on Appeal against the penalties are set out in section 100B of  the 1970 Act:
“(a) In the case of a penalty which is required to be of a particular amount, the Tribunal may —
(i) if it appears that no penalty has been incurred, set the determination aside,
(ii)if the amount determined appears to them to be correct, confirm the determination, or
(iii) if the amount determined appears to them to be incorrect, increase or reduce it to the correct amount,
(b) In the case of any other penalty, the Tribunal may —
(i)if it appears to them that no penalty has been incurred, set the determination aside,
(ii)if the amount determined appears to them to be appropriate, confirm the determination,
(iii)if the amount determined appears to them to be excessive, reduce it to such other amount (including nil) as they consider appropriate, or
(iv) if the amount determined appears to them to be insufficient, increase it to such amount not exceeding the permitted maximum as they consider appropriate”.
38.	The Appellants challenged the penalties on three grounds:
(1)	They did not have the requested records which had been given to their former accountant, Mr P. They were unable to recover the records because of Mr P’s health problems.
(2)	The Appellants had done their very best to comply with the notices for production of documents.
(3)	The penalties were vindictive, spiteful, excessive, wholly unnecessary, totally oppressive and disproportionate.
Ground One: Did not have the records?
39.	 Under this ground the Appellants asserted that they were unable to comply with the notices because they were unable to retrieve the requisite records from their former accountant. The Appellants as a matter of law are prevented from questioning the contents of the notices for production in penalty proceedings. The Appellants had their opportunity to challenge the notices in their Appeal before the General Commissioners. The Appellants did not attend the two meetings of the General Commissioners which had been set up to hear their Appeal. By virtue of paragraph 28(6), schedule 18 of the 1998 Act the decision of the Commissioners on 18 March 2009 confirming the notices was final and conclusive. Moses J as he then was in R (on the application of Murat ) v Inland Revenue Commissioners [2005] STC 184 at paragraph 6 dealing with the same worded provision in section 19 which is concerned with failing to produce documents in relation to enquiries into income tax returns:
“[6] The first answer to that contention is that it is no longer open in challenging a penalty notice to the appellant to object to the contents of the s 19A notice. The source of that conclusion is the statutory provisions contained within s 19A of the TMA. Pursuant to s 19A(6), an appeal may be brought against any requirement imposed by notice under sub-s (2) to produce a document or to furnish any accounts or particulars. By s 19A(11):
'The determination of the Commissioners of an appeal under subsection (6) above shall be final and conclusive (notwithstanding any provision having effect by virtue of section 56B of this Act).'
In those circumstances, having challenged the s 19A notice before Dr Brice in May 2000, it is not open to the appellant to question that notice in these proceedings nor was it open to him to question that notice before Mr Wallace. As Mr Wallace, the Special Commissioner, concluded, any argument in relation to that notice was subject to the determination of Dr Brice. That is also true for this court”.
40.	Regardless of the legal position the Tribunal did not find credible the Appellants’ explanation for not complying with the notices. The Appellants were not sole traders without an administrative infrastructure. They were a corporate group with its trading arm having a turnover of ₤2,160,973 for the year 2005. The Appellants employed an accounts manager and an accounts assistant. Given the Appellants’ status and resources available to them the Tribunal found it odd that they were totally dependent upon a former accountant to deal with the issues raised by the notices for production. The Tribunal considers that the Appellants would have used the services of an accountant for technical issues not for routine accounts matters. Mr Morgan and Mr Jones in their witness statements agreed with the Tribunal’s assessment when they said at paragraph 4 of their statements that 
“The Revenue have asked some detailed and technical questions which only our previous accountant – Mr P – can answer”.
41.	The Tribunal having examined the contents of the notices which are set out in paragraph 28 above consider that the Appellants were able to deal with the majority of the information and documents requested without the services of Mr P. Mr Morgan acknowledged in his letter of 13 May 2009 that the Appellants held the records under Heading C in the notice for production for Tallington Lakes. Mr Morgan also in that letter inadvertently disclosed his own knowledge of the various matters upon which HMRC was seeking information. Mr Morgan knew that the entry of other creditors in Tallington Lakes’ balance sheet was inaccurate. Further the letter showed that Mr Morgan understood the details of the interest payments, bank loan and sundry creditors as recorded in the accounts of Tallington Holdings. The Tribunal did not accept that Mr P would be responsible for bank reconciliations and stock takes. The Tribunal did not understand why it was necessary for the Appellants to refer HMRC to Mr P for copies of the bank statements, when they could request the statements from their bank. 
42.	The Tribunal concludes at its highest the services of Mr P would only be required to deal with A1-3 and E (Tax Computation Matters) of the Tallington Lakes notice. The Tribunal is satisfied that the Appellants from within their existing resources were able to provide the necessary information required by the other parts of the Tallington Lakes notice and by the complete notice for Tallington Holdings. The Tribunal finds that the Appellants’ use of Mr P as an excuse for not complying with the notices was a smokescreen.
 Ground 2 Have the Appellants complied with the Notices?  
43.	The Appellants contended that they had done their very best to comply with the notices. Paragraph 29(4), schedule 18 of the 1998 Act provides that no penalty shall be imposed in respect of any failure at any time after the failure has been remedied.
44.	The Appellants relied on Mr Morgan’s letter of 13 May 2009 (see paragraph 15 above) as evidence of their best intentions to answer the notices.  During the three years since HMRC opened its enquiries into the Appellants’ 2005 tax returns, Mr Morgan’s letter of 13 May 2009 was the only attempt by the Appellants to engage with the substance of the notices to produce. The Appellants have not supplied a single document to HMRC.
45.	The Tribunal considers the contents of Mr Morgan’s letter of 13 May 2009 totally inadequate as a response to the notices. Wherever possible Mr Morgan in the letter passed responsibility to Mr P for dealing with the matters, in full knowledge that Mr P was not in a fit state of health to assist HMRC. Where Mr Morgan was unable to rely on the Mr P stratagem, he gave HMRC the minimum information. Mr Morgan’s offer to HMRC to inspect the Appellants’ book and records was not genuine, as demonstrated by his subsequent actions and those of Mrs Jones to frustrate Mr Penman’s attempts to arrange a convenient date for the inspection. Mr Morgan’s statement that the Appellants held no back up discs of the accounts data held on computer was not credible. Mr Morgan ignored HMRC’s request to complete the information sheet on computer based records. The Tribunal concluded that Mr Morgan’s letter of 13 May 2009 was a cynical attempt to delay the imposition of the fixed penalty of ₤50 for failing to comply with the notices for production.  
46.	The Tribunal noted that the Appellants did not want HMRC to contact their current accountants in respect of its tax affairs. Mr Morgan and Mrs Jones referred to a purported meeting with their current accountants and Mr P in an attempt to resolve the Appellants’ difficulties with the notices. In those circumstances the Tribunal does not understand the Appellants’ reluctance to engage their present accountants to handle the technical issues if they were serious about doing their very best to comply with the notices, particularly as the accountants had had direct contact with Mr P. 
47.	The Tribunal holds that the Appellants have made no efforts to comply with the notices. 
Ground 3: Oppressive and Disproportionate Penalties? 
48.	Mrs Jones and Mr Morgan complained that HMRC has been vindictive, spiteful, excessive, wholly unnecessary, totally oppressive and disproportionate. Mr Morgan contended that the Appellants could not afford to pay extraordinary, random, spurious and wholly unjustified fines.
49.	The Tribunal disagrees with Mrs Jones and Mr Morgan. The Tribunal is satisfied that HMRC has dealt with its request for information and production of documents in a proportionate manner. HMRC gave the Appellants the opportunity to co-operate on a voluntary basis before resorting to formal measures which carried the threat of sanctions. HMRC reduced the scope of the notice issued on 8 April 2008 following the meeting of the General Commissioners on 18 December 2008. HMRC delayed the issue of penalties by giving the Appellants a period of four months to comply with the notice following its confirmation by the General Commissioners on 18 March 2009.
50.	The Tribunal, on the other hand, considers that the Appellants have been deliberately obstructive since HMRC opened its enquiry into their tax affairs. In this respect the Tribunal finds the following facts: 
(1)	Mr Morgan ignored the suggestion of the General Commissioners to go through the list of documents and decide which items were in his possession and talk to HMRC to try and make some progress.
(2)	Mr Morgan did not respond to HMRC’s revised list of documents sent on 6 January 2009.
(3)	The Appellants did not attend the General Commissioners’ meetings on the 28 January and 18 March 2009.
(4)	The Appellants disobeyed the General Commissioners’ decision to produce the required documents within 30 days of the 18 March 2009.
(5)	Mr Morgan’s 13 May 2009 offer to HMRC to inspect the Appellants’ books and records was not genuine. Mr Morgan did not respond to HMRC’s two written requests dated 28 May and 10 July 2009 for convenient dates for the inspection. 
(6)	Mr Morgan had no intention of fulfilling his renewed offer in September 2009 to HMRC to inspect the Appellants’ books. As instructed by Mr Morgan, Mr Penman of HMRC made three unsuccessful attempts to contact Mrs Jones to arrange the visit. When Mrs Jones finally got in touch she gave no dates but requested further clarification of the request for documents. After which Mr Morgan took over the communications with Mr Penman in which Mr Morgan conveniently overlooked the efforts made by Mr Penman to arrange a visit to the Appellant’s premises.
(7)	The Appellants have not produced a single document
(8)	 The tenor of Mr Morgan’s correspondence with HMRC Officers was confrontational and uncooperative. He made no attempt to address HMRC’s request for documents in a constructive manner.
51.	The Tribunal is satisfied that the Appellants have blatantly flouted the notices for production as confirmed by the General Commissioners on 18 March 2009. The Appellants have no intention of complying with the notices. In those circumstances the Tribunal finds that there are no grounds to mitigate the penalties.
Decision
52.	The Tribunal decides that the fixed penalty of ₤50 and daily penalties of ₤1,200 and ₤3,900 imposed against each Appellant on 12 August 2009, 23 September 2009 and 2 February 2010 were due and valid. There were no grounds to mitigate the penalties. The Tribunal upholds the penalties and dismisses the Appeals.
53.	The Tribunal notes that HMRC is not in position to close its enquiries into the Appellants’ 2005 tax returns which with group relief produced nil returns until it can confirm that the figures in the returns are correct. The Appellants are liable to continuing daily penalties until they co-operate with HMRC’s request for information and production of documents. HMRC have not imposed daily penalties since 2 February 2010.
54.	In an attempt to break the deadlock Mr Kelly, HM Inspector of Taxes, wrote to the Appellants with a view to arranging a visit to inspect the Appellants’ records, and requesting the Appellant to sign an information notice on Mr P. Mr Morgan responded on 15 May 2011 indicating that the Appellants would provide maximum co-operation if HMRC withdrew the penalties.  HMRC is sceptical of Mr Morgan’s offer of maximum co-operation. HMRC requested the Tribunal to issue directions requiring the Appellants to produce the documents required. The Tribunal consider that its powers to issue directions should be used in furtherance of case management not in support of HMRC’s statutory responsibilities.  The Tribunal understands that  HMRC have wide powers of inspection which may be used to overcome the current impasse with the Appellants.      
55.	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.

      
MICHAEL TILDESLEY OBE
TRIBUNAL JUDGE
RELEASE DATE: 22 JUNE 2011