Alan Porter Ltd v HM Inspector of Taxes [2004] UKSC SPC00398 (09 February 2004)

PENALTY – failure to respond adequately to a Notice under paragraph 27 Schedule 18 Finance Act 1998 – amount reduced

THE SPECIAL COMMISSIONERS

	ALAN PORTER LIMITED	Appellant

	- and -

	ROBERT KINGSTON
	(HM INSPECTOR OF TAXES)	Respondent

		Special Commissioner:	DR JOHN F AVERY JONES CBE

Sitting in public in London on 9 January 2003

Graham Wildin FCA, Wildin & Co for the Appellant

Robert Kingston, HM Inspector of Taxes, in person

© CROWN COPYRIGHT 2004

DECISION

1.	Alan Porter Limited appeals against a penalty of £50 imposed by a notice dated 31 July 2003 and daily penalties of £620 (£20 per day for the whole of August 2003) imposed by notice dated 19 September 2003 for failure to respond to a Notice dated 19 May 2003 under paragraph 27 of Schedule 18 to the Finance Act 1998 relating to the year ended 31 March 2001.  The Appellant was represented by Mr Graham Wildin; Mr Kingston, the Inspector, appeared in person, assisted by Mr Mike Brown.
2.	Mr Wildin sent the Appellant’s accounts and corporation tax computation to the Inspector on 20 March 2002.  The accounts show disposals of fixed assets of £179,250 but there was nothing in the computations about this.  On 31 January 2003 the Inspector issued a notice of enquiry and asked for details of the disposals, and an analysis of creditors and legal and professional expenses.  Mr Wildin replied on 10 February 2003 with this information.  The Inspector replied on 17 March 2003 asking whether the land disposed of was held for development of investment and for computations; in addition he asked for a further document relating to creditors and for the legal and professional expenses to be related to the properties in issue.  A reminder was sent on 30 April 2003.  No reply having been received, the Inspector issued a notice under paragraph 27 of Schedule 18 to the Finance Act 1989 for the information that had been asked for in the letter of 17 March 2003.  Pausing there, it seems that perfectly normal enquiries were made which were then answered but the Appellant (or Mr Wildin) then decided to cease to cooperate.  This was probably related to other enquiries that the Inspector was making for other associated companies for other years which Mr Wildin told me had been going on for some years.
3.	The Inspector thought that no reply had ever been made to the paragraph 27 notice.  Mr Wildin produced a bundle of documents for the hearing that included a letter in reply of 2 June 2003 that the Inspector had never received.  Although this letter did not contain the Inspector’s reference he said, and I accept, that there would have been no problem in this being correctly filed in the tax district.  No further reference was ever made to this letter in the correspondence by Mr Wildin.  In particular, on receiving a final warning dated 14 July that penalties would be imposed he appealed against the penalty (which had not then been imposed) whereas one would have expected him to refer to his having complied by his letter of 2 June 2003.  Also; on receiving the further penalty notice dated 19 September 2003 he wrote “We have not supplied the information requested at present because we are awaiting correspondence replied from your Head Office in connection with this particular case.”  Later the Inspector in his record of a telephone conversation on 31 July 2003 noted: “Wildin indicated he had no intention of responding and he was quite happy to argue the point before the Commissioners.”  (Mr Wildin told me that he said this thinking that the questions related to the 2000 year.)  In a further note of a telephone conversation on 25 September 2003 the Inspector recorded: “He [Mr Wildin] indicated he would review matters to see if the information could be provided.”  Finally, in the Inspector’s note of proceedings before the General Commissioners the records: “Wildin indicated that he thought the information requested by the Inspector was totally irrelevant…”  All these suggested to the Inspector, as it would to anyone else, that no reply had been made to the paragraph 27 notice.  I invited Mr Wildin to provide further evidence that the letter of 2 June 2003 had been sent.  Following the hearing he produced copies of all the documents produced by the particular typist that day which included that letter and two other letters to the same tax district which he says had been received and responded to, and which would have been put into the same envelope as the letter in question.  In the light of this further evidence I accept that on the balance of probability the letter was sent but has somehow been mislaid, possibly in the post if for some reason it was not put in the same envelope as the other letters, or possibly in the tax district.
4.	It follows that while the Inspector thought that there had been no compliance with the paragraph 27 Notice, there had been some compliance.  This probably exacerbated the situation because Mr Wildin thought the Inspector was being heavy handed.
5.	I turn to see the extent to which the 2 June 2003 letter does answer the paragraph 27 Notice.  It lists which disposal was development land and which was investment land and it encloses schedules of both types of properties.  
(1)	In reply to the Notice asking in relation to the development land for the original cost, the computation of the profit, a map showing the land and reasons behind any apportionment of cost, Mr Wildin wrote: “Serendipity House and Serendipity Mews consists of a number of buildings and the £122,750 was considered to be the appropriate cost figure of the two sold units.  There is no map/plans available.”  
(2)	In reply to the request in relation to the investment land for the cost, date of acquisition, capital gains tax computation, a map and the reasons for any apportionment and market value of the remaining land, Mr Wildin replied: “This again represented part of a property in which the sale proceeds would have equalled the cost with no gain/loss arising on the disposal.”  
(3)	In reply to the request for documents relating to a deposit of £80,000 and building insurance of £10,795.27, Mr Wildin replied: “There is no documentation.  The £80,000 was simply a paid deposit, and the £10,795.17 was insurance prepayment.”
(4)	In reply to the request to relate the legal and professional expenses to the properties disposed of, to relate a particular invoice relating to four properties to schedules of land, ad to provide a particular invoice, the invoice was provided and the reply to the other questions was: “This should now be self explanatory.”
6.	I am not impressed by these as replies to a formal notice.  The Directors may be right in thinking that there is no profit on the development land and no gain on the investment land but the Inspector was perfectly reasonable in requiring computations and sufficient details about the disposals and the apportionment of the cost for him to instruct the District Valuer about the part-disposals to confirm this.  The position was hardly simple; all three disposals were grants of leases, and the two development properties were leases of part.  I notice that the documents enclosed with Mr Wildin’s letter of 10 February 2003 included copy contracts referring to the property as “for the purpose of identification only shown edged red on the plan annexed to the Lease hereinafter referred to.”  To say that no plans were available therefore really means that the Appellant had not bothered to ask the solicitors for them.  And is there really no documentation relating to the pre-contract deposit, or the insurance premium?  As to the information that “should now be self-explanatory,” I can relate only two of the properties to his schedules, probably because the same property is described by more than one name.
7.	In short, the Appellant has made no serious attempt to reply to the Notice by providing the Inspector with information necessary to check the computation.  Mr Wildin may be tired of the Inspector’s other questions relating to this and its associated companies, but I am bound to look at these questions in isolation.  In my view it would take little additional effort on the Appellant’s part to provide a proper answer with full computations so that the Inspector could check whether the directors were right in saying that none of the disposals gave rise to a profit or gain.
8.	Paragraph 29 of Schedule 18 to the Finance Act 1998 provides:
“(1) A company which fails to comply with a notice under paragraph 27 (notice to produce documents, etc. for purposes of enquiry) is liable—
(a)	to a penalty of £50, and 
(b)	if the failure continues after a penalty is imposed under paragraph (a) above, to a further penalty or penalties not exceeding the amount specified in sub-paragraph (2) below for each day on which the failure continues.
(2) The amount referred to in sub-paragraph (1)(b) is—
(a)	£30 if the penalty is determined by an officer of the Board under section 100 of the Taxes Management Act 1970, ….
Section 100B of the Taxes Management Act 1970 provides:
(1)	An appeal may be brought against the determination of a penalty under section 100 above and, subject to sections 93, 93A and 95A of this Act and the following provisions of this section, the provisions of this Act relating to appeals shall have effect in relation to an appeal against such a determination as they have effect in relation to an appeal against an assessment to tax.
(2)	Subject to sections 93(8) and 93A(7) of this Act on an appeal against the determination of a penalty under section 100 above section 50(6) to (8) of this Act shall not apply but—
(a) in the case of a penalty which is required to be of a particular amount, the Commissioners 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 correct, confirm the determination, or
(iii)	of 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 Commissioners 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.
9.	In the light of my findings that the Notice was not properly complied with, the fixed penalty of £50 it appears to me to be correct and I confirm the determination.  In relation to the daily penalty I have to determine what is “appropriate.”  The Inspector issued the penalty thinking that no response had been made to the Notice whereas I have found that the letter of 2 June 2003 was sent which gives some, but by no means all, the information.  Accordingly I consider that in the circumstances it would be appropriate to reduce the daily penalty to half the amount, namely a total of £310.  The other matters relating to the Appellant are not before me but I am happy to record that during the hearing the parties agreed a timetable for dealing with these outstanding matters.

J F AVERY JONES

SPECIAL COMMISSIONER

SC 3111/03