The FTT is unimpressed with the "progress" of an HMRC enquiry that the FTT stated "drifted along aimlessly" and, unsurprisingly, has ordered it closed.
Background
Mr Patel (the
taxpayer) is a chartered accountant who incorporated his practice to
become Ashley King Ltd (the company). The company was charged a fee
under a licence agreement for the use of the practice name, business
contacts and web domains, the goodwill of which the taxpayer claimed was
a personal asset.
The licence fee
received under the licence agreement was declared on the taxpayer's
self-assessment tax return as income. HMRC opened an enquiry into the
taxpayer's 2014/15 tax return in late 2016, in relation to the licence
fee and goodwill. The taxpayer provided HMRC with a copy of the licence
agreement which explained the nature of the relationship and the payment
terms.
HMRC suspected that
the licensing arrangement was intended to avoid employer NICs and the
matter was referred to various specialist teams within HMRC for advice
over the course of the next 12 months.
At no point did HMRC seek to enquire into the tax return of the company, despite HMRC considering that there could be charges to PAYE and employer NICs as a result of the licence fee arrangement.
The taxpayer made
an official complaint, claiming that HMRC were ignoring the information
he had provided and his technical arguments. He also informed HMRC that
he would seek a direction from the FTT requiring HMRC to close its
enquiry. HMRC sought further information from the taxpayer and some 21
months after the enquiry had been opened, issued an information notice
to the taxpayer pursuant to paragraph 1, Schedule 36, Finance Act 2008.
The taxpayer
considered that he had provided all relevant documents and information
to HMRC and applied to the FTT for a direction requiring HMRC to issue a
closure notice pursuant to section 28A, Taxes Management Act 1970.
FTT decision
The application was allowed.
HMRC argued that it
had not concluded its enquiry in relation to the licensing of the
goodwill. Its initial view was that the goodwill could not be personal,
in which case the taxpayer would have no goodwill to licence. It was
possible that the licence fee payments received from the company should
be recharacterised as salary and it therefore required further
information from the taxpayer in order to form a definitive view.
HMRC agreed at the
hearing that the specialist teams from whom advice had been sought had
not been provided with the full facts of the matter and when questioned
by the judge, the HMRC enquiring officer confirmed that there was no
investigation in respect of the company and that if Class 1 NICs were
payable, it was the company, not the taxpayer, which would be liable to
pay them. Additionally, if the licence fee payments were salary, then
the company would be liable under the PAYE system and as such no
amendments would be required to the taxpayer's return.
The FTT referred to Estate 4 Ltd v HMRC [2011]
UKFTT 269 (TC) and concluded that HMRC's admission that no amendments
could be made to the taxpayer's return settled the matter in his favour.
There was no tax at risk since Class 1 NICs cannot be recovered from an
employee. Additionally, it was not sensible for the enquiry to be kept
open when there was no possibility of an enquiry into the company.
The FTT directed HMRC to issue a closure notice in respect of its enquiry into the taxpayer's tax return.
There it is folks as per this sentence:
"HMRC agreed at the
hearing that the specialist teams from whom advice had been sought had
not been provided with the full facts of the matter."
HMRC deliberately tries to rig the "game" in its favour when engaging with taxpayers by hiding data and information.
Do not trust HMRC to treat you fairly or honestly!
Tax does have to be taxing.
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