Introduction

Thompson v Revenue & Customs ([2013] UKFTT 103 (TC)) is a pivotal case adjudicated by the First-tier Tribunal (Tax) in the United Kingdom. The case revolves around an appeal by Mrs. Eudora Thompson against an information notice issued by Her Majesty's Revenue and Customs (HMRC) under Schedule 36 of the Finance Act 2008. The core issues pertain to the onus of proof regarding the possession and power over certain financial documents, and whether specific documents fall within Mrs. Thompson's statutory records, thereby precluding an appeal.

Mrs. Thompson, founder and CEO of Zynap Limited, challenged HMRC's requirement for her to produce specific financial documents to substantiate her tax claims for several fiscal years. The Tribunal's decision in this case has implications for how taxpayers must respond to HMRC's information notices and the burden of proof in tax-related inquiries.

Summary of the Judgment

The Tribunal dismissed Mrs. Thompson's appeal concerning the first two paragraphs of the information notice, which required her to provide credit card and bank statements, as well as a detailed schedule of payments received from Zynap Limited during the tax year ended 5 April 2007. The Tribunal found that HMRC was justified in requesting these documents to verify Mrs. Thompson's tax position. Additionally, the Tribunal held that it lacked jurisdiction to consider the third paragraph of the information notice, which related to documentation about a loan from Nemo Personal Finance, as this information constituted Mrs. Thompson's statutory records. Consequently, the appeal was dismissed for the first two requirements, and struck out for the third.

Analysis

Precedents Cited

The judgment referenced LS v London Borough of Lambeth (HB) [2010] UKUT 461 (AAC), which deals with the procedural aspects of tribunal hearings and the rights of appeal against decisions. This precedent was pertinent in determining the scope of the Tribunal's jurisdiction, especially regarding what constitutes statutory records and the limitations on appealing such determinations.

Legal Reasoning

The Tribunal's legal reasoning hinged on the interpretation of Schedule 36 of the Finance Act 2008, particularly focusing on the onus of proof and the definition of statutory records. The key points in the reasoning included:

• Reasonableness of Information Requests: The Tribunal evaluated whether HMRC's requests were reasonable for verifying Mrs. Thompson's tax position. It concluded that the requests were reasonable as they sought primary evidence (credit card statements) necessary for substantiating expense claims.
• Onus of Proof: The Tribunal addressed the shift in the burden of proof from HMRC to the taxpayer once HMRC demonstrated that the documents were within the taxpayer's possession or power. Mrs. Thompson failed to convincingly demonstrate why the requested documents could not be produced.
• Statutory Records: Regarding the third paragraph of the information notice, the Tribunal applied the definition of statutory records, determining that the loan documentation related to business activities and thus fell within records that preclude an appeal.
• Efforts to Obtain Documents: The Tribunal scrutinized Mrs. Thompson's efforts to obtain credit card statements, finding her explanations and efforts insufficient to absolve her from the duty to produce the documents.

Impact

This judgment underscores the stringent requirements placed on taxpayers to maintain and produce accurate financial records in the event of tax inquiries. It reinforces HMRC's authority to request comprehensive financial documentation and clarifies the taxpayer's obligations to comply with such requests. Additionally, it delineates the boundaries of appealability concerning statutory records, ensuring that certain documents essential for tax verification remain beyond the scope of appeal.

Complex Concepts Simplified

Onus of Proof

The "onus of proof" refers to the responsibility to prove one's assertion. In this case, once HMRC established that the documents were likely within Mrs. Thompson's possession or control, the burden shifted to her to demonstrate why she could not provide them.

Statutory Records

"Statutory records" are documents that a person is legally required to keep for tax purposes. These can include financial statements, loan agreements, and other records pertinent to one's business or personal finances. If a document is deemed a statutory record, an appeal against its production may not be permitted.

Information Notice Under Schedule 36

An "information notice" is a formal request from HMRC for taxpayers to provide specific information or documents to verify their tax returns. Schedule 36 outlines the procedures and requirements for such notices, including the taxpayer's rights to appeal.

Conclusion

The Tribunal's decision in Thompson v Revenue & Customs serves as a critical reminder of the importance of meticulous financial record-keeping and the obligations of taxpayers to comply with HMRC's information requests. By upholding the necessity of producing primary financial documents and clarifying the extent of appeal rights concerning statutory records, the judgment provides clear guidance on the procedural expectations in tax disputes. Taxpayers must ensure they can access and produce required documents and understand the parameters within which they can contest HMRC's information notices.