In Umesh Gadhavi v HMRC [2020] TC07890, the First Tier Tribunal (FTT) upheld HMRC's information request to produce bank statements under Schedule 36 FA 2008 finding that the taxpayer could not provide a valid reason as to why the request should not be fulfilled.

  • During an investigation of a company wholly-owned by Mr Gadhavi, HMRC identified payments into his personal bank account of £123,048 which did not originate from the company. Mr Gadhavi advised that these were loans to cover living expenses.
  • HMRC considered the sums to relate to Mr Gadhavi’s continuing self-employment business which Mr Gadhavi had failed to declare after recording its cessation on 5 April 2014.
  • HMRC opened an investigation in Mr Gadhavi’s personal tax affairs and requested personal and company bank statements for the period 1 November 2014 to 31 October 2015 along with an explanation of the entries, which Mr Gadhavi provided after a period of 16 to 18 months.
  • HMRC subsequently opened an enquiry into Mr Gadhavi’s 2016-17 tax return, issuing Sch 36 Information Notice to provide bank and credit card statements for the periods 6 April 2014 to 20 October 2014 and 1 November 2015 to 5 April 2017.
  • Mr Gadhavi attempted to send some of these documents to HMRC via e-mail but they exceeded the maximum message size of which he had been made aware. 
  • Mr Gadhavi wrote to HMRC to appeal the notice citing that he had previously provided information which had not been taken into account. He had difficulties in obtaining statements and was concerned that he would be asked to carry out further time-consuming transactional analysis.

Schedule 36 FA 2008 permits HMRC to make a written request to a taxpayer to provide information or produce a document that is reasonably required by the officer for the purpose of checking the taxpayer's tax position.

Where a person has filed a tax return, HMRC may only issue an information notice in respect of information contained in that return if one of four conditions is met. HMRC argued that Condition B applied, namely that it had a suspicion that for the chargeable period there had been an under assessment of tax.

The FTT dismissed Mr Gadhavi’s appeal, finding that:

  • Condition B was met, with HMRC having reason to suspect that amounts which should have been charged to tax had not been, as:
    • Mr Gadhavi’s explanation of the sums being loans to cover the costs of living was inconsistent with him sending money to India or using it in India on trips made by him.
    • Mr Gadhavi could not explain why he used the funds to make payments to his company in order that the company could make payments back to him as remuneration, thereby converting non-taxable loans into taxable income.
  • The documents were reasonably required by HMRC for the purpose of checking Mr Gadhavi’s tax position.
    • Mr Gadhavi had provided no other documentation in respect of the sums received.
    • The bank statements previously provided did not show the full picture.
    • The credit card statements requested would provide a clearer understanding of Mr Gadhavi’s basic living costs.

Links

Sch 36 Information Notices
What is a Schedule 36 Information Notice? When can HMRC issue one? What rights does the taxpayer have when an information notice is issued?

How to appeal an HMRC decision
What type of decision can you appeal? What are your different options when you disagree with HMRC? What are the key steps in making an appeal?

External link

Umesh Gadhavi v HMRC [2020] TC07890

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