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ENQUIRIES – closure notices – direction given allowing a further six months for enquiries.

THE SPECIAL COMMISSIONERS

Mr FRANK KILBRIDE
Mrs CHRISTINE ASHCROFT
MALL FINANCE LIMITED 
		Applicants

	- and -

           
	HER MAJESTY’S COMMISSIONERS OF
	REVENUE AND CUSTOMS     	Respondents

				Special Commissioner: RICHARD BARLOW

Sitting in Manchester on 1 October 2007

Mr F Webster of Guildhall Tax Consultants for the Applicants

Mr D Rowan of HMRC for the Respondents

© CROWN COPYRIGHT 2008

DECISION

1.	This decision relates to applications made by the applicants for directions requiring an officer of the Board (in the case of the individuals) or the Inland Revenue (in the case of the company) to issue closure notices.  Mr Kilbride applies under section 28A of the Taxes Management Act 1970 for a closure notice in respect of an enquiry notified under section 9A of that Act into his personal tax return for the year ended 5 April 2003.  Mrs Ashcroft applies under the same provisions in respect of her return for the year ended 5 April 2005.  Mall Finance Limited applies for a similar notice under paragraph 33 of Schedule 18 to the Finance Act 1998 in respect of its return for the period 1 April 2002 to 31 March 2003. 

2.	The relevant statutory provisions provide that such applications shall be heard and determined in the same way as an appeal and that the direction “shall” be given unless I am “satisfied that there are reasonable grounds for not issuing a closure notice within a specified period” (in the case of the company the wording refers to giving the notice rather than issuing it).

3.	In a typical case whether there are reasonable grounds for not issuing a notice will really amount to deciding whether there are reasonable grounds for allowing the enquiry to continue and, if so, for how long.  Mr Rowan has argued that it is reasonable to allow a further six months after the issue of this decision for the enquiries to be completed and Mr Webster has applied for a direction that a closure notice be given taking effect immediately upon the issue of this decision.  

4.	Where, as here, the question is whether there are reasonable grounds for not issuing a notice, that question can be decided on consideration of the information before me even if that information is not in the form of evidence of proven facts.  Reasonable grounds are no the same thing as proven facts.  The question is whether on the information placed before me it is reasonable to allow the enquiry to continue.    

5.	Mr Rowan accepted that he should present his case first and, so far as it is relevant, it is clear that the burden of proof lies upon the respondents.  There was disagreement between the parties as to the scope of the evidence I should consider.  Mr Webster objected to reliance being placed upon matters arising or facts relating to periods other than those to which the enquiries related.  I hold that the reasonableness of the enquiry can be determined in light of facts or information arising both within and without the period of the enquiry provided they are relevant.  For example, if the case were to be one where a taxpayer had traded in a particular way in a period before that for which the enquiry is underway and that the trade appeared to continue into the period under enquiry it seems very clear that facts relating to the period before the period under enquiry must be relevant and that it would be somewhat absurd to ignore them.

6.	Mr Ian Woodall, a Grade 7 officer of the respondents’ Preston office, provided a witness statement and gave evidence confirming its truth and was cross-examined by Mr Webster.  Mr Webster did not dispute the underlying facts as stated in that statement and the cross examination was mainly limited to elucidating the reasons for the approach taken by the respondents.  No witnesses were called by Mr Webster.  Both parties presented documents to me and my decision is based on the documents and the submissions of the parties and I have approached the matter on the basis that, as Mr Webster did not challenge the accuracy of the matters referred to in the documents, I should read the documents as speaking for themselves and draw such inferences as appear appropriate for the purposes of these applications.         

7.	Mr Webster’s case was that the applicants’ affairs, particularly those of Mr Kilbride, have been under enquiry for a long time and that the respondents have not produced any evidence of a tax loss in the relevant periods.  As far as the length of time Mr Kilbride’s affairs have been under enquiry is concerned much of that relates to other matters and other periods and I regard that as irrelevant.  What I have to decide is the reasonableness of the continuation of these enquiries and, for example, unless there is any reason to think that the enquiry is being carried out vindictively as a result of other failed enquiries in the past any such other enquiries are likely to be irrelevant.  There is no evidence that Mr Kilbride is being victimised and I hold that those other enquiries are irrelevant.  

8.	Mr Webster’s point that no tax loss has been proved is potentially relevant and in particular, if he had been able to show positively that there had been no loss, that would be likely to have decided the issue in his clients’ favour.  But normally the purpose of an enquiry will be to establish whether there has been an underdeclaration of tax and so simply to say that none has yet been established will not be sufficient to persuade a Commissioner that a closure notice should be directed.  What is in issue is whether there is enough material before me to establish that it is reasonable for the respondents to continue to make enquiries to establish if there is a liability and/or its amount.

9.	The enquiries in issue arise from the activities of four overseas companies which I will refer to collectively as the GJS Companies.  The details of GJS companies as known to the respondents are:

GJS Developments Limited
St Helier 
Jersey
Directors: Alex Picot and Derek Rhodes
Shareholders: APIC Trustees Ltd., CIPA Secretaries Ltd., and PICA Nominees Ltd.  (The shareholders have the same address as the company).

GJS Development Limited
Tortola 
British Virgin Islands
Directors: Monique Adams, Terence Gumbs, Emma Greenaway and Mark Kilbride.

GJS Development Ltd 
Mahe
Seychelles

GJS Ltd
Nicosia
Cyprus

10.	Mr Kilbride and Mrs Ashcroft are directors of Mall Finance Limited and they accept that Mall Finance Limited acted on behalf of the GJS companies in respect of financial transactions.  Either they or Mall Finance Limited also acted on behalf of GJS companies in respect of works done to properties bought and sold by GJS companies. 

11.	For the purpose of the hearing, the applicants produced two letters from a Mr Petrou, a lawyer in Nicosia, and Mr Kilbride has asserted in a document in which he commented on the respondents’ statement of case that Mr Petrou is the sole director of the Seychelles company.  There is no known connexion between any of the GJS companies except their names and the manner of trading, including dealings with or through Mall Finance Limited, Mr Kilbride and Mrs Ashcroft, but that is not to say that no such connexion exists and indeed I find there must be a connexion between all four of the GJS companies. 

12.	The respondents have been able to trace, through Land Registry and District Valuation documents, 202 property transactions in Preston, Blackburn and neighbouring towns in which GJS companies have acted as buyer or seller, or both, between 1 October 1999 and 13 October 2006.  Until shortly before the GJS companies began to engage in those property transactions Mall Finance Limited had carried out similar transactions on a similar scale.  

13.	Where both the purchase and sales prices for the 202 properties are known the purchases cost £6,228,385 and the combined sales prices were £9,420,535 giving a gross profit of £3,192,150.  None of the GJS companies has made a tax return in this country.  Other transactions have been discovered where a purchase or a sale is known to have occurred, but not both, and the information available to the respondents is not necessarily complete so that the figures mentioned are the minimum amounts, not necessarily the full amounts.

14.	During the year ending 31 March 2003 the GJS companies’ property transactions showed a gross profit of £591,650.  During the year ending 5 April 2003, which closely coincides with that period, Mall Finance Limited received payments totalling £39,000 from GJS companies and Mall Finance Limited paid Mr Kilbride £16,986 (his total declared income was £23,792).  However, deposits into Mr Kilbride’s private bank accounts during the year to 5 April 2003 were £212,007.30 of which £96,000 was deposited by means of GJS company cheques.

15.	Initially Mr Webster gave, in a letter dated 9 December 2005 on behalf of Mr Kilbride, a detailed explanation of the sources of a large part of that £212,007.30.  The amount accounted for was £90,635.13 and the amount unaccounted for was said to be £83,060.68 which was said to be from sources similar to the sums accounted for but that the reason it could not be accounted for was because Mr Kilbride’s wife had destroyed his papers.  At that stage it was not suggested that any of the deposits had come from GJS companies.  However, it is difficult to understand why Mr Kilbride was then unable to recall that any of the deposits had come from GJS or to account for them.  The £96,000 deposited by way of GJS Cheques was an amount equal to what had been accounted for and in excess of what Mr Webster thought was unaccounted for and yet it was not mentioned as a source of any of the payments into the account.  

16.	A further question arises about two loans said to have been made to Mr Kilbride by friends of his and said to have been the source of some of the otherwise unexplained deposits.  They both borrowed substantial sums on the same day in 2001 and are said to have paid the amounts borrowed to Mr Kilbride as and when he needed money, including during the year ended 5 April 2003, in order to keep the money hidden from his wife during the divorce proceedings.  It is not clear how these sums explain any of the deposits to the bank accounts but, if they do, there must be some sort of records available or else the lenders would not know how much Mr Kilbride owed them.

17.	Mr Kilbride has subsequently asserted that the money paid into his accounts by GJS companies included payments for work done on the properties the GJS companies were buying and selling and that the money was only handled by him on behalf of GJS.  On any view a question remains as to why this money was paid into Mr Kilbride’s account as opposed to Mall Finance’s account.  There must have been records relating to these works and they might be expected to be in Mall Finance’s records if that company was acting for the GJS companies.  It is at least unclear how Mrs Kilbride’s actions might explain the absence of any such missing records. 

18.	When asked for and when offering an explanation about the deposits into his own account, Mr Kilbride failed to mention the GJS companies or to produce any records; falling back in stead on the assertion that the payments were similar to those accounted for in quite different ways and explaining that the records were amongst those destroyed by his wife.   

19.	It has been asserted on behalf of Mr Kilbride that the respondents’ lack of business acumen has led to their failure to appreciate the simplicity of Mall Finance’s activities on behalf of the GJS companies.  It is wholly unclear why the affairs of the GJS companies, particularly payments to tradesmen working on the properties, should have been handled through Mr Kilbride’s personal accounts rather than directly through Mall Finance’s accounts or even the GJS accounts themselves and the activities of Mall Finance cannot be described as simple.  

20.	The GJS companies must be related to each other.  Four different overseas companies each with a similar name cannot, by coincidence, have entered into similar property transactions in the same part of England within a short time and have engaged the same UK company to act for them.  There must be some continuity between the true owners and the directing minds of those companies regardless of who the nominal shareholders and directors are.  Those directing minds or their agents must have given instructions repeatedly to Mall Finance and/or Mr Kilbride or Mrs Ashcroft to enable them to carry out transactions on behalf of the GJS companies.  The respondents do not know who the directors of all the GJS companies are and they have not been informed of that by anyone acting on behalf of the GJS companies in this country.

21.	I should make it clear that I regard the failure of Mr Kilbride and Mrs Ashcroft to disclose details of the identity of the persons they dealt with from the GLS companies, assuming there are such persons, and of the nature of the instructions received, as being relevant to the issues in this case regardless of whether they were under any legal obligation to make those disclosures.  It is a fact that the respondents do not have those details and that lack of information is relevant to the question whether it is reasonable that the enquiries should continue regardless of whether there has been non-compliance with any obligation to disclose.

22.	During the year ending 5 April 2003, as already mentioned, £96,000 was deposited in Mr Kilbride’s accounts from GJS companies and all 16 cheques were drawn on a Jersey account and signed by Mrs Ashcroft as follows: 

“For GJS Development Ltd.”  [Pre-printed]
“C L Ashcroft” [Handwritten]
“Director” [Pre-printed]

Eleven similar cheques amounting to £61,025 and signed in the same way were paid in to Mr Kilbride’s accounts in the year ending 5 April 2005.

23.	Three cheques totalling £15,500 have come to light drawn on the same account in Mrs Ashcroft’s favour in which Mr Kilbride has signed as director. 

24.	Mr Webster argued that when Mr Kilbride and Mrs Ashcroft signed as director that meant they had been authorised by the directors of the GLS company to sign on the company’s behalf and that that was normal practice.  

25.	In my view if a person signs on behalf of a company as director they have at least raised the possibility that they are a director and that it is perfectly reasonable for the respondents to want to be satisfied whether that has led to any tax consequences.  That is the more so if, as here, the same person has acted on behalf of the company concerned in numerous transactions potentially giving rise to profit or income.  In addition if, as here, the persons claiming to have so acted could only have done so on behalf of the company by receiving instructions and having contact with the true directors or directing minds of the company, if such persons exist, and they have not produced those instructions or disclosed the identities of those directing minds; then it is perfectly reasonable for the respondents to wish to satisfy themselves about the true situation by further enquiry.

26.	My conclusion is therefore that there are reasonable grounds for not issuing a direction for the issue or giving of closure notices to have immediate effect.

27.	As Mr Rowan asked for only six months to continue the enquiries and as I am satisfied that at least that length of time is reasonable, I direct that a closure notice be given in each case within six months of the issue of this direction.	

RICHARD BARLOW
SPECIAL COMMISSIONER

Released: 15 January 2008

SC/3127/2006
SC/3175/2007
SC/3091/2007