20912

VAT – Appeal against compulsory registration, late registration penalty, and assessments to VAT – Commissioners assessing by reference to information provided to them in connection with direct tax (self-assessment returns) – the Appellant arguing that such reference could not be made by reason of protection afforded to the Appellant under the Data Protection Act 1998 – Held that this argument was without merit – Application to adjourn the appeal dismissed – Appeal dismissed

LONDON TRIBUNAL CENTRE

	WEBSTER SHROWDER	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S 
	REVENUE AND CUSTOMS	Respondents

			Tribunal:	JOHN WALTERS QC (Chairman)
					ALEX McLOUGHLIN

Sitting in public in London on 6 October 2008

Lanford S. Holmes, Certified Accountant, for the Appellant

J. Holl, Advocate, HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2008

DECISION

1.	Webster Shrowder (“the Appellant”) appeals against a late registration penalty of £7,045, assessed by a notice dated 16 March 2006.  The penalty was imposed by the Respondent Commissioners following a decision given in a letter to the Appellant dated 13 October 2005 compulsorily registering the Appellant for VAT with effect from 1 August 2000.  Although the Appellant’s notice of appeal does not indicate that he appeals against the decision to register him compulsorily or the subsequent assessments to VAT made on him, the Tribunal treats the appeal as covering those matters as well.
2.	The Appellant, represented before the Tribunal by Mr. Holmes, asked for an adjournment of the hearing to enable a solicitor from the firm of Sherman Phillips to be present.  Mr. Holmes produced a letter dated 15 September 2008 from Mr. Chiy, a partner in that firm, which stated that he had another hearing booked and would not be able to attend the Tribunal at the hearing on 6 October 2008.  The letter went on to contain an offer to prepare instructions for Counsel to attend.  No Counsel was instructed.
3.	The Commissioners, through Mr. Holl, opposed the application for an adjournment, making the point that the appeal procedure had already been very long drawn out with several interlocutory hearings, and that the points made in the letter of 15 September 2008 had been made very late in the day.  We reserved our decision on this application but proceeded, without prejudice to our decision on the application, to consider the substance of the appeal (on which we also reserved our decision).  
4.	We heard oral evidence from Mr. Lawrence Stapleton, an officer of the Commissioners who made the initial visit to the Appellant at his retail stall in the Shepherds Bush market on 14 July 2005.
5.	Mr. Stapleton said that he had spoken to the Appellant (he being one of a number of traders spoken to), who had said that he had been trading for 16 to 18 years and believed that his level of turnover was not high enough to require him to register for VAT.
6.	He estimated his sales at £800 per week.  
7.	Mr. Stapleton described the Appellant’s stall as being about 8 feet deep with CDs for sale, stacked from floor to ceiling.  He said that the goods for sale were predominantly CDs, most of them sealed (and therefore new), and there may have been some vinyl records for sale as well.
8.	He compiled information on the visit and made it available to his colleagues within HMRC who deal with income tax.
9.	He obtained contact details for Mr. Holmes (who represented the Appellant velour us) as the Appellant’s accountant and contacted him between 14 July and 25 July 2005.  On 25 July 2005 he wrote to the Appellant telling him that he had contacted Mr. Holmes, and that Mr. Holmes had told him that the Appellant was not VAT registered “and had in fact opted not to register”.
10.	He stated that he had informed Mr. Holmes that VAT registration was not optional, and that once his business turnover had exceeded the VAT registration threshold he was required by legislation to notify the Commissioners of his liability to be registered, within 30 days.
11.	He also stated that the Appellant’s Inland Revenue returns showed that his turnover exceeded the VAT registration threshold in the year ended 7 July 2000 and that on this basis the Appellant became liable to be registered with effect from 1 August 2000.  He enclosed a VAT 1 Registration form for completion by the Appellant and asked for its return within 21 days.  He also stated that a failure to return the completed document within the time limit would result in compulsory registration for VAT.  He enclosed further explanatory information and offered to supply further information if contacted on a given telephone number.
12.	The Appellant did not return the form VAT 1. Mr. Stapleton arranged for compulsory registration of the Appellant, completing the relevant form on 16 September 2005.  He estimated the value of taxable supplies which the Appellant would expect to make in the next 12 months at £125,000, an estimate based on the Appellant’s direct tax returns which had been completed. 
13.	 The letter dated 13 October 2005, referred to above, was sent to the Appellant by the Commissioners informing him that on the information available it appeared that he was required to be registered for VAT with effect from 30 July 2000 and that his failure to notify this requirement had made him liable to a penalty under section 67(1)(a) VAT Act 1994 at a rate of 15% of his net tax (VAT) liability for the period from 1 August 2000 to 1 July 2005 (or £50 if there was no net VAT liability).  He was asked to notify the Commissioners of his net VAT liability (output tax less input tax) for that period within a further 30 days. 
14.	On 6 March 2006 Mr. Stapleton wrote to the Appellant stating that in the absence of a response to his previous correspondence, the Appellant had been compulsorily registered for VAT with effect from 1 August 2000.  Mr. Stapleton noted that the Appellant had sent in three VAT returns following the registration, all showing refunds due to him (of £138.68, £487.82 and £335.96 respectively).  Mr. Stapleton informed the Appellant that he believed these returns were incorrect.  Copies of these returns were in the Tribunal’s bundle.  They were all signed on behalf of the Appellant by Mr. Holmes.
15.	Mr. Stapleton, having compared these returns with the Appellant’s direct tax (self-assessment) returns, made a calculation of the estimated amounts of VAT which he considered were due from the Appellant.  The estimates were of total VAT due for the period from 1 August 2000 to 31 December 2005 of £51,954 and allowed a notional deduction for input tax.
16.	The estimates were enclosed, but Mr. Stapleton promised to reconsider the amounts if the Appellant would let him see all his business books and records.  He warned the Appellant that he may become liable to a misdeclaration penalty, but that this might be avoided if the Appellant could show a reasonable excuse for the misdeclaration, or alternatively mitigating circumstances.
17.	Mr. Stapleton told the Tribunal that the Appellant had never produced any records to him or provided any information which could be the basis of a reasonable excuse for the misdeclaration or other mitigating circumstances.
18.	Also before the Tribunal were details extracted from the Appellant’s direct tax (self-assessment) returns.  These details showed “sales income” (apparently turnover) for the period 7 June 1999 to 7 June 2000 of £58,000, for the period 7 June 2000 (sic) to 7 June 2001 of £65,500, from 8 June 2001 to 7 June 2002 of £109,088.64, from 8 June 2002 to 7 June 2003 of £110,251, from 8 June 2003 to 7 June 2004 of £120,500, and from 7 June 2004 to 7 June 2005 of £103,677.91.
19.	Mr. Stapleton raised assessments to VAT of £51,954, plus interest for the periods 10/05 (the long period starting on 1 August 2000), 11/05 and 12/05 (the date of the calculation given on the notice of assessment on the Tribunal’s file is 10 March 2006).  The penalty assessment (dated 16 March 2006) was in the amount of £7,045.00.
20.	That was the end of Mr. Stapleton’s involvement with the case.  He confirmed to the Tribunal that no concerns regarding the Data Protection Act had been raised with him.
21.	The Tribunal accepted Mr. Stapleton’s evidence.
22.	Mr. Holmes submitted that the Appellant ought to have been registered for VAT from October 2005, not August 2000.
23.	The basis for this submission was that the Commissioners’ reliance on the direct tax (self-assessment) returns submitted by the Appellant was improper.  Mr. Holmes submitted that the direct tax returns contained personal data to which the Commissioners were not allowed to refer without the Appellant’s permission, which had never been given.
24.	Mr. Holmes also stated that probably the Appellant’s turnover reached the level which made him liable to be registered for VAT in about 2001. He said that there was a liability for late registration but that the Commissioners had wrongly had access to the Appellant’s personal data.
25.	The Tribunal understood Mr. Holmes’s submission to be that the Commissioners had breached the protection afforded to the Appellant by the Data Protection Act 1998 (the “DPA”) in relation to the confidentiality of his personal data and that this was a ground for the Tribunal to allow the Appellant’s appeal against the compulsory registration, the assessments to VAT for the periods before 2005, and the penalty for late registration.
26.	The letter from Sherman Phillips states that their consideration is based on Mr. Holmes’s satisfaction that the Commissioners have accessed the personal data of the Appellant in breach of the DPA.  They state that they need further information to advise whether the data accessed by the Commissioners constituted personal data for the purposes of the DPA.
27.	Assuming it did, Sherman Phillips advised that the first DPA principle is that “personal data shall be processed fairly and lawfully”.  This is provided by paragraph 1, Schedule 1, DPA.  That paragraph goes on to provide that “in particular, [personal data] shall not be processed unless–
a: at least one of the conditions in Schedule 2 [DPA] is met, and
b: in the case of sensitive personal data, at least one of the conditions in Schedule 3 is also met.”
28.	In their letter, Sherman Phillips reviewed the conditions in Schedule 2, noting that the Commissioners may be able to show that the 3rd condition is satisfied, namely that “the processing is necessary for compliance with any legal obligation to which the data controller is subject, other than an obligation imposed by contract”.  They also noted that the 5th condition is prima facie satisfied in that the Commissioners are presumably able to say that the processing is necessary (b) for the exercise of any function conferred on any person by or under any enactment, (c) for the exercise of any function of the Crown, a Minister of the Crown, or a government department, or (d) for the exercise of any other functions of a public nature exercised in the public interest by any person”. 
29.	Sherman Phillips went on to say that in the case of sensitive personal data, at least one of the 20 conditions found in Schedule 3 of the DPA and Regulations made under it must also be satisfied.  
30.	The 5th condition, paragraphs (b) and (c) of Schedule 2 (referred to above) are reproduced as the 7th condition, paragraphs (b) and (c) of Schedule 2, and so, although Sherman Phillips do not say so, they presumably would advise that the 7th condition of Schedule 3 is also prima facie satisfied, assuming that the data in question is sensitive personal data.
31.	Mr. Holl, for the Commissioners, drew the Tribunal’s attention to section 127(1) Finance Act 1972 which provided as follows:
“No obligation of secrecy or other restriction upon the disclosure of information imposed by statute or otherwise shall prevent either–
a: the Commissioners of Inland revenue or an authorised officer of those Commissioners; or
b: the Commissioners of Customs and Excise or an authorised officer of those Commissioners;
from disclosing information to the other Commissioners or an authorised officer of the other Commissioners for the purpose of assisting them in the performance of their duties.” 
32.	This section was repealed with effect from 18 April 2005 by the Commissioners for Revenue and Customs Act 2005 (the “CRCA”).
33.	It appears that since that date the statutory position has been that information acquired by the Revenue and Customs in connection with a function may be used by them in connection with any other function (section 17(1) CRCA), but that this does not authorise the making of a disclosure which contravenes the DPA (section 22(a) CRCA).
34.	The material events in this case took place after 18 April 2005, and so the Tribunal proceeds on the basis that the provisions of the CRCA referred to provide the relevant statutory framework.  This gives precedence to any available DPA protection.
35.	However, from the references made above to Sherman Phillips’s advice and the DPA, it appears to the Tribunal that the DPA does not give the Appellant in this case protection against the cross-referencing of information between the VAT and the direct tax functions of the Commissioners which has occurred.  That cross-referencing is, in the Tribunal’s view, clearly, necessary for the exercise of the function of collection and management of VAT conferred on the Commissioners by paragraph 1 of Schedule 11 to the VAT Act 1994, or (which is saying much the same thing) for the exercise by the Commissioners of any function of the Crown ... or a government department.
36.	It would, in the Tribunal’s view, be astonishing if the law were otherwise.  The effect of Mr. Holmes’s submissions being correct would hamstring the Commissioners in their management of both direct tax and VAT, the prevention of which situation, it would appear, was one of the main objects of the enactment of the CRCA.
37.	For these reasons the Tribunal has concluded that the ground of appeal based on the DPA advanced by Mr. Holmes is without merit.  That being so, we have decided to refuse his application to adjourn the appeal.  We go on to dismiss the Appellant’s appeal, no other ground of appeal having been advanced.

JOHN WALTERS QC

CHAIRMAN
RELEASE DATE: 9 January 2009

LON/2006/0580