Landlords who defied demands from HM Revenue & Customs to reveal details of how much rent their letting businesses earned have lost their legal challenges. Sarah Duncan and Khalid Mahmood both employed the same accountant and separately filed tax returns that failed to disclose their full incomes. HMRC served information notices on each, but their accountant failed to hand over the details required by the tax authority.
In separate hearings before the First-Tier Tribunal, they made a bid to overturn the notices as well as a £300 automatic penalty for failing to provide enough information to assess their rental income.
The accountant, Jonathan Vyse of Pearl Lily & Co, argued that Duncan had not been served with a notice to file a tax return, and as she filed a voluntary return, her business records were not statutory documents that she should provide to HMRC. The tribunal heard that HMRC uncovered that she owned and rented out property and had not filed a tax return. An information request was sent to her, but she failed to respond and filed a voluntary tax return instead.
But the judge ruled making a voluntary return was irrelevant as the filing did not cover the information requested in the notice.
In relation to Mahmood, Vyse claimed HMRC had no power to investigate his financial affairs, but the tribunal rejected his claims and upheld HMRC’s case except for some matters that were withdrawn, along with requests for a capital gains tax computation and old business documents. The cases mainly failed because of two reasons:
- The landlords did not hand over statutory records; Tax rules demand taxpayers must hand these over when asked.
- The information requests were reasonable as the tax returns for the pair did not reveal enough information about their letting businesses for HMRC to assume they were complete and correct.