Readers may be familiar with the ongoing saga of Christopher Lunn & Co and HMRC. In brief, Christopher Lunn & Co. (“CALC”) is a firm of accountants in Crowborough specialising in clients in the film and TV industries. HMRC raided the firm and executed a search warrant issued under section 8 Police And Criminal Evidence Act 1984 (‘PACE’) in June 2010 and subsequently wrote to all CALC’s clients on the matter of potential irregularities in their accounts and returns. Clients of CALC were invited to make a disclosure with a deadline of 30 November 2010, subsequently extended to 28 February 2011.
At the end of November 2010, however, HMRC wrote to CALC to say that they were no longer prepared to deal with the firm as a tax agent. This is believed to be the only time such a measure has been taken by HMRC and is the first situation in which there has not already been a successful prosecution of the agent for a tax offence before hand.
CALC challenged HMRC’s decision by way of judicial review and the case was heard before Mr Justice Kenneth Parker at the High Court who gave his decision on 16 February 2011. CALC’s judicial review action was based on the fact that HMRC had not followed correct procedures when withdrawing the tax agent status of CALC at such short notice and had not allowed CALC an opportunity to make proper representations. Mr Justice Kenneth Parker agreed that whilst HMRC had discretion over the care and management of the tax system, that discretion had to be exercised on reasonable grounds and that when such a decision was made, the person affected should normally have a right to be heard and make representations, particularly when being deprived of their livelihood. In this instance, HMRC’s decision was procedurally flawed because the firm was not given the opportunity to make representations to HMRC before it reached its decision.
A second judicial review was launched by CALC to challenge HMRC’s refusal to provide details of the documents it placed before the court when applying for the original search warrant. Having initially resisted this disclosure, it is understood that HMRC have now provided the documents sought and agreed to pay CALC’s costs.
The issue of disclosure of documents by HMRC is an incredibly sensitive one for the department. By applying for judicial review and then seeking disclosure of documents from HMRC, CALC have been able to scrutinise the information relied upon by HMRC in obtaining the search warrant and their decision to withdraw its tax agent status. The ability to scrutinise the information relied upon by HMRC when obtaining a search warrant acts as an important check and balance to the very wide powers which HMRC have at their disposal when conducting criminal investigations.