The recent case of Wilson v HMRC SpC 724 is extremely brief, but rather alarming. The brevity of the Special Commissioners’ judgment clearly permits a degree of misunderstanding, which I hope will be clarified in due course by those who know more about the case.
It would appear that Mr Wilson submitted his tax return for 2004/05, but HMRC lost it and, therefore, failed to open an enquiry into that year within the enquiry window. They wanted a copy of the tax return so they could decide whether there were grounds for issuing an assessment out of time. Accordingly, they issued a notice under Section 20 TMA 1970, requiring him to deliver a copy. He did not do so, and the Special Commissioners imposed the maximum penalty.
It seems quite extraordinary that the taxpayer should be penalised for not retaining a copy of his or her tax return. I was not aware of any requirement for the taxpayer to do so – and if HMRC have lost it, they would seem not to have any grounds for making any assessment at all.
The taxpayer has an obligation under Section 12B TMA 1970 to keep such records “as may be requisite for the purpose of enabling him to make . . . a correct and complete return” and to preserve those records until HMRC no longer has power to make enquiries. That will generally be the end of the enquiry window, or six years for those carrying on a trade. However, this is not at all the same thing as obliging the taxpayer to keep a copy of the return.
If a taxpayer does not keep records or loses his records, HMRC will deny entitlement to allowances or relief on the grounds that it is up to the taxpayer to prove a claim and, if he or she cannot do so, bad luck. Furthermore, if he or she does not have sufficient records to show that an assessment made by HMRC is wrong, he or she has to pay the tax. How can it be right that if HMRC lose the tax return (or anything else, I suppose), they can penalise the taxpayer for not keeping a copy so that he or she can send them another one? This is so unreasonable that I am sure that there are some additional facts that were not revealed in the decision of the Special Commissioners, and I would dearly like to know what they are.