A FIRM accused of being a managed service company provider has won an appeal against HM Revenue & Customs at the first-tier tribunal.
HMRC had opened an investigation into PML Accounting under an information notice, rather than a third-party notice – something the courts had considered an incorrect premise. The taxman had been looking into whether the firm, run by Paul Hazell, was a provider of managed service companies.
The tribunal found that if PML is a managed service company provider, the obligation to account for tax would fall to PML’s clients. In this case a third-party notice would have been more appropriate in questioning PML. An information notice would relate more to PML’s tax position.
Hazell, who trades as PML Accounting, provides accounting, tax and corporate services to contractors and consultants. Hazell Minshall, run by Hazell’s father Richard, acted as PML’s tax agents. In August 2012, Hazell received a letter from tax inspector Mark Dootson stating that he was considering whether the arrangements existing between PML and its clients would bring PML within the scope of the managed service company legislation.
A series of correspondence between Dootson and Hazell ensued as Dootson outlined the detail he required for his consideration. Given the closure of offices over the Christmas period, the busy period ahead of the 31 January tax deadline and Richard Hazell falling ill, Dootson agreed to extend his deadline from 11 January 2013 to 28 February. Further correspondence followed, confirming that extension on the understanding that the notice would be complied with, in full, by that date and that PML or Hazell Minshall would contact Dootson two weeks prior to confirm the matter was in hand.
However, despite working through the night on 27 February, when Hazell checked to confirm that a courier would be available, the courier company said that they could not deliver to HMRC’s PO Box address. Hazell then called Dootson to ask for a street address, eventually getting a street address in Sheffield.
Hazell then learned his daughter had been badly injured in an accident at home and had been taken to A&E at Southampton hospital. He left everything he had been working on, and went straight to the hospital. His daughter was placed under 24-hour observation while the doctors at the hospital decided whether or not they should operate.
It was not until 4pm on 28 February that the doctors made a decision that because of the age of his daughter, it would be too dangerous to operate, which meant that Hazell and his wife would need to monitor her constantly over the next few days. As a result, Dootson waived any penalty but added that – since the documents were ready to sent – he hoped to receive them before the end of that week.
Boxes of docs
After some difficulty, Hazell delivered 16 boxes of documents to HMRC’s offices. However, Dootson found information was missing, including PML’s bank statements showing fees collected for the period 6 April 2011 to 6 April 2013; bank statements relating to eight of PML’s sample clients; records used to calculate salaries, dividends, taxes and other items for four of the sample clients; and fee invoices for four of the sample clients. Therefore, he issued a penalty.
Although further illness besetting Hazell’s father Richard caused further delays to the supply of information, HMRC issued an initial penalty notice for £300 from March 2013. Daily penalties of £20 per day were imposed in May 2013, stepping up to £30 per day in June, along with further daily penalties of £20 per day between June and September. On review, the fines were upheld and PML was left facing cumulative fines of £4,560.
The tribunal found Hazell’s daughter’s accident was not a reasonable excuse for PML’s continuing failure to produce all the documents as Hazell had more than three months to collate the information required, and still managed to deliver the boxes of information by the extended date. By the time the tribunal commenced, the missing information had yet to be unearthed. Similarly, Richard Hazell’s illness was not found to be a factor in the missing information.
Tax liability on PML’s clients
However, the tribunal found HMRC’s submissions over PML’s position in relation to potentially providing managed service companies did not hold up. Primarily, the tribunal held, the matter would have been better addressed under a third-party notice, with the onus to account for tax liabilities falling on PML’s clients through the managed service companies legislation. Secondly, the tribunal considered the potential liability of PML accounting for tax under the managed services companies legislation “too remote”.
“We therefore find that the information notice did not meet the requirements of [the legislation], as it did not relate to the tax position of PML,” the tribunal ruled.
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