Sec 20(3) Demand for documents

[ashleyfox]

Revenue has sent a sec 20(3) demand to my clients former accountants for documents. Am I or my client entitled to copies of any documents sent?
Would the same answer apply to other third parties such as banks, lawyers etc
Does the answer depend on whether my client has an existing or former relationship (customer or client) with the third party?
Thank you

[johnfkavanagh]

The relevant legislation does not confer any specific entitlement to copies of the documents obtained by the Revenue. This would apply equally to other third parties, although note that a section 20(3) notice cannot compel a barrister, solicitor or advocate to deliver or make available documents which are professionally privileged.

There is a possibility that there is a contractual right to the documents; this should be checked. There is obviously also the possibility that the accountants might provide copies voluntarily. There may also be a right to request details of personal information (if this is relevant to your client's situation) under the provisions of the Data Protection Act 1998.

John Kavanagh
UK Tax Consulting Ltd
Chartered Tax Advisers
www.uktaxconsulting.co.uk
mail@uktaxconsulting.com
Tel: 020 7060 1660
Fax: 020 7060 1663

[maths]

Is it not the case that any documents supplied to the IR by the client's former accountants where such documents were those where the accountant was acting as the client's agent must be supplied to the client if requested by him?

Normally as a matter of courtesy where a professional adviser receives a section
section 20(3) notice, prior to complying with it, the client to whom it refers would have been told and would again as a matter of courtesy be copied on any correspondence supplied.

[johnfkavanagh]

I think that the answer to the first question (which deals with the question whether the accountants MUST provide copies) is no, unless of course the documents belong to the client. Whether that is the case depends on what documents are being requested.

In any event, I do not think that section 20(3) should be in point at all if the documents in fact belong to the client. If they belong to the client, it follows that they are in the power or possession of the client (all he needs to do is take appropriate action to obtain them) and if I were the previous accountant, I would certainly argue that a notice under section 20(1) should be given to the former client and a third party notice under section 20(3) is not appropriate. I have put this point to General Commissioners to whom an application for consent to a section 20(3) notice had been made and they refused to give consent to the notice, agreeing with me that a section 20(1) notice had to be given.

It is possible that, while the documents in question belong to the client, the accountant may have a lien over them for unpaid fees. Again, if I were the previous accountant, I would argue in those circumstances (as I have done successfully in the past ) that it was wrong to proceed under section 20(3) because the documents were in the power of the client - all he had to do to obtain them was to take out his cheque book!

As regards the question of courtesy raised in the second paragraph, in an ideal world, "maths" would be quite right. However, courtesy frequently evaporates when money is at stake and regrettably, not all accountants are professionally qualified and some of those who are do not always adhere to their professional body's guidelines.

John Kavanagh
UK Tax Consulting Ltd
Chartered Tax Advisers
www.uktaxconsulting.co.uk
mail@uktaxconsulting.com
Tel: 020 7060 1660
Fax: 020 7060 1663

[maths]

I accept that it is normal IR practice to request information under section 20(1) prior to using section 20(3).However, as far as i am aware there is no statutory support for this practice.

Perhaps "ashleyfox" might confirm whether in fact the taxpayer was subject to a section 20(1) notice first and whether there is an outstanding fee issue with the client's former advisors?

[johnfkavanagh]

Maths

You seem to be under the mistaken impression that whether the Revenue is able to proceed under section 20(1) or section 20(3) is a matter of "IR practice" and is for them to decide. In the final analysis, it is not; in either case, it is necessary to apply for consent from the Commissioners to the issue of a notice and, as I said before, my experience is that the Commissioners are easily persuaded that a section 20(3) notice is not appropriate if there is no good reason why a section 20(1) notice could not be issued instead.

You say that there is no "statutory support" for this "practice". There is no express provision in the statute but I would mention that section 20(7) provides that a "... Commissioner is to give his consent [to a notice] only on being satisfied that in all the circumstances the inspector is justified in proceeding under this section...". In my own practical experience, one of the circumstances which Commissioners take into account in hearing ex parte applications on section 20 notices is whether the notices are addressed to the person who should properly assume the compliance burden. While the Commissioners are usually keenly aware of the fact that it is going to cost a third party time and possibly money to comply with a section 20(3) notice which may not directly affect them, it is equally my experience that inspectors who are not familiar with section 20 rarely concern themselves with issues of that kind, as long as they have formulated a notice which gets them what they are asking for.

Generally, I find that accountants and tax advisers have an unhealthy tendency to crumble and capitulate pathetically at the sight of section 20B(1) precursor notices (let alone the section 20 notices themselves). This is, in my view, particularly unfortunate since the whole point of our clients engaging us as advisers is to ensure that we act in their legitimate interests to the maximum extent permitted by the law.

John Kavanagh
UK Tax Consulting Ltd
Chartered Tax Advisers
www.uktaxconsulting.co.uk
mail@uktaxconsulting.com
Tel: 020 7060 1660
Fax: 020 7060 1663

[maths]

John
I look forward to seeing "ashleyfox's" response to my question above before making any further comments.

However, you may have misunderstood my earler point; what i was seeking to say was that there is no specific statutory authority under which the IR "must" raise a section 20(1) before a section 20(3)although i am fully aware of subsection (7) to which you refer.

[johnfkavanagh]

Maths

I think it should be clear from the second sentence of the second paragraph of my previous reply that I did not "misunderstand" the point you were making. I was attempting to point out that it is not realistic to expect there to be specific provisions in the legislation which force the inspector to issue one kind of notice before another kind of notice, regardless of the circumstances. Naturally, what action is appropriate, and specifically whether it is more appropriate to issue a section 20(1) notice than a section 20(3) notice depends entirely on the circumstances. What I was saying in my second contribution is that in the circumstances I mentioned (which may or may not be the circumstances the querist's client and previous accountant find themselves in), I would argue (as I have done successfully in the past) that a section 20(1) notice was more appropriate than a section 20(3) notice.

The Inland Revenue's Enquiry Manual paragraph 2475 instructs inspectors that "...It should be normal practice to ask the taxpayer, where practicable, to obtain the information directly from the third party. If that is unsuccessful only then should the Inspector approach the third party direct. There may, however, be exceptions to this rule. For example, where it is clear from the outset that the taxpayer cannot or is unlikely to produce the information, or there is a risk of collusion..."

As I said before, section 20(7) should ensure that notices are justified in the particular circumstances (provided of course that the proper represatations have been made at the section 20B(1) notice stage). Would inspectors use these powers unreasonably if the Commissioners did not have to give consent? The legislators plainly thought that there was a risk of this, and I am sure that they were right. I have seen many section 20B(1) precursor notices which were not complied with and which were never taken to the next stage (or were watered down substantially) precisely because the inspector knew full well that the Commissioners were unlikely to give consent to the notice.

John Kavanagh
UK Tax Consulting Ltd
Chartered Tax Advisers
www.uktaxconsulting.co.uk
mail@uktaxconsulting.com
Tel: 020 7060 1660
Fax: 020 7060 1663

[pallet]

Do not be put off, your clients are entitled to all their documents that the revenue hold and they should contact the revenue DPA department quoting all references. It should include the revenus internal memos compter records and your clients accoutants letters held by the revenue with thier replys.I was one of the first to do this as the inspector told me i was only allowed information and documents that he wanted me to see.Unfortatly it will open your eyes to how bad inspectors act to stop t/ps "coming up for air"as one inspector wrote to another. good luck