A tax inspector slipped up when looking at the non-residence status of a British expat in Spain and failed to issue the right paperwork to look into his tax affairs.
The expat, Kevin Betts, filed a self-assessment tax return in January 2010 claiming he was not resident in Britain.
HM Revenue and Customs opened an inquiry into the return calling for more information to support his claim.
Mr Betts told HMRC that he left the UK on March 22, 2008. He stayed in Malaga, Spain, and then moved to Gibraltar.
At the same time, he sold his car in the UK and tried to sell his home.
He explained to HMRC he could not sell the house, so let the property. He also had another home in the UK where his daughter lived.
HMRC suspected Mr Betts was still resident in the UK, because although he had moved overseas, he retained ties to the country through his homes.
Partial picture
To reinforce the case, HMRC asked for bank and credit card statements, but Mr Betts refused to hand them over.
HMRC then issued a formal notice demanding the documents. Again, Mr Betts failed to comply.
The case then went to a hearing before the First-Tier Tribunal, which handles tax disputes.
HMRC claimed that Mr Betts tax return showed a discrepancy of £200,000 in tax as he was paid dividends that he had no need to declare in the UK as a non-resident.
The inference was Mr Betts was claiming he was non-resident to avoid this tax and not really a permanent expat and the information he had supplied only gave a partial picture of his financial and personal affairs.
The tribunal decided that HMRC had the right to ask for the financial documents, but that the power they requested them under was a two-part condition and their evidence only satisfied one of the clauses as the tax inspector did not have good reason to suspect Mr Betts did not pay the correct amount of tax.
Appeal upheld
The tribunal upheld the appeal against the HMRC decision in favour of Mr Betts.
The tribunal indicated that the notice issued by HMRC demanding the financial documents was invalid because Mr Betts had submitted a tax return.
“What ultimately governs the case is whether the statements sought are reasonably required for the purpose of checking the appellant’s tax position. We find that that test was satisfied,” said the tribunal.
“For these reasons, the tribunal’s conclusion is that the statements sought, or at least those statements so far as they showed expenditure in the tax year in question, were reasonably required by HMRC for the purpose of checking the appellant’s tax position, but that does not alter the outcome of this appeal.”
Read the full judgment on Kevin Betts v Revenue & Customs [2013] UKFTT 430 (TC) (30 July 2013)
