A retired NHS consultant working in private practice has lost his appeal against a Schedule 36 information request.

In Edward Lam Shang Leen v HMRC [2023] TC08812, the First-tier Tax Tribunal (FTT) dismissed Mr Leen’s appeal against an information notice issued by HMRC.

The appeal followed an enquiry into Mr Leen’s self-assessment return for the 2017-2018 tax year. As part of the investigation, HMRC queried discrepancies between money paid into Mr Leen’s personal bank accounts and the turnover of a company he was the sole director of.

The FTT was tasked with deciding whether HMRC had proved the items requested on the Schedule 36 notice were ‘reasonably required’ for checking Mr Leen’s tax position.

Background to the tax appeal

Mr Leen is a clinical consultant specialising in radiology for cancer treatments.

At the time in question, he was working for NHS Trust hospitals in London and was on the teaching staff of Imperial College London. He also ran a private practice for which clinical consultancy fees were received.

Mr Leen retired from the NHS in 2020. He continues with his connection to Imperial College and his private practice. He’s also the only director and the majority shareholder of GRI Research Laboratories Ltd.

Mr Leen’s argument was that all consultancy fees received from his private practice had been declared via GRI.

Tax enquiry and Schedule 36 notice

HMRC opened an enquiry into Mr Leen’s 2017-2018 self-assessment tax return in July 2019.

As part of the investigation, they asked for:

  • Details of the consultancy work completed for various organisations or entities other than Imperial College London.
  • Documents to show if consultancy fees had been declared through another tax entity.
  • Bank statements for all accounts held by Mr Leen in the tax year in question.

Mr Leen didn’t respond to the request, and HMRC issued a Schedule 36 notice asking for the information.

Mr Leen’s agent said consultancy fees received by Mr Leen had been declared through GRI. He provided a breakdown of the fees received and a copy of the company tax return on a CT600 form for the 2017-2018 tax year.

HMRC completed an initial review of the information provided, which highlighted two areas for further investigation:

  • The discrepancy between the reported turnover on the CT600 and the agent’s breakdown of fees received that were collated from Mr Leen’s personal bank statements for the tax year.
  • A reduction in shareholder funds on the one hand but without corresponding evidence of dividends or salaries having been paid.

HMRC wrote to the agent with questions about the company accounts and asked for company documents to explain the apparent discrepancies in turnover and shareholders’ funds.

A second Schedule 36 notice was issued for the remaining outstanding bank statements.

Mr Leen’s argument

Following further correspondence and Covid-19 delays, Mr Leen appealed to HMRC against the notice, and was offered a review. The review upheld the notice.

Mr Leen’s agent then appealed to the First-tier Tax Tribunal, arguing:

  • The enquiry was opened into Mr Leen’s personal tax return; and all the bank statements had already been provided.
  • The items of information requested on the notice related to the company, GRI.
  • An enquiry into Mr Leen’s personal tax position didn’t extend to permit HMRC to request records that belonged to the company.

At the heart of Mr Leen’s argument was that GRI was a separate entity to Mr Leen. Therefore, GRI’s records couldn’t be reasonably required for checking his personal tax position.

HMRC’s case

HMRC responded by stating there was a close connection between Mr Leen and GRI, and that the records of GRI were relevant to checking Mr Leen’s personal tax position.

The First-tier Tax Tribunal’s findings

The FTT was ‘troubled’ by the fact Mr Leen’s agent provided a CT600 that contained significant discrepancies from the equivalent figures stated in the company accounts for GRI:

  • The turnover figure on CT600 was £358,642, when the turnover figure per company accounts for accounting period end (APE) 2018 was £66,759.
  • The trading profit on CT600 was £14,470, when the operating profit per company accounts for APE 2018 was £10,782.
  • The only figure that matched closely was the corporation tax payable, stated as £2,772.69 on CT600 and £2,749 on the company accounts.

The FTT said it was reasonable to ask for an explanation about why £358,642 was given in the CT600 form when the turnover declared on the company accounts was £66,759.

The tribunal was satisfied there was a ‘rational connection’ between Mr Leen’s personal tax position and the accounting records of GRI for the items on the notice to be ‘reasonably required’.

The FTT’s decision

The First-tier Tax Tribunal threw out Mr Leen’s appeal. It confirmed the notice for the 2017-2018 tax year in full, with amendments and a time limit for compliance.

And because the tribunal’s decision is final for this particular case, there is no right of appeal.

Our thoughts on the tax appeal

This case highlights that it’s considered reasonable for HMRC to ask for records relating to a personal service company when checking a director’s tax return.

So, if you have a personal service company, you should take care to ensure the tax position between the company and yourself matches, and that all income is accounted for. This will help to prevent potential tax issues.

Trusted tax advice and help with HMRC enquiries

We can help you to manage your tax affairs correctly and efficiently.

We’re also experienced at handling HMRC tax enquiries and investigations on behalf of our clients. Plus, we offer a tax expert witness service for solicitors and forensic accountants.

Contact Churchill Taxation today on 07813 434195 or email: nicole.andrews@churchilltaxation.co.uk

Nicole Andrews

Nicole Andrews

Tax Director & Co-owner of Churchill Taxation