Out-Law News | 16 Nov 2018 | 2:39 pm | 2 min. read
Judge Barbara Mosedale quashed an information notice issued by HMRC to Wilsons Solicitors. She ruled that the firm's duty to keep records under the 2007 Money Laundering Regulations (MLR) did not make it a "relevant data holder" from which HMRC could demand information under schedule 23 of the 2011 Finance Act (FA 2011).
"Taxpayers are often accused of pushing boundaries, but HMRC is at least as guilty of the same," said tax disputes and investigations expert Steven Porter of Pinsent Masons, the law firm behind Out-Law.com. "This decision is a decisive win for solicitor/taxpayer confidentiality, and a clear signal to HMRC that its boundary-pushing cannot go unchecked."
Schedule 23 of FA 2011 gives HMRC broad powers to require "relevant data-holders" to provide it with "relevant data".
Last year, HMRC issued a number of these notices to different law firms asking them to provide it with various records that they had been required to keep about their clients under the MLR. In Wilsons' case, these records included "details of beneficial owners of offshore companies and persons who have beneficial interests in offshore partnerships, trusts and other like entities" which the firm had been involved in creating, as well as specific information about each of the offshore entities. The notice excluded information that was protected by legal professional privilege.
Wilsons appealed the notice on the grounds that it was not a "relevant data-holder" and that it did not hold "relevant data". HMRC's position was that Wilsons was a person by whom "a register is maintained", which is one of the grounds on which a person may be considered a relevant data-holder.
The MLR require Wilsons to keep certain records verifying the identity of its clients, their beneficial owners and the purpose and nature of the business relationship. The judge therefore had to decide whether these records were "a register" which was "maintained" by Wilsons. She concluded that they were not. She said that parliament would not have used the limiting word 'register' if what it meant was the much larger term 'records'.
"Many persons are required to keep records," the judge said. "For instance, all taxpayers must keep tax records. Rather fewer are required or permitted to compile a register. It is not a natural use of language to refer to 'records' in the general sense, such as used in the MLR, as a register or registers."
"The obligation to keep copies of documents which evidence due diligence on clients is an obligation to keep (in the sense of preserve) records. But an obligation to keep (in the sense of preserve) records, which evidence a particular state of affairs, is not the same as an obligation to maintain (in the sense of keep up) a register, which records the names of persons or things meeting its criteria. It follows that its obligations under the MLR do not make Wilsons a relevant data-holder under Sch 23," she said.
The case was significant because Wilsons was the 10th firm on which HMRC had served such a notice, according to the judge. HMRC had "regarded the service of these 10 notices as a sort of test run with a view to serving similar notices on much larger numbers of firms in the future", she said.