In Wilsons Solicitors LLP v HMRC [2018] TC06778 the First Tier tribunal held that the money laundering record keeping obligations of a solicitors partnership did not make them a relevant data holder for the purposes of HMRC’s data gathering powers.
Under Sch 23 Finance Act 2011 Data-Gathering Powers HMRC has the power to gather relevant data from ‘relevant data- holders’.
- Relevant data-holders are specified in sch 23 by their activities; this includes at para 17, ‘Licences, approvals etc.’ which is defined as:
- 'A person by whom licences or approvals are issued or a register is maintained’ and ‘register’ includes 'any record or list that a local authority maintains, and any record or list that any other person is required or permitted to maintain by or under an enactment.'
- ‘Relevant data’ for this category of data holder in connection with a ‘register’ is:
- the name and address of anyone to whom an entry in the register relates or is related.
- information for entry on that register.
HMRC issued Wilsons with a sch 23 notice on the basis that they maintained a register within para 17 due to their obligations under the Money Laundering Regulations (MLR) :
- HMRC requested details, for 2013/14 to 2015/2016 inclusive of owners of offshore companies and persons with interests in offshore entities, where Wilsons, or agents acting for them, had provided services relating to the formation of, or the creation of beneficial interests in, or the settling of funds in, offshore companies, trusts and other entities.
- HMRC had served notices on 9 other firms of solicitors and seemingly regarded the notices as a ‘test run’ with a view to serving similar notices on larger numbers of firms in the future.
- Wilsons appealed; they were not a relevant data holder and did not hold relevant data.
The FTT allowed the appeal:
- Wilsons were, by the MLR, obliged to keep for every client copies of documents which proved identity and which evidenced the purpose and nature of the business relationship but they were not required to maintain those records.
- When MLR due diligence documents are out of date they are replaced with new versions, not amended.
- ‘Keep’ in the MLR means ‘preserving unaltered records’; the ‘maintain’ in para 17 of Sch 23 refers to updating a record by changing it as and when required.
- ‘Register’ in this context does not simply mean records:
- All taxpayers are required to keep records but they are not all relevant data holders under sch 23.
- Even if Wilsons were data holders the data requested by HMRC was not relevant data for para 17 activities; they were not seeking a copy of an entry on a register, they were seeking copies of records.
UPDATE: Wilsons appealed to the tribunal for costs to be awarded against HMRC; they failed except on one point; that HMRC had alleged Wilsons sought special treatment and was in breach of the Law Society's anti-money laundering guidance. The judge found this to be unreasonable and awarded Wilsons the costs involved in refuting the statement.
Useful guides on this topic
HMRC's information powers: At a glance
A client briefing: during the course of an enquiry HMRC will gather information on taxpayers using its wide ranging information powers.
Schedule 36 FA 2008 Information Notices
What is a Schedule 36 Information Notice? When can HMRC issue one? What rights does the taxpayer have when an information notice is issued?
Schedule 23 Data-Holder Notices
Who is a data holder and what information may HMRC request from them?
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