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I-3: Taxpayer notices

Power to obtain information and documents from taxpayer

 

"(1)     An officer of Revenue and Customs may by notice in writing require a person (“the taxpayer”)—

(a)     to provide information, or

(b)     to produce a document,

if the information or document is reasonably required by the officer for the purpose of checking the taxpayer's tax position or for the purpose of collecting a tax debt of the taxpayer.

(2)     In this Schedule, “taxpayer notice” means a notice under this paragraph." (FA 2008, Sch 36, para 1)

Document includes part of a document

"“document” includes a part of a document (except where the context otherwise requires)," (FA 2008, Sch 36, para 58)

Application for closure notice does not stop HMRC continuing enquiry

 

“ This passage does indeed confirm that the fact that a closure notice application has been made does not halt the enquiry and HMRC can continue to use their information powers.” (South Eastern Power Networks Plc v. HMRC [2017] UKFTT 494 (TC), §118, Judge McKeever).
 

Human rights: no breach of article 8

 

“So far as article 8 is concerned, Mr Sokoya relied on the intrusion into his privacy that compliance with the section 19 notice would entail. Article 8 expressly recognises the need in a democratic society to preserve the economy and wellbeing of the country. Regrettable though it might seem, tax collection comes fully within that exception. I therefore see no reason why a valid section 19A notice should be rendered any less so in this case by the provisions of article 8 of the convention.” (HMRC v. Sokoya [2008] EWHC 2132 (Ch), §13).
 

Applies to the Crown

"This Schedule (other than Part 8) applies to the Crown, but not to Her Majesty in Her private capacity (within the meaning of the Crown Proceedings Act 1947 (c 44))." (FA 2008, Sch 36, para 38)

Power to obtain information and documents from taxpayer

- Information includes explanation

 

“[145] HMRC’s position was that, while accounting entries and invoices are statutory records, an explanation of those entries or invoices was not, although such an explanation was invariably “reasonably required…for the purpose of checking the taxpayer's tax position”.

[146] However, in the absence of such information, entries in the accounts are simply a list of numbers.  It is not possible for a person to “deliver a correct and complete return” unless he knows to what the entries relate.  For example, a list of payments to a director is a statutory record, but so too is information as to the purpose and nature of the payments.  It is that information which allows the person to know whether the sum is a dividend, a loan, salary, the reimbursement of an expense, or something else.  Similarly, a list of debts written off is a statutory record, but so is the information which explains why a decision has been made that these debts are not collectible; it is that information which allows the person to know whether he can deduct them from his profits.  Explanations of accounting entries and of invoices therefore constitute information forming part of a company’s statutory records.

[147] It is of course true that such information would also be reasonably required for the purposes of a company’s tax position, because it provides the explanation for entries in the prime records. ” (Gold Nuts Ltd v. HMRC [2017] UKFTT 84 (TC), Judge Redston).

- Information includes explanation

- Information request may indirectly require document to be created

 

"[96] A document which did not exist when the notice was issued, which but which could be created by the taxpayer or by another at her instigation, is neither in the possession of that person nor in her power.

[97] That means that if Ms Brantjes did not have certain bank statements and they did not exist in the possession of another person whom she could compel to transmit them, she could not be obliged to provide them under the Notices. In particular it means that she was not required by the Notice to require or request the provision of bank statements which she did not have and which such persons did not keep in hard copy form.

[98] This limitation applies to the requirement to produce a document. It does not apply to the requirement to provide further information: a Notice could require a person to provide the information which could be obtained from a bank. But the First Notice required "bank statements" and that to our minds clearly means documents not information. As a result only those statements in her possession or in the possession of others whom she could compel to provide them need to be provided by the notice." (Brantjes v. HMRC [2020] UKFTT 177 (TC), Judge Hellier)

"You cannot ask a person to create a document so that you can require them to produce it by an information notice, but you can require a person to provide information.
‘Provide’ in this context means “to give someone something that they need”. It indicates the thing in question must reach you rather than simply be made available so you have to go and get it.
‘Information’ has, amongst other things, been defined as
- knowledge acquired in any manner, and
- facts about a situation, person, event and so on.
It does not include opinion or speculation.
Example
"You want to check whether the market value of an asset used in a person’s tax calculation is accurate. You can ask the person to produce the valuation report document if they have commissioned one. You cannot require them to go and get a professional valuer’s opinion of the asset’s value. You can, however, require them to provide the information that a professional valuer would need to make a reliable valuation."
Depending on the matter under consideration information can include a statement of the reason why something was done, for example an explanation of the purpose of a particular transaction.
‘Providing information’ can be answering specific factual questions, but information can also be provided by creating a document that did not previously exist in order to conveniently provide the information required. For example, it can cover computations, calculations, analyses, translations of documents written in a foreign language, and so on." (CH23240)

- Information request may indirectly require document to be created

- Information does not include opinion 

Opinion on a point of law

“In Sch 36, “information” is not defined.  However, in my judgment it does not encompass opinions on points of law, including whether or not particular legal provisions apply to the facts of a taxpayer’s case.  The purpose of a Sch 36 Notice is to allow HMRC to access information and documents which are “reasonably required by the officer for the purpose of checking the taxpayer's tax position”.  It allows the HMRC officer to be provided with factual raw material, which he then uses to check the taxpayer’s tax position.  The officer carries out that check by applying the relevant legislation to all the facts, including those derived from the information and documents…He can, of course, subsequently write to the taxpayer to ask why it has adopted a particular tax position.  But that is part of the enquiry process; it is not part of the purpose of a Sch 36 Notice.  It follows that it is not appropriate to include “an explanation as to why the company does not consider that the loan is within CTA 2010, s 455” in a Sch 36 Notice, and I therefore set Item 10 aside.” (Gold Nuts Ltd v. HMRC [2017] UKFTT 354 (TC), §§123…124, Judge Redston).

Or opinion generally

“[The taxpayer] referred the Tribunal to HMRC’s Compliance Handbook at CH23240 which makes clear that an Information Notice may not be used to require the supply of opinion or speculation and that Information Notices should only properly require the supply of facts.” (R D Utilities Ltd v. HMRC [2014] UKFTT 303 (TC), §6, Judge McKenna). 
 

But HMRC can ask what the taxpayer understood by a term in a taxpayer document

"[91] Instead, the challenge made by Mr Howard is that the information requires One Call to provide an opinion about the existence of a commercial obligation having been imposed on the company.  I am satisfied that it is reasonable for HMRC to require One Call to explain what the was understood by the company (acting through its directors) by the statement that the company was placed under a commercial obligation to provide benefits for the class of beneficiaries.  This goes to the heart of what the directors were resolving on 22 October 2012.  If the answer is that the company does not know the answer to the question, that is in itself relevant information for HMRC’s enquiries (see Strategic Branding Ltd at [130-131]).

[92] I therefore vary the item as follows to clarify the required information:

“How exactly was the company placed under “a commercial obligation to provide benefits for the class of beneficiaries” ( the questionnaire attached to the Board meeting minutes of 22 October 2012 refers)?” (One Call Insurance Services Limited v. HMRC [2022] UKFTT 184 (TC), Judge Bowler)

- Information does not include opinion 

Reasonably required

 

HMRC entitled to know the full facts relating to a person's tax position

"[10] HMRC refer to the case of Stephen Price [2011] UKFTT 624 (TC) ("Price") and in particular to [10] of that decision.  That paragraph has been cited with approval in other Tribunal cases, most notably by Judge Sinfield in the case of Andreas Michael [2015] UKFTT 577 (TC). At [29] of that decision, he states as follows:

29.     We take the same view as the tribunal in Stephen Price v HMRC [2011] UKFTT 624 (TC), another case which was not cited to us by the parties. In Price, the appellant had submitted that the enquiry could be closed and an estimated assessment made. The tribunal said that while HMRC has the power to issue such assessments:

“HMRC is entitled to know the full facts related to a person's tax position so that they can make an informed decision whether and what to assess. It is clearly inappropriate and a waste of everybody's time if HMRC are forced to make assessments without knowledge of the full facts. The statutory scheme is that HMRC are entitled to full disclosure of the relevant facts: this is why they have a right to issue (and seek the issue of) information notices seeking documents and information reasonably required for the purpose of checking a tax return (see Schedule 36 of Finance Act 2008).”

[11] Although this decision is not binding on us, we agree with it and gratefully adopt it." (Gilmore v. HMRC [2022] UKFTT 116 (TC), Judge Popplewell)
 

Not considering whether there is actually a tax loss

"[17] We remind ourselves that the role of this Tribunal is not to come to a conclusion as to whether or not there may have been a shortfall in the income declared by the appellants. Although that might be the subject of a further hearing should HMRC assess the appellants for any such undeclared income. Our role is to consider whether the notices were reasonably required and whether Officer Roberts had reason to suspect." (Gilmore v. HMRC [2022] UKFTT 116 (TC), Judge Popplewell)

Objective and subjective test

 

"[18] As we have mentioned above, in our view both are objective tests. We ask ourselves whether the objectively reasonable officer in Officer Roberts’ position would have come to the same conclusion that the information was reasonably required. In our view that objectively reasonable officer would have come to the same conclusion." (Gilmore v. HMRC [2022] UKFTT 116 (TC), Judge Popplewell)

“The statute requires that the items are not just “required”, but “reasonably required”. We understand this to mean that a person in HMRC’s position, acting reasonably, would require the contested items for the purpose of checking the appellant’s income tax position.” (Patel v. HMRC [2017] UKFTT 323 (TC), §48, Judge Citron).

 

“When considering the reasonableness of the requirement we considered both the officer’s belief as to whether the documents were reasonably required but also whether this was objectively justified.” (Drinks Stop Cash and Carry Ltd v. HMRC [2016] UKFTT 730 (TC), §82, Judge Rupert Jones).

Reasonably required

- Time to test

 

At the time of the notice

"[56] However, so far as the validity of the information notice is concerned, although not the question of closure of the enquiries, the question of whether information is reasonably required must be viewed historically.  The question is not whether the information is still required, but whether it was reasonably required at the time the notice was issued.  Whether the information was later provided to HMRC is relevant to the question of compliance:  it is not relevant to the question of the validity of the information notice. The provision of some of the required information to HMRC at the hearing on 12 July is relevant to compliance but it does not affect the validity of the information notice.  In any event, not all of the information was provided:  far from it, the contract of purchase has still not been provided nor has confirmation of the property’s use." (Codexe Limited v. HMRC [2017] UKFTT 569 (TC), Judge Mosedale)

“The reasonableness of the requirement is to be determined at the time the notice was issued rather than retrospectively – see paragraph 74 of Jonathon Beckwith v HMRC [2012] UKFTT 181 (TC).” (Drinks Stop Cash and Carry Ltd v. HMRC [2016] UKFTT 730 (TC), §82, Judge Rupert Jones).

At the time of the hearing

"[51] However, although I was not referred to it but it is cited in Hackmey v HMRC I [2022] UKFTT 160 (TC), I also agree with Judge Vos in Hargreaves and Others v HMRC [2021] UKFTT 80 (TC) at paragraphs 52 to 65 from which I highlight the following quotations:-

(a)     “… the Tribunal is to determine not just whether the officer’s belief is reasonable but to take its own view as to whether the information is reasonably required for the purposes of checking the taxpayers tax position.” [55]

(b)     “In the case of a taxpayer notice, the Tribunal will only exercise its oversight if the taxpayer appeals … It follows from this that the Tribunal’s role is not simply to review the officer’s decision by determining whether their belief that the information is reasonably required is a reasonable one;  instead it is to come to its own conclusion as to whether the information is, objectively, reasonably required.  In doing so it follows in my view that the Tribunal must assess this based on the circumstances at the time of the hearing.” [56]

(c)     “In the case of a taxpayer notice, it must be right that, in the same way, HMRC initially has the burden of explaining they believe that the information is reasonably required and that, only then, does the taxpayer have the burden of proving that it is not.” [64]" (Asset House Piccadilly Limited v. HMRC [2023] UKFTT 385 (TC), Judge Scott)

- Time to test

- HMRC need to be able to explain why information required (general practice not sufficient)

 

"[75] The mere fact that HMRC’s usual practice is to require disclosure of overseas credit cards does not of itself provide a reasonable basis for seeking those documents in this case. There has to be evidence to support HMRC’s submissions, and HMRC must demonstrate why they required the information. In the absence of any such evidence, it follows that I have to find that HMRC had no reasonable grounds to suspect that Mr Hackmey was using his overseas credit card to pay for goods and services on behalf of SRD. In any event, none of the evidence of Mr Henstock, nor any of Mr Turnbull’s submissions explains why HMRC needs the removal of the redactions to the UK credit card statements that have been disclosed." (Hackmey v. HMRC [2022] UKFTT 160 (TC), Judge Aleksander)

- HMRC need to be able to explain why information required (general practice not sufficient)

- Rational connection between information sought and underlying investigation

 

"[50] There is no statutory definition for the meaning of 'reasonably required'. In Kotton v FTT & HMRC [2019] EWHC 1327 (Admin) ('Kotton'), the High Court dismissed the taxpayer's judicial review claim against a third-party information notice issued by HMRC, and at [60] gives guidance to the test as to whether documents are 'reasonably required':
'… the question for the FTT in relation to the information and documents sought by a third party notice is also expressly limited: the FTT must be satisfied that in all the circumstances, the officer giving the notice is justified in concluding that the information or documents are reasonably required for checking the tax position of the taxpayer. Again, that does not require any examination of the nature and extent of the underlying tax investigation, but rather a focus on whether there is a rational connection between the information and documents sought and the underlying investigation.'
[51] The focus for the Tribunal in determining whether the items on the Notice are 'reasonably required' is by asking whether there is a 'rational connection' between the information and documents sought and the underlying investigation." 
(Leen v. HMRC [2023] UKFTT 407 (TC), Judge Poon)

"[88]...Thus, provided there is a genuine and legitimate investigation or enquiry of any kind into the tax position of a taxpayer that is neither irrational nor in bad faith, that is sufficient.  The challenge is not to the lawfulness of the investigation, but is limited to the rationality of the conclusion that the information/documents are reasonably required for checking the taxpayer’s tax." (Asset House Piccadilly Limited v. HMRC [2023] UKFTT 385 (TC), Judge Scott)

- Rational connection between information sought and underlying investigation

- Request too broad or insufficient time for compliance

 

“The questions are whether (a) the request was too broadly drawn; and (b) whether PML was given insufficient time within which to respond.  If the answers to either (or both) of those questions is “yes”, then the Information Notice does not comply with the requirements of Schedule 36.” (PML Accounting Ltd v. HMRC [2015] UKFTT 440 (TC), §117).

 

Broad request justified by nature of legislation

 

“As regards the breadth of the request, given the nature of the MSC legislation, we find that the information and documents sought was reasonable – and this was never challenged by PML during the course of the enquiry, although it was challenged in the course of the appeal.” (PML Accounting Ltd v. HMRC [2015] UKFTT 440 (TC), §118).

 

Three months reasonable to comply with “voluminous” request

 

“The Information Notice was issued on 26 November 2012, with a return date (after the initial extension request) of 28 February 2013 – a period of over three months…We find that the information and documents sought were reasonably requested by HMRC, and that PML was given a reasonable amount of time to respond to the Information Notice.” (PML Accounting Ltd v. HMRC [2015] UKFTT 440 (TC), §§118 - 119).

-Request too broad or insufficient time for compliance

- Evidence of expenditure to check income not reasonably required unless evidence of income considered unsatisfactory

"[26]...I consider the taxpayer should not be required to divulge details of his personal expenditure if that could be avoided (see Taylor v Bratherton [2005] STC (SCD) 230 at [7]). I do not accept HMRC’s argument on this point and I am not satisfied that this broadly-drafted request, in the circumstances of this case, is reasonably required to check Mr Jenner's tax position.

[27] I consider the evidence presented by HMRC fails to demonstrate that the information sought is reasonably required to address an apparent insufficiency of declared income and I do not consider HMRC to have met their burden of proving that this information is reasonably required for the purpose of carrying out an investigation or enquiry of any kind..." (Jenner v. HMRC [2022] UKFTT 203 (TC), Judge Sukul)

"[7] It appeared to me, even disregarding the provisions of art 8, that the inspector's request was intrusive and that the taxpayer should not be required to divulge details of his personal expenditure if that could be avoided. I accordingly decided to stand over the appeal for further argument, should that prove necessary. If the inspector is satisfied with the documentation relating to his income and deductible expenditure which the taxpayer has provided, or provides following this decision, the matter need go no further. If he is not so satisfied, I grant him permission to restore the appeal for further argument in order that a decision may be made whether the taxpayer is required to comply with any additional part of the notices." (Taylor v. Bratherton [2005] STC (SCD) 230, Judge Bishopp)

- Evidence of expenditure to check income not reasonably required unless evidence of income considered unsatisfactory

- Basic financial information generally reasonably required

 

"[30] I consider the items sought by HMRC in this category to be basic financial information and I agree with Judge Citron’s remarks in Bemal Patel v HMRC [2017] UKFTT 323 (TC) (‘Bemal Patel’) at [46] on this point:

“We now turn to consider the contested items in the light of HMRC’s statutory powers. Four of the items (1, 2, 8 and 9) relate directly to what can only be regarded as basic financial information - bank and other financial accounts, and financial assets and liabilities. The fifth (item 3) is also in our view basic financial information as it relates to amounts borrowed by the appellant from a “loan account” with a related company. Basic financial information of this kind shows the details of a person’s income and expenditure. Income and expenditure are relevant to a person’s income tax position. It seems to us that precisely this kind of basic financial information would be required to “check” the income tax position of a person in the appellant’s position. The contested items do not answer to Simler J’s description of a ‘fishing expedition’, being where the reality of the situation is that HMRC ask for “all available documents because they form so large a class of documents that [HMRC] are bound to find something useful”. The reality of the situation here is that HMRC are asking for a specific class of information and documents - basic financial information - so they can check that the tax returns are correct and complete.”

[31] I therefore find that the requirement for Mr Jenner’s basic financial information is reasonable." (Jenner v. HMRC [2022] UKFTT 203 (TC), Judge Sukul - in relation to director's loan account information and other sources of money)

Includes personal accounts

"[33] [HMRC] relies on the decision in Bemal Patel for his contention that basic private financial information is reasonably required to check the tax position of a taxpayer. I again agree with Judge Citron’s remarks at [47] of that decision:

“We note that the contested items relate only to the “personal” accounts, etc, of the appellant; and this is because the appellant had already supplied HMRC with the financial information they required in respect of his “business” accounts etc. We do not think this affects the question of whether the contested items are required to check the appellant’s income tax position. The fact here that the appellant has supplied HMRC with some (perhaps most) of his financial information – that which he earmarked as relating to his business accounts - does not in our view detract from the position that other basic financial information is reasonably required in order to check his income tax position.”

[34] I therefore find that the requirement relating to Mr Jenner’s personal accounts amounts to a requirement for other basic financial information, which is reasonably required in order to check Mr Jenner’s income tax position." (Jenner v. HMRC [2022] UKFTT 203 (TC), Judge Sukul)

- Basic financial information generally reasonably required

- Information HMRC already possess

Information already known not necessarily reasonably required

"[88] The meaning of “reasonably required” was considered in the FTT case of Marathu Delivery Service Limited v HMRC [2019] UKFTT 553 (TC), where the Tribunal said at [40]:

“40. No analysis was put to us as to the meaning of “reasonably required” within paragraph 1 of Schedule 36. However, in our view “reasonably required” must impose a limitation on HMRC's issue of notices to the extent that each item of information requested must be required for the purposes of an enquiry into the taxpayer's tax affairs and that it is objectively reasonable for HMRC to do so. If HMRC had the information already it would not be required nor would it be reasonable for HMRC to ask for it again. Similarly HMRC must be pursuing a legitimate purpose in issuing the notice, so HMRC cannot undertake a fishing exercise where HMRC have no reason to believe tax has been understated.”" (Davies v. HMRC [2022] UKFTT 369 (TC), Judge McKeever)

"[55] One ground of appeal, which I have dealt with in so far as it applied to the closure application, was that the information sought was already known to HMRC.  I agree that information should only be sought if it is ‘reasonably required’ and it would not necessarily be reasonably required if it is already known, although it may be reasonably required if HMRC is requesting a primary record in order to check information from a potentially less reliable source." (Codexe Limited v. HMRC [2017] UKFTT 569 (TC), Judge Mosedale)

Documents provided for earlier enquiry may reasonably be required again

 

“The statutory test is whether the item is reasonably required for checking the tax position of the taxpayer in question. If the answer to that is “yes” – as we have decided it is – then it is not relevant that another taxpayer may have provided that item to HMRC.” (Patel v. HMRC [2017] UKFTT 323 (TC), §49, Judge Citron).

 

“I also agree with and adopt the approach taken by Judge Poole in Whitefields Golf Club Ltd, Whitefields Golf Ltd & Draycote Hotels Ltd and The Commissioners for HM Revenue and Customs. The fact that HMRC are unable to locate the documents previously provided by the Appellant is a matter of administration and has no bearing on whether the documents set out in the notice are “reasonably required”.” (Rankin v. HMRC [2016] UKFTT 541 (TC), §43).

Information relating to other taxpayers in a similar position can be confirmed

"[85]  Mr Howard put it to Ms Jones in cross-examination that it was not necessary for HMRC to obtain this information as HMRC know that the arrangements are promoted as tax avoidance arrangements and that they are always provided by Baxendale Walker or another set of advisers.  I consider that it is wrong for HMRC to be told that they should make assumptions about what one taxpayer has done as a result of information about others.  Even if HMRC have built up a picture about the promotion generally of arrangements such as that entered into by One Call, it is still reasonable to require the relevant information from One Call so that its specific circumstances can be addressed."  (One Call Insurance Services Limited v. HMRC [2022] UKFTT 184 (TC), Judge Bowler)

- Information HMRC already possess

- Information HMRC could get from elsewhere

"[29] I agree with Judge Redston’s comments and find that, even though HMRC may be able to obtain some of the information sought from Mr Jenner from other sources, it is reasonable for HMRC to require Mr Jenner to provide it in these circumstances. Further, although Mr Jenner does not accept that there is a gap between his taxable income and his expenditure in this case, I also find that it is reasonable for HMRC to check whether there are other sources of income."(Jenner v. HMRC [2022] UKFTT 203 (TC), Judge Sukul)

- Information HMRC could get from elsewhere

- Copies v. originals

Starting point is to treat the taxpayer as honest

 

"[29] When one stands back and looks at what is being argued here by the Respondents, it is that copies of documents provided by the taxpayer or its advisor cannot be trusted for their accuracy or veracity. That is to say that these copies were either badly copied (i.e. ineligible or partly ineligible) or that they had been deliberately tampered with. With regards to the former, whilst I take judicial notice of the fact that copies of documents can sometimes be faint, obscured or parts simply missed, I was not taken to any document that this particularly applied to. With regards to the latter I think the starting point, both for this Tribunal and HMRC, is to treat the taxpayer as honest unless there is good reason to the contrary [page 2 tab A3 refers]. There was nothing put before me which would lead me to form the conclusion that PPIC Ltd, its officers or advisors were not acting honestly. Perceived reticence is not enough. Often such perceived reticence may (as was likely in this case) be the product of a well advised taxpayer insisting on its strict legal rights and unintentional miscommunication between the parties (and I cite the flawed visit of 30 January 2018 as an example of such) or indeed a genuine different interpretation of the legal requirements. In so far as documents 1-24 are concerned, I am not satisfied that the Respondent reasonably requires originals of these. However, I am satisfied that copies of these documents are required and given that they are apparently ready to dispatch I can see no reason why they should not be delivered to the Respondent within 14 days of the date of this decision to a place and in manner that the Respondent requires." (Perfectos Printing Inks Co Ltd v. HMRC [2019] UKFTT 388 (TC), Judge Malek)

- Copies v. originals

- Unredacted v. redacted

 

HMRC need to be able to explain why they need unredacted versions

[66] I find that HMRC have not established grounds for requiring unredacted UK bank statements. The redacted statements provided by Mr Hackmey show the funds remitted by him into the UK, and Mr Henstock in the course of his oral evidence stated that he did not suspect Mr Hackmey of concealing amounts transferred into the UK. I find that, in the light of the disclosures made by Mr Hackmey prior to this hearing, HMRC no longer has reasonable grounds for suspecting that Mr Hackmey has failed to disclose all amounts transferred into the UK.

[67] Neither Mr Turnbull nor Mr Henstock have been able to explain why removal of redactions will assist HMRC in checking Mr Hackmey’s tax position as regards the taxability issue. Mr Turnbull submitted that seeing the flow of funds will evidence whether there is any artificiality in the nature of the payments made by Joseph Hackmey to Mr Hackmey – but when I asked him to explain why this was the case, he was unable to do so." (Hackmey v. HMRC [2022] UKFTT 160 (TC), Judge Aleksander)

Examples

"[60] In this appeal, the reason is obvious. The Appellant's position is that all its employees were furloughed. As such, it would not have been conducting any business, because none of  6  its furloughed employees, if genuinely answering to the requirements of the Scheme, would have been working for the Appellant.  [61] Contrary to the Appellant's stated position, redacted bank statements showing payment are not "proof of payment". As a simple (and hypothetical) illustration (and without expressing any view - which I could not - as to whether this did or did not happen here) payments could have been made and then immediately countermanded by or repaid to the Appellant. It is reasonable to see the unredacted statements to exclude this possibility." (Fresh Consulting and Support Limited v. HMRC [2022] UKFTT 353 (TC), Judge McNall)

Statutory records

Cannot be redacted - see below.

- Unredacted v. redacted

- Unreasonable to check every entry in a loan account for private expenditure

 

"[146] We accept Mr Davies statement in his witness statement that to provide all that information and the records and documents from 6 April 2014 up to the issue of the information notices, would take weeks of work by himself and Ms Mahil. They are very onerous requirements.

...

[152] The point here is that HMRC’s own guidance to its staff indicates that it is impractical to look at every entry in the borrowing account. It refers to bank borrowings, but it would apply equally to other types of borrowing, e.g. from private investors.

[153]  Officers are directed to use “a reasonable basis as an approximation” to ascertain what loan interest is not allowable.

[154]  Croner Taxwise, in its letter of 6 May 2022 provided an analysis of the capital account for the years 2015/16 to 2018/19 based on adding the opening and closing balances and dividing the result by two to find the average capital position for the year. They have then calculated the percentage of capital overdrawn and the amount of interest which must be added back to the profits. This methodology results in additional tax due of  £13,508.

[155] This is not the only way to approach the matter. 156.  Taking all of the above into account, we conclude that the information and documents requested in the information notice are not reasonably required to check the Appellants’ tax position for the 2017/18 tax year." (Davies v. HMRC [2022] UKFTT 369 (TC), Judge McKeever)

- Unreasonable to check every entry in a loan account for private expenditure

For the purpose of checking

 

"“checking” includes carrying out an investigation or enquiry of any kind," (FA 2008, Sch 36, para 58)

“So I accept the appellant's premise that, if the information notices, were issued for the purpose of harassing the taxpayer and/or affecting its trading arrangements, then they would not have been issued for the requisite purpose and the appeal (in so far as the information notices did not require statutory records) must be allowed.” (Qualapharm Ltd v. HMRC [2016] UKFTT 100 (TC), §54).

 

“At the Second Hearing, HMRC’s Counsel accepted that HMRC could not use its civil powers for “the dominant purpose of furthering a criminal investigation”, see [87] of the Second Decision.  Ms Jones did not seek to resile from that position at this hearing.  As both parties were in agreement on this point, I have accepted that it is correct.” (Gold Nuts Ltd v. HMRC [2017] UKFTT 84 (TC), §163, Judge Redston).

 

Including a possible omission for the tax return

 

“…it is clear that HMRC’s powers under the statute are not limited to checking items stated on a tax return – they are broader than that – and this makes good sense, as Parliament would not have intended to restrict HMRC’s ability to get information about matters that were omitted from a tax return but should have been included.” (Patel v. HMRC [2017] UKFTT 323 (TC), §44, Judge Citron).
 

No need for HMRC to have suspicion

 

"[62] Paragraph 1 of Sch 36 requires that information or documents is ‘reasonable required’ for checking the taxpayer’s tax position:  it does not carry any implication that the check of the taxpayer’s tax position cannot be random.  Another way of putting this is that HMRC do not need a reason to suspect an under-declaration in order to issue an information notice where the enquiry is open:  the only qualification is that the information they seek must be reasonable required to check that the return is accurate.  The reasonableness relates to the information required and not to the check of the tax position, in that the check of the tax position could be random." (Codexe Limited v. HMRC [2017] UKFTT 569 (TC), Judge Mosedale)

“I do not accept the taxpayer’s argument that there is no tax position to check because there is no evidence that any loss of tax was brought about deliberately by MB.” (Without Notice Application v. HMRC [2017] UKFTT 148 (TC), §6, Judge Cannan, §6).

 

“There is nothing in this section that requires HMRC to suspect that the return is incorrect before issuing an information notice.  HMRC are entitled to check taxpayer’s tax position and they are entitled to any documents or information reasonably required for the purpose of doing so.  In other words, HMRC are entitled to undertake ‘fishing expeditions’ when checking returns: they do not need suspicion in order to check a tax return.” (Spring Capital Ltd v. HMRC [2015] UKFTT 8 (TC), §34).

 

But fishing expeditions not permitted

 

“HMRC may not use their Sch.36 powers for a fishing expedition – whether for their own or the purposes of another revenue authority.  A broadly-drafted request will not be valid if in reality HMRC are saying ‘can we have all available documents because they form so large a class of documents that we are bound to find something useful’.” (R (oao) Derrin Brother Properties Ltd v HMRC [2014] EWHC 1152 (Admin), §20 Simler J)

"[88] The meaning of “reasonably required” was considered in the FTT case of Marathu Delivery Service Limited v HMRC [2019] UKFTT 553 (TC), where the Tribunal said at [40]:

“40. No analysis was put to us as to the meaning of “reasonably required” within paragraph 1 of Schedule 36. However, in our view “reasonably required” must impose a limitation on HMRC's issue of notices to the extent that each item of information requested must be required for the purposes of an enquiry into the taxpayer's tax affairs and that it is objectively reasonable for HMRC to do so. If HMRC had the information already it would not be required nor would it be reasonable for HMRC to ask for it again. Similarly HMRC must be pursuing a legitimate purpose in issuing the notice, so HMRC cannot undertake a fishing exercise where HMRC have no reason to believe tax has been understated.”" (Davies v. HMRC [2022] UKFTT 369 (TC), Judge McKeever)

 

Attempted reconciliation

 

"[25] It follows that HMRC are not permitted to make broad requests for the purposes of fishing for information but that does not mean that they need suspicion in order to check a tax return. HMRC are entitled to any documents or information reasonably required for the purpose of carrying out an investigation or enquiry of any kind. Broad requests made for the purposes of fishing for information would not meet the ‘reasonably required’ test." (Jenner v. HMRC [2022] UKFTT 203 (TC), Judge Sukul)

“The parties pointed out that both the High Court (in Derrin Brother) and the tribunal (in Spring Capital) have expressed views as to whether this “reasonably required” test is satisfied where HMRC undertake a so-called ‘fishing expedition’. On the face of it, they reached diametrically opposing conclusions. However, it seems to us that on closer inspection, the divergence between court and tribunal is more apparent than real: the dicta of both emphasise the words of the underlying statute. Simler J in the High Court came at this from the angle of requiring that there be a genuine exercise of checking the taxpayer’s tax position through an investigation or enquiry of any kind – when she used the term ‘fishing expedition’, she meant a case where HMRC’s request was not genuinely directed to that purpose. Judge Mosedale in the tribunal, on the other hand, came at this from the angle of whether it was a requirement that HMRC had a suspicion that the tax return was incorrect (and she made clear that she was treating ‘fishing expedition’ as meaning where HMRC investigate a tax return without having reason to suspect that it is wrong). The tribunal decided (correctly, in our respectful view) there was no such requirement: the one and only requirement is that the information and documents are reasonably required for the purpose of checking the taxpayer’s tax position.” (Patel v. HMRC [2017] UKFTT 323 (TC), §43, Judge Citron).

 

Must be checking an identified tax issue

"[64] I agree that, as identified in those cases, HMRC can only reasonably require information which relates to identified tax issues.  That principle recognises that, as stated, HMRC cannot go on fishing expeditions.  Furthermore, it is consistent with the principles set out by Simler J in  R (Kotton) v First-tier Tribunal (Tax Chamber) [2019] EWHC 1327 (Admin) (at [59-62]) and approved by the Court of Appeal in Kandore (at [73]).

...

[70] Accordingly, I consider that HMRC must identify a tax issue to which the information sought relates and I must be satisfied that HMRC’s investigation is genuine and legitimate and not in bad faith.  Beyond that it is not for me to reach any conclusion regarding the tax issues or issues identified by HMRC; and, in particular, it is not necessary for it to be shown that a liability to tax will arise on conclusion of the investigation as a valid investigation may lead to the conclusion there is no liability." (One Call Insurance Services Limited v. HMRC [2022] UKFTT 184 (TC), Judge Bowler)

HMRC not required to explain why it wishes to check tax position

 

“While para 1 of Sch 36 does limit HMRC's ability to seek information to cases where the information is reasonably required for the purposes of checking taxpayer's tax position, the law does not require HMRC to explain to a taxpayer why it wishes to check their tax position. Indeed, as explained in my earlier decision at [13-20] there are good reasons why this is so.” (Qualapharm Ltd v. HMRC [2016] UKFTT 100 (TC), §110).


 

For the purpose of checking

- After HMRC have issued a decision claiming tax

Unclear whether HMRC can issue information notice to check the tax position already decided

"HMRC's change of position arose from a failure of communication within HMRC between the Central Policy team ('CenPOL') and Mr Kane. In late 2012 Mr Kane had asked CenPOL whether HMRC had power to issue an information notice to a taxpayer even though there had already been a determination of the taxpayer's liability. Mr Kane had been told that HMRC's view was that they could. He therefore issued a number of information notices over the following years, including the notice sent to DCL and to several other taxpayers in DCL's position. What Mr Kane did not know was that before he sent the information notice to DCL in March 2015, the view of CenPOL had changed and they considered that information notices should not be sent out where there had already been a determination of liability. Mr Kane was not told about that change of stance before he sent out DCL's notice. When the FTT notified HMRC that DCL had lodged an appeal against the issue of the information notice, Mr Kane sought advice again from CenPOL. He was then told that HMRC's view of the law had changed and HMRC did not rely on the power in Schedule 36 in these circumstances. That was why HMRC did not contest the appeal." (Distinctive Care Ltd v. HMRC [2019] EWCA Civ 1010, recording the facts of that case)

"[19] Fourthly, (and contrary to Ms McCarthy's submission) there is nothing in the language of Sch.36 which expressly or impliedly suggests that the power under paras.2 and 3 ceases to be exercisable once an appeal to the First-tier Tribunal is in progress. Rather the fact that there is a saving for documents relevant to the conduct of a pending appeal suggests the reverse is the case." (R (oao Derrin Brother Properties Limited) [2014] EWHC 1152 (Admin), Simler J)

"[60] I note from the decision of the Court of Appeal in Distinctive Care at [24] that the officer in that case had been told in 2012 that an officer has power to issue an information notice even though HMRC has determined the taxpayer’s liability. HMRC’s Central Policy team’s view had changed to state that HMRC should not rely on the power in Schedule 36 by the time that the officer issued the notice in March 2015. Ms Millward has not advised when TALA decided the policy that a Schedule 36 notice can be used to explore the PAYE position even though a substantive decision has been made on the PAYE position. It is also not clear if the policy has changed as regards other determinations, but HMRC’s position is in any event limited by paragraph 21 and the circumstances of the case. For example, Condition A only applies so long as the enquiry is open, and Condition B reflects the ‘discovery’ provisions. In this case HMRC rely on Condition D for the purpose of checking if a penalty may be payable in connection with PAYE that is the subject of a Regulation 80 determination. As the circumstances of this case are that HMRC have yet to make a decision on the PAYE penalty issue, I do not consider that they are precluded from issuing a notice if the information can be shown to be ‘reasonably required’." (Avonside Roofing Limited v. HMRC [2021] UKFTT 158 (TC), Judge Nicholl)

But can issue information notice for checking whether penalty may be payable (as long as genuinely for that purpose)

"[61]...I respectfully agree, but the validity of the Regulation 80 determination is not in issue in this appeal and the question is whether HMRC have established that the information or documents requested in the Notice is ‘reasonably required’ for the purpose of checking whether a penalty should be imposed, albeit within the time limit set out in paragraph 13(3) Schedule 24.

...

[68] I have gone on to consider the information and documents listed in the Notice (as varied following review) in the light of my finding that the Notice was given for the purpose of checking whether a penalty may be payable, and the caselaw cited above that shows that this means that the checking should relate whether the inaccuracy in the relevant document was due to a failure on Avonside’s part to take reasonable care. I have also taken account of the caselaw that provides that HMRC’s request must be “genuinely directed to the purpose for which the notice may be given” (Simler J in Derrin at [20])...

...

[71] The question of whether information is ‘reasonably required’ should be considered in the context of what the officer is seeking to check. The purpose of the Notice is to check whether a penalty under Schedule 24 may be payable in respect of the under-deduction of PAYE but, as Ms Montes Manzano submits, Officer Hoare’s explanation for requiring the information under this heading relates to whether Avonside was careless in its implementation of the arrangements as opposed to whether the inaccuracy in Avonside’s PAYE return was due to failure to take reasonable care. Even if this information may demonstrate carelessness “in the abstract” (Bayliss at [65]), which Avonside dispute and this decision does not address (other than to note that the Tribunal would require sight of the documents on which Officer Hoare rely to reach a decision), HMRC have not established that the information under this heading is reasonably required for the purpose of Officer Hoare’s check of whether the inaccuracy in the PAYE return was due to a failure on Avonside’s part to take reasonable care." (Avonside Roofing Limited v. HMRC [2021] UKFTT 158 (TC), Judge Nicholl)

- After HMRC have issued a decision claiming tax

- Not reasonably required if HMRC have decided there is an understatement of tax and want to test the taxpayer's defence

 "[52] HMRC clearly believe that there has been an understatement of tax, and now require the information in order to test the appellants’ explanations, rather than to establish whether there has been an understatement.

[53] The appellants have, by appealing the information notice, declined to provide HMRC with the means of checking their explanations. In context, it seems very unlikely that the parties will come to any agreement as to their tax position even if the requested information were to be provided before Tribunal proceedings are substantively underway.

[54] On the facts of this particular case and taking into account the overriding objective, we do not consider that any useful purpose would be achieved by prolonging matters by ordering that the information notice be complied with before any Tribunal proceedings are entered into. We do not consider that the information is therefore reasonably required, in context, for the purpose of checking (prior to any appeal to this Tribunal) the appellants’ tax position or their explanations as to what they consider to be their tax position.

[55] Whilst it will often be desirable for matters to be resolved without recourse to the Tribunal, the appellants in this case have effectively demonstrated that they do not wish to facilitate an early resolution to the disputes." (Yerou v. HMRC [2022] UKFTT 79 (TC), Judge Fairpo)

- Not reasonably required if HMRC have decided there is an understatement of tax and want to test the taxpayer's defence

- Periods outside ordinary assessment time limits (sensible possibility of assessment)

 

Must be a practical possibility of an assessment or amendment

“The giving of a notice under s 20 is a precursor to the making of a discovery assessment; and it can only be done where there is a sensible or practical possibility of a discovery assessment being made under s 29.” (Hankinson v. HMRC [2011] EWCA Civ 1566, §4).

"[15] The practical constraint on section 20 is that it can only be used where there is a sensible or reasonable possibility of an assessment under section 29.

...

[25] In my judgment, this is not a case which comes anywhere close to its being shown that there is no real or reasonable prospect of the power under section 29 being exercised. In my judgment it follows that the power to serve a notice under section 20 was available, notwithstanding the expiration of the time allowed by section 9A ." (R (oao Johnson) v. Branigan [2006] EWHC 885 (Admin), Burton J)

"[43]...I find that HMRC are not barred from requiring information and documents for 2013/14 providing they have a reasonable basis for suspecting that they could make a discovery assessment for that period, and that the information and documents are otherwise reasonably required. In Perring (at [26] to [27]), Judge Gething said that the purpose of the Schedule 36 information powers is to enable HMRC to raise assessments to collect tax. It must then follow that it cannot be reasonable for HMRC to require documents and information that relate to a period for which HMRC are out of time to raise assessments." (Hackmey v. HMRC [2022] UKFTT 160 (TC), Judge Aleksander)

Reasonable grounds to suspect insufficiency due to carelessness or deliberateness

"[104] [HMRC] accepted that Hackmey indicates that for tax years earlier than 2015-16, HMRC must show that when the notice was issued they could reasonably have issued an assessment to recover the tax. That is to say, HMRC must have had an objectively reasonable suspicion that the taxpayer had been, at least, careless, so that a discovery assessment could be made for the year in question if the documents requested as a result of the reasonable suspicion turned that suspicion into a discovery that “as regards … (the taxpayer) and a year of assessment… an amount of income tax or capital gains tax ought to have been assessed but has not been assessed…”. This would apply to 2014-15.

...

[110](2)  In order to request information for tax years more than four years earlier, but not more than six years earlier, there must be reasonable grounds, based on evidence to suspect an insufficiency of tax for those years due to carelessness. " (Davies v. HMRC [2022] UKFTT 369 (TC), Judge McKeever)

"[44]...I find that, in the circumstances of this case, as regards 2013/14, HMRC must have reasonable grounds (based on evidence) to suspect an insufficiency of tax for 2013/14 due to carelessness, and that the information and documents sought by the Information Notice are reasonably required to determine whether this is in fact the case." (Hackmey v. HMRC [2022] UKFTT 160 (TC), Judge Aleksander)

See further below in the context of further conditions where return submitted, condition B.

Query whether HMRC need to show arguable case for careless/deliberate behaviour

"[164] We should say something about the standard of proof in relation to the “no possibility” point.  We are clear that we do not have to decide whether it is more likely than not that there was deliberate conduct by the appellants: nor is the bar as low as it is for paragraph 21(6).  It seems to us that there must be an arguable case shown by HMRC that there was deliberate conduct, ie one that is sensible and reasonable and with some prospect of success. 

[165] We do not need to express a view about 2006-07 (or 2005-06) as no case is put forward.  As to 2007-08 in our view HMRC have come nowhere showing that it was more likely than not that there was deliberate conduct leading to a loss of tax by the appellants.  This is mainly because we have had no evidence by way of witness statement or orally from Miss McKinney or any other HMRC officer on this question.  Mr Gordon referred us to the case of Gardiner & others v HMRC [2014] UKFTT 421 (TC) (Judge Jonathan Cannan) where the judge allowed the appeal because HMRC adduced no evidence to establish a prima facie case of negligence.  We think this applies all the more strongly where the allegation is tantamount to fraud.  Nor do the undisputed facts left to speak for themselves go anywhere near establishing fraud, any more than they did in Munford v HMRC [2017] UKFTT 19 (TC) (referred to by Mr Gordon in oral argument).

[166] HMRC have not adduced any evidence from Miss McKinney to show that there was deliberate, knowing conduct by the appellants or on their behalf (and if so by who) nor do the undisputed facts suggest that there was.  It may be that the BATR claim would not if investigated stand up to scrutiny as meeting the conditions in Schedule A1 TCGA 1992 or would only justify a smaller amount of relief, but that is by no means the same as saying that any loss of tax occasioned by an incorrect claim was brought about knowingly." (Hegarty v. HMRC [2018] UKFTT 774 (TC), Judge Richard Thomas)

 

Request is for information that may lead to a valid assessment

"[19]...In the present case, HMRC do not suggest that on the information presently available to them there has been fraud or negligence. What they do say is that they have reason to believe that there is information which they could not reasonably have been expected to be aware of as a result of the receipt of Mr Collins' Tax Return which does affect his liability for tax during the year in question.
[20] The first question which arises is: what is the test to be applied in determining the availability of the power under section 20 in circumstances where the time allowed by section 9A is expired? As I have already indicated, I accept as a correct statement of the legal position that the power under section 20 is exercisable where what is called for is information which may sensibly lead to a lawful assessment being made under section 29 . It is not, therefore, the case, as I understood Mr Price to suggest, that in the absence of fraud or an allegation of negligence the power under section 20 is unavailable. In my judgment, it is also available in circumstances where it may be that information acquired as a result of the service of a notice under section 20 may lead to a valid assessment under section 29." (R (oao Johnson) v. Branigan [2006] EWHC 885 (Admin), Burton J)

 

Mere desire for background information not sufficient

"[45] I agree with Judge Gething that a mere desire for background information is insufficient to justify the issue of a notice – that would amount to “fishing” (see also Avonside Roofing [2021] UKFTT 158 (TC) at [62] – [68])." (Hackmey v. HMRC [2022] UKFTT 160 (TC), Judge Aleksander)

HMRC can still issue an assessment without the information

"[170] Nor does our decision prevent HMRC issuing discovery assessments.  Nor is any Tribunal hearing any appeals against any such notices or assessments bound by anything we say.  We can simply suggest to HMRC that on the capital gains questions here that they have missed the boat and should move on."(Hegarty v. HMRC [2018] UKFTT 774 (TC), Judge Richard Thomas)

- Periods outside ordinary assessment time limits (sensible possibility of assessment)

     - Test at the time the information notice was issued

"[136] We conclude that, in principle, HMRC are entitled to seek information from earlier years where that information is directly required to check the taxpayer’s liability in the enquiry year. Those earlier years must be years for which HMRC could have raised an assessment (including a discovery assessment) at the time the information notice was issued." (Davies v. HMRC [2022] UKFTT 369 (TC), Judge McKeever)

     - Test at the time the information notice was issued

- Historic information relevant to tax position in later period

"[42] ... However, one of the issues in Cowan [[2013] UKFTT 604 (TC)] was the residence status of the taxpayer, and HMRC contended (and the Tribunal agreed) that the information sought was relevant to the residence status of the taxpayer for the periods for which HMRC were not time barred. This is because, for example, the number of days spent in the UK by an individual in year one could be relevant to their UK residence status in year two." (Hackmey v. HMRC [2022] UKFTT 160 (TC), Judge Aleksander)

- Historic information relevant to tax position in later period

Multiple purposes

Multiple purposes ​

- Query whether the proper purpose has to be the dominant purpose

 

Good purpose must be true and dominant purpose

"[26] Laws LJ considered the purpose for which the Schedule 7 power was used at paras 17 to 27 of his judgment. He said that this was a question of fact. That is plainly right. He also said that, where there is or may be more than one purpose, the correct test is to determine the "true and dominant" purpose, even though some secondary or incidental advantage may be gained for some purpose which is outside the authorised purpose: see R v Southwark Crown Court, ex p Bowles [1998] AC 641, [1998] UKHL 16. He said that the purpose to be considered was the purpose for which the examining officers executed the stop. I believe none of this to be controversial..." (R (oao Miranda) v. Secretary of State for the Home Department [2016] EWCA Civ 6)

"[85] [Counsel for HMRC] accepted that if the Sch 36 Notices had been issued with “the dominant purpose of furthering a criminal investigation,” then HMRC “couldn’t use those powers in that way,” and he said that the same was true of HMRC’s powers to carry out SA and CT enquiries." (Gold Nuts Limited v. HMRC [2016] UKFTT 82 (TC), Judge Redston)

Good purpose need only be one purpose

"[92] I have noted that, in earlier decisions of the First-tier Tribunal relating to SB and certain of the entities falling within the GN Group, the Respondents conceded that, if the dominant purpose of the Respondents in stipulating a requirement was something other than checking the recipient’s tax position, then the appeal against the requirement should succeed – see Gold Nuts Limited and Others v The Commissioners for Her Majesty’s Revenue and Customs [2016] UKFTT 82 (TC) (at paragraphs [14](2) and [85]) and  Gold Nuts Limited and Others v The Commissioners for Her Majesty’s Revenue and Customs [2017] UKFTT 84 (TC) (at paragraph [158]).  However, at the hearing in these proceedings, the Respondents changed their position and contended that, even if the dominant purpose of the Respondents in stipulating a requirement was not to check the recipient’s tax position, the requirement would still remain valid as long as checking the recipient’s tax position was one of the purposes of the Respondents in stipulating the requirement, albeit a minor purpose. I believe that, subject to the caveat that I mention below, this amended position is the correct one because, in that event, the requirement would have satisfied the statutory language.

[93] In my view, if the recipient feels aggrieved at any comparative lack of significance that the “good” purpose bears to the “bad” purpose in those circumstances, then the only appropriate way for the recipient to challenge the requirement would be by way of an application to the High Court for judicial review based on misconduct by the Respondents and not by way of an appeal under paragraph 29 Schedule 36 FA 2008." (Hundal v. HMRC [2018] UKFTT 469 (TC), Judge Beare)

- Query whether the proper purpose has to be the dominant purpose

- Impermissible purpose that is a major purpose invalidates decision

 

"(iv) Where there is more than one purpose for which the decision is made, the decision will generally be lawful “provided that the permitted purpose is the true and dominant purpose behind the act, even though some secondary or incidental advantage may be gained for some purpose which is outside the authority's powers”: Wade and Forsyth, Administrative Law, 7th ed (1994), p 436; Westminster Corporation v London and North Western Railway Co (supra). But where there are two purposes — one ultra vires and one intra vires — the ultra vires purpose will render the decision invalid if it is a, if not the, major purpose of the decision, per Glidewell J in Reg v Inner London Education Authority, ex parte Westminster City Council [1986] 1 WLR 28; 84 LGR 120. Accordingly, a decision substantially influenced by a wish to alter the composition of the electorate would be unlawful: Reg v Lewisham London Borough Council, ex parte Shell UK Ltd [1988] 1All ER 938, 951, per Neill LJ." (Porter v. Magill (1997) 96 LGR 157 at 167, Rose LJ)

- Impermissible purpose that is a major purpose invalidates decision

- Purpose of checking third party's tax position may invalidate first party notice

 

"[94] The one caveat to the above is that, if the other purpose for stipulating the relevant requirement is in fact to check the tax position of some person other than the recipient, then the requirement has the effect of turning the notice within which it is contained into a third party notice, as well as a taxpayer notice, because the requirement satisfies both the conditions in sub-paragraph 1(1) Schedule 36 FA 2008 and the conditions in sub-paragraph 2(1) Schedule 36 FA 2008.  As such, in that case, the Respondents would be required by the terms of Schedule 36 FA 2008 to follow the procedures set out in that schedule that are applicable to third party notices, in order that the rights of the relevant third party under the legislation are protected, and any failure to do so would be a breach of the requirements in the schedule and thereby expose the relevant requirement to a successful challenge.

[95] So, in this case, if the Appellant had succeeded in showing not merely that the purpose of checking the Appellant’s own tax position was not the sole purpose of the Respondents in stipulating the relevant requirement but also that the other purpose or purposes for stipulating the relevant requirement included the purpose of checking the tax position of some other person - such as SB or any of the entities falling within the GN Group - then the failure of the Respondents, in connection with that requirement, to comply with the safeguards set out in Schedule 36 FA 2008 in relation to third party notices – for example, in sub-paragraph 2(2) Schedule 36 FA 2008 and paragraph 3 Schedule 36 FA 2008 - would mean that the relevant requirement, to the extent that it did not relate to information or a document which comprises part of the Appellant’s statutory records, would be open to a successful challenge." (Hundal v. HMRC [2018] UKFTT 469 (TC), Judge Beare)

- Purpose of checking third party's tax position may invalidate first party notice
The taxpayer's tax position

The taxpayer's tax position

 

“(1) In this Schedule, except as otherwise provided, “tax position”, in relation to a person, means the person's position as regards any tax, including the person's position as regards—
(a) past, present and future liability to pay any tax,
(b) penalties and other amounts that have been paid, or are or may be payable, by or to the person in connection with any tax, and
(c) claims, elections, applications and notices that have been or may be made or given in connection with the person's liability to pay any tax,
and references to a person's position as regards a particular tax (however expressed) are to be interpreted accordingly.

 

(2) References in this Schedule to a person's tax position include, where appropriate, a reference to the person's position as regards any deductions or repayments of tax, or of sums representing tax, that the person is required to make—
(a) under PAYE regulations,
(b) under Chapter 3 of Part 3 of FA 2004 or regulations made under that Chapter (construction industry scheme), or
(c) by or under any other provision of the Taxes Acts.

 

(2A) References in this Schedule to a person's tax position also include, where appropriate, a reference to the person's position as regards the withholding by the person of another person's PAYE income (as defined in section 683 of ITEPA 2003).” (FA 2008, Sch 36, para 64(1) – (2A)).

 

Future tax liability must not be too remote

 

“…we consider that the potential liability of PML to account for tax under the MSC legislation is too remote to fall within sub-paragraph (a) of paragraph 64.  At the time the notice was issued, there was no past or present liability for PML to account for tax, as no notice under Regulation 97C had been issued…ML has no “tax position” unless and until a transfer notice is given.  If HMRC want to determine whether PML stands in the relationship of MSC Provider to any of its clients, they can do so by enquiring into the tax position of that client.” (PML Accounting Ltd v. HMRC [2015] UKFTT 440 (TC), §142…143).

 

However

"[106]...I see considerable force in the argument that the admittedly contingent future liability to tax of PML under the MSC legislation is sufficient to ground the giving of a valid taxpayer notice under paragraph 1 of schedule 36, particularly having regard to the wide definition of "tax position" in paragraph 64." (PML Accounting Ltd v. HMRC [2018] EWCA Civ 2231, Henderson LJ).

"[116] I do however think there is much in Henderson LJ's observation at para 106 in respect of the FTT's conclusion that a third party notice rather than a taxpayer notice was appropriate in this case but, as he says, that conclusion was not appealed by HMRC." (PML Accounting Ltd v. HMRC [2018] EWCA Civ 2231, Peter Jackson LJ).

“Penalties and other amounts” includes surcharges and interest

 

“The provision refers to “penalties and other amounts …” and so “other amounts” has to be construed ejusdem generis.  The reference cannot be to the underlying liability to the tax itself, as that is covered by sub-paragraph (a).  We find that sub-paragraph (b) relates to amounts due (or repayable) that are in addition to the underlying tax liability.  This could include, for example, surcharges, repayment supplements and interest.” (PML Accounting Ltd v. HMRC [2015] UKFTT 440 (TC), §145).

 

Potential liability of managed service company provider too remote

 

“…it appears to us that the circumstances of this case would more properly be addressed through a third party notice issued under paragraph 2 of Schedule 36.  If the MSC legislation applies, the primary obligation to account for tax falls on PML’s clients – in relation to whom PML stands as a third party.  An MSC Provider does not have any liability to account for income tax in respect of fees earned by is clients.  A liability can only arise in the hands of the MSC Provider in the event that an MSC defaults in the obligations that it owes HMRC, and then the MSC Provider may have a secondary liability for those obligations.  By seeking notices under paragraph 2, the rights of the MSC’s would have been respected for the reasons we give below.” (PML Accounting Ltd v. HMRC [2015] UKFTT 440 (TC), §141).

 

Companies that no longer exist and deceased individuals

 

“(3) References in this Schedule to the tax position of a person include the tax position of—
(a)   a company that has ceased to exist, and
(b)   an individual who has died.” (FA 2008, Sch 36, para 64(3)).
 

Tax (meaning of)

 

(1)     In this Schedule, except where the context otherwise requires, “tax” means all or any of the following—

(a)     income tax,

(b)     capital gains tax,

(c)     corporation tax,

(ca)     diverted profits tax,

(cb)     apprenticeship levy,

(d)     VAT, and

(e)     insurance premium tax,

(f)     inheritance tax,

(g)     stamp duty land tax,

(h)     stamp duty reserve tax,

(ha)     annual tax on enveloped dwellings,

(i)     petroleum revenue tax,

(ia)     soft drinks industry levy,

(j)     aggregates levy,

(k)     climate change levy,

(l)     landfill tax, and

(m)     relevant foreign tax,

and references to “a tax” are to be interpreted accordingly." (FA 2008, Sch 36, para 63(1)).

 

Relevant foreign tax

 

"(4)     In this Schedule “relevant foreign tax” means—

(a)     a tax of a member State, other than the United Kingdom, which is covered by the provisions for the exchange of information under Council Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation (as amended from time to time), and

(b)     any tax or duty which is imposed under the law of a territory in relation to which arrangements having effect by virtue of section 173 of FA 2006 (international tax enforcement arrangements) have been made and which is covered by the arrangements.” (FA 2008, Sch 36, para 63(4)).

 

The process to be gone through to establish whether a tax is a relevant foreign tax is set out and applied in HMRC ex p. Certain Taxpayers [2012] UKFTT 765 (TC), §§10 - 20 in respect of Australian taxes.

 

VAT charged by other Member States

 

"(3)     In this Schedule “VAT” means—

(a)     value added tax charged in accordance with VATA 1994,

(b)     value added tax charged in accordance with the law of another member State, and

(c)     amounts listed in sub-paragraph (3A).

 

(3A)     Those amounts are—

(a)     any amount that is recoverable under paragraph 5(2) of Schedule 11 to VATA 1994 (amounts shown on invoices as VAT), and

(b)     any amount that is treated as VAT by virtue of regulations under section 54 of VATA 1994 (farmers etc)." (FA 2008, Sch 36, para 63(3) - (3A)).

 

Amounts assessable or chargeable as if corporation tax

 

“(2) In this Schedule “corporation tax” includes any amount assessable or chargeable as if it were corporation tax.” (FA 2008, Sch 36, para 63(2)).

Tax (meaning of)

Purpose of collecting a tax debt of the taxpayer

 

"(1) In this Schedule a reference to collecting a tax debt of a person is a reference to taking any steps for, or in connection with, the recovery of—
(a) an amount of tax due from the person, or
(b) any other amount due from the person in connection with any tax.
(2) It does not matter whether or not another person is, or has been, at any time liable to pay the tax or other amount.” (FA 2008, Sch 36, para 63A)

Purpose of collecting a tax debt of the taxpayer

- Collecting foreign tax debts

 

"Where this Schedule applies for the purpose of collecting a tax debt of a person, “relevant foreign tax” is to be taken to include (in addition to what is mentioned in paragraph 63(4)) any tax or duty which is covered by the provisions for the exchange of information under Council Directive 2010/24/EU of 16 March 2010 concerning mutual assistance for the recovery of claims relating to taxes, duties and other measures (as it had effect immediately before IP completion day).” (FA 2008, Sch 36, para 63B)

- Collecting foreign tax debts

- Applies to debts whenever arising

 

"(8) The amendments made by this section have effect for the purpose of collecting a tax debt of a person whenever arising." (FA 2021, s.127(8))

- Applies to debts whenever arising

Penalties for enablers of tax avoidance

 

Information and inspection powers: application of Schedule 36 to FA 2008

 

(1)Schedule 36 to FA 2008 (information and inspection powers) applies for the purpose of checking a relevant person’s position as regards liability for a penalty under paragraph 1 as it applies for checking a person’s tax position, subject to the modifications in paragraphs 41 to 43.
(2)In this paragraph and paragraphs 41 to 43—
“relevant person” means a person an officer of Revenue and Customs has reason to suspect is or may be liable to a penalty under paragraph 1;
“the Schedule” means Schedule 36 to FA 2008." (FA (No.2) 2017, Sch 16, para 40)
 

General modifications of Schedule 36 to FA 2008 as applied

 

"In its application for the purpose mentioned in paragraph 40(1) above, the Schedule has effect as if—
(a) any provisions which can have no application for that purpose were omitted,
(b) references to “the taxpayer” were references to the relevant person whose position as regards liability for a penalty under paragraph 1 is to be checked, and references to “a taxpayer” were references to a relevant person,
(c) references to a person’s “tax position” were to the relevant person’s position as regards liability for a penalty under paragraph 1,
(d) references to prejudice to the assessment or collection of tax included prejudice to the investigation of the relevant person’s position as regards liability for a penalty under paragraph 1, and
(e) references to a pending appeal relating to tax were to a pending appeal relating to an assessment of liability for a penalty under paragraph 1." (FA (No.2) 2017, Sch 16, para 41)

 

Statutory records not excluded

"[46] I observe that Part 9 of Schedule 16 does not specifically exclude paragraph 29(2) of Schedule 36.  The only possible exclusion would be in terms of paragraph 41 of Schedule 16 but, firstly, I do think that the names and addresses of those making or receiving fees or commission etc would be part of the statutory records. I agree with Mr Simpson that items 31 and 32 are statutory records within the Couldwell description thereof.

[47] Those records would be relevant in checking whether the appellant fell within the categories set out in paragraph 7 of Schedule 16.

[48] Secondly, paragraph 41 is very limited in application since a provision in Schedule 36 can only be excluded if it can have “no application” for the purpose of (a) checking whether the appellant might be liable for a penalty or (b) ascertaining the identity of any other person who may have enabled the arrangements. That is a very narrow possibility and in my view does not apply here.(Asset House Piccadilly Limited v. HMRC [2023] UKFTT 385 (TC), Judge Scott)

Specific modifications of Schedule 36 to FA 2008 as applied
 

"(1)The Schedule as it applies for the purpose mentioned in paragraph 40(1) above has effect with the modifications in sub-paragraphs (2) to (6).
(2)Paragraph 10A (power to inspect business premises of involved third parties) has effect as if the reference in sub-paragraph (1) to the position of any person or class of persons as regards a relevant tax were to the position of a relevant person as regards liability for a penalty under paragraph 1.
(3)Paragraph 47 (right to appeal against penalties under the Schedule) has effect as if after paragraph (b) (but not as part of that paragraph) there were inserted the words “but paragraph (b) does not give a right of appeal against the amount of an increased daily penalty payable by virtue of paragraph 49A.
(4)Paragraph 49A (increased daily default penalty) has effect as if—
(a)in sub-paragraphs (1)(c) and (2) for “imposed” there were substituted “assessable”;
(b)for sub-paragraphs (3) and (4) there were substituted—
“(3)If the tribunal decides that an increased daily penalty should be assessable—
(a)the tribunal must determine the day from which the increased daily penalty is to apply and the maximum amount of that penalty (“the new maximum amount”);
(b)from that day, paragraph 40 has effect in the person’s case as if “the new maximum amount” were substituted for “£60”.
(4)The new maximum amount may not be more than £1,000.”;
(c)in sub-paragraph (5) for “the amount” there were substituted “the new maximum amount”.
(5)Paragraph 49B (notification of increased daily default penalty) has effect as if—
(a)in sub-paragraph (1) for “a person becomes liable to a penalty” there were substituted “the tribunal makes a determination”;
(b)in sub-paragraph (2) for “the day from which the increased penalty is to apply” there were substituted “the new maximum amount and the day from which it applies”;
(c)sub-paragraph (3) were omitted.
(6)Paragraph 49C is treated as omitted." (FA (No.2) 2017, Sch 16, para 42)

 

"Paragraphs 50 and 51 are excluded from the application of the Schedule for the purpose mentioned in paragraph 40(1) above." (FA (No.2) 2017, Sch 16, para 43)

Penalties for enablers of tax avoidance

Notice must be precise, clear and unambiguous

 

"[11](2) If the Tribunal is satisfied, on the balance of probabilities, that the Notice was sent and received, then the next enquiry will be whether the Notice sets out precise, clear and unambiguous requests for (relevant) information and/or documents, so that the requirements of the Notice can be readily understood and 25 complied with. This is essential. A person cannot be subject to a penalty (whether criminal or civil) for being in breach of an obligation unless he is made aware of that which he must do (or must not do) to avoid such a penalty. In the realm of civil injunctions, which may result in punishment for contempt of court if they are not complied with, the courts are assiduous to ensure that any alleged breach of an injunction is particularised by reference to the precise terms of the injunction order which, it is alleged, have been breached. It follows that it is essential for the terms of the injunction to be drafted with care so as to be unambiguous and clear if such an investigation is subsequently to take place.

...

[16]...The Notice offends just about every tenet for the proper drafting of a document which is intended to have legal effect, that is, in the sense that if it is not complied with, then a penalty can be imposed against the party to whom it is sent. The Notice is so poorly drafted that it would be perverse to conclude that the recipient of it could know precisely what it was that he was required to provide to the respondents by way of either information or documents. The Notice proceeds on the erroneous basis that the appellant can be expected to provide documents and/or information held by third parties, in particular companies of which he either is or was a director. That information and those documents are the property of the company; nobody else. The respondents have ample powers to obtain 25 information from third parties, and if that is desired, then the proper procedures should be adopted." (Anstock v. HMRC [2017] UKFTT 307 (TC), Judge Geraint Jones QC)

Clarity must be found within the four corners of the notice itself

"The Notice relied upon by the respondents is so poorly thought through and so inadequately drafted that it fails the requirement of certainty and precision, which is a fundamental requirement (as explained above). In this context it is also worth pointing out that the requirements made of the recipient of a Notice must be discernible from within the four corners of the Notice itself unless some other document is specifically incorporated by reference. It will not do for it to be argued, as it was argued before us, that some of the details about requested information might have been gleaned by looking at the earlier correspondence. That might be so; it might not be so. However, that is not a legitimate way to proceed because the Notice must be self-contained and must be construed to establish precisely what information and/or documents it properly requires the recipient to provide." (Anstock v. HMRC [2017] UKFTT 307 (TC), Judge Geraint Jones QC)

Examples of inadequate drafting

Asking for evidence without specifying documentary evidence

"[18] By way of example, question 4 in the Notice refers to four separate properties and then says “provide evidence to show how each property was financed.” The question seems to assume, without asserting, that the appellant financed either the purchase of, or the acquisition of some other interest in, the four named properties. It does not specify by whom the financing of the four identified properties (or any of them) is alleged to have taken place. It pre-supposes that the appellant may have relevant evidence. In the appellant’s letter of 13 July 2016 he nonetheless sought to deal with that query by reference to each of the four named properties, albeit that if the expression “provide evidence” was meant to refer to documentary evidence, none was provided. However, the request did not specifically require documentary evidence. It is often overlooked that statements made orally are evidence. The criminal courts in this country work on the basis of oral evidence, daily." (Anstock v. HMRC [2017] UKFTT 307 (TC), Judge Geraint Jones QC)

Generalised request for further information

"[19] At question 6, a property in Coventry Garden is referred to and the request then says “please provide further information about this property and any others HMRC has not been made aware of”. There is nothing whatsoever to indicate what type of information is requested. It is not for the recipient of the Notice to guess or to have to make even an informed guess given the context in which the request is made. If the respondents want to know, for example, by whom a particular property was purchased, when it was purchased, at what price and whether it has been sold and, if so, when and that what price, those enquiries are each capable of being specifically set out so that there will be no doubt about what is being asked. If documents are being asked for then, for example, the respondents might ask for a copy of the “Completion Statement” sent to a property owner upon the purchase or sale of any such property (perhaps being prefaced by the comment that the question arises only if a solicitor was engaged to undertake the conveyancing upon purchase and/or sale). The request for unspecified information about properties that “HMRC has not been made aware of” is singularly unfair and incapable of being properly understood, because the recipient of the Notice will not necessarily know about which properties “HMRC has not been made aware of”. If the respondents had intended to ask the recipient of the Notice to state whether he had, within a specified period of time, purchased or sold any properties other than those already specifically referred to in the Notice, it would have 20 been a simple matter to frame an appropriate question to that effect." (Anstock v. HMRC [2017] UKFTT 307 (TC), Judge Geraint Jones QC)

Unexplained document types

"[20] By way of our last example we refer to request 14 which requests “fee lists for any companies within the Newhaven Group structure, whether in the UK or overseas, from 2010 to date”. Quite what is meant by a “fee list” is not explained, nor is the expression “Newhaven Group structure”. The request also overlooks the fact that the fee lists, whatever they might be, are the property of and might even be the confidential information of any such companies that hold or held same." (Anstock v. HMRC [2017] UKFTT 307 (TC), Judge Geraint Jones QC)

Notice must be precise, clear and unambiguous

Documents not in the taxpayer's possession or control

See I-7: Compliance and non-compliance

Documents not in the taxpayer's possession or control

Information notice covering similar ground to withdrawn notice (abuse)

 

Res judicata unlikely to apply

"[60]  In relation to this case we hold that the Caffoor principle [that estoppel cannot raise from one tax year to the next] does not apply.  That is because a Schedule 36 notice does not determine the amount of tax payable by a person and in any event this is not a case where HMRC seek to argue in respect of one period a point which has been determined against them in an earlier one.

...

[67] The appellants say that there has been a determination of the dispute between the parties so that HMRC are estopped by the Cenlon principle.  They say that in this case the First-tier Tribunal has determined the matter and that the letter of 20 February 2018 shows that.  We do not agree.  What the correspondence shows is that HMRC withdrew their case under Rule 18 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273) (“FTT Rules”).  That does not decide the matter.  The letter of 20 February is not from a judge of the Tribunal nor does it say it is written on the instructions of a judge who has determined the matter.  Only a judge in chambers, not a Tribunal clerk, is able to determine an appeal otherwise than after a hearing of the appeal.  No judge has considered the opposing arguments on the validity of the notice, whether there are grounds for saying that the notice should not have been given or whether any or all of the requirements of the notice are invalid for any reason.  Nor can it be said that there was, after the withdrawal, any s 54 TMA agreement that had the effect of deciding the matter in question, or at least the appellants have not suggested that there was.  While HMRC did suggest that the appellants should withdraw their appeal they do not appear to have done so, and withdrawal of an appeal does not of itself constitute a s 54 agreement.  What seems to have happened is that HMRC became convinced by the appellants’ arguments about the vagueness and lack of precision in the information required and also came to the view that certain requests were no longer necessary, though why they had formed that view is not apparent.

[68] This having been done, then the question whether the notices of 1 May 2018 were valid does not depend on the application of the doctrine of res judicata." (Hegarty v. HMRC [2018] UKFTT 774 (TC), Judge Richard Thomas)

Consider all the facts re possible abuse of process

"[81] Thus, like Judge Brooks, we adopt the approach of Judge Berner in Hackett and take into account all the facts and circumstances of the case, and in particular:

(1)          There had already been one occasion on which notices were revised and replaced, but this was not in the context of existing appeal proceedings

(2)          It was open to HMRC, as the appellant points out, to ask the Tribunal, or seek the appellants’ agreement, to vary the notices in accordance with HMRC’s changed requirements and refinement of the wording.

(3)          There has been no determination or deemed determination of the appeal against the notices, merely a withdrawal by one party of its case.  That withdrawal was made, HMRC said, to give the appellant a more focussed and better worded notice.

(4)          HMRC did seek to reserve the right to issue further notices in its letter to the appellants, but did not inform the Tribunal of this.  In SCF Finance & Co Ltd v Masri (No 3) (cited by Judges Mosedale and Brooks) the claimant had withdrawn a summons for the determination of a claim to ownership of a bank account – it was held that the claim had thereby been determined against her, but the Court raised the possibility that an express reservation of position to a Court might make a difference to whether there is an abuse of process.

(5)          The evidence of Mr Hegarty, supported by that of Mr O’Neill, was that when he received the letter from HMRC of 14 February he assumed that the whole case was at an end, and that the resumption many weeks later caused him and his wife great anxiety.  It was open to HMRC to take another approach, by seeking a variation of the notice from the Tribunal, action which would not have had the effect on the appellants that HMRC’s actions did.

(6)          A Schedule 36 notice is not an assessment to tax or an amendment to a return giving rise to additional tax.  It is an ancillary step towards determining if such a tax liability arises. 

[82] Having taken all these circumstances into account, we do not consider that there was an abuse of process when HMRC issued the further notices in May 2018." (Hegarty v. HMRC [2018] UKFTT 774 (TC), Judge Richard Thomas)

Seeking to obtain the same information following rejection by FTT due to lack of evidence may be an abuse

"[169] We have to point out to the appellants, that while there is no right of appeal given to HMRC to contest this decision (paragraph 32(5) Schedule 36), nothing in our decision prevents HMRC from issuing another notice under Schedule 36 FA 2008.  Speaking for ourselves (and obviously obiter) we would consider that HMRC were estopped from so doing or that it would be an abuse of process." (Hegarty v. HMRC [2018] UKFTT 774 (TC), Judge Richard Thomas)

Information notice covering similar ground to withdrawn notice (abuse)

Burden of proof

Divergence of views

HMRC have the burden

 

"The gateway to the issue of an information notice is paragraph 1(1) of Schedule 36. In all cases, the officer of HMRC must show that  the information or document requested is reasonably required by the officer for the purpose of checking the taxpayer’s tax position." (Davies v. HMRC [2022] UKFTT 369 (TC), Judge McKeever)

"[14] HMRC further submits that the burden of proof rests with them to show that the information sought by these taxpayer notices is reasonably required for the purposes of checking Mr Jenner’s tax position.

...

[16] With regard to taxpayer notices, I agree with Judge Nicholl’s remarks in Cliftonville Consultancy Ltd v HMRC [2018] UKFTT 231 (TC) at [39] that if “the approval of the tribunal is not sought it still remains a condition that the information or document is reasonably required by the officer and this is to be established by HMRC when a taxpayer appeals to the tribunal”. I therefore accept HMRC’s submission that the burden of proof rests with them to show that the information requested is reasonably required in the circumstances of this case, which involves taxpayer notices." (Jenner v. HMRC [2022] UKFTT 203 (TC), Judge Sukul)

"[7] In our view the burden of proof is on HMRC to establish that the notices were valid, that they were reasonably required for the purposes of checking the appellant’s tax position, and that the Condition A or B has been met. HMRC’s view was that the burden of proving that they were reasonably required rests with the appellants. Whilst we disagree (our view is the same as that set out at paragraph 45 in Judge Thomas’s decision in Morris Newton v HMRC UKFTT 513 (“Newton”)) nothing turns on this." (Gilmore v. HMRC [2022] UKFTT 116 (TC), Judge Popplewell)

“The burden of proof lies on HMRC to show, on the balance of probabilities that the information/documents are reasonably required.” (Sherchan v. HMRC [2016] UKFTT 134 (TC), §55).

 

Appellant has burden

 

“We have been assisted by the thorough exploration of the question of burden of proof in “reasonably required” cases like this one set out by the tribunal in Joshy Mathew at [66-87]. Whilst finding (at [82]) that the weight of authority is that the burden rests on the appellant, the tribunal there noted (at [85]) that it “remains arguable” that the burden is on HMRC, and, in that case, took the approach of assuming the burden lay on HMRC, and delving further into the matter only in case HMRC were unable to meet the burden (which, in that case, they were). We note the tribunal took a similar approach in Marylin May Phillipou [2017] UK FTT 0020 (TC) (Judge Nigel Popplewell and Mr Simon Bird) at [18-19]…We take a similar approach here.” (Patel v. HMRC [2017] UKFTT 323 (TC), §§51…52, Judge Citron).

 

“HMRC accepted that it bore the burden of proof in showing that the information specified in the Information Notice were either statutory records or reasonably required to check the appellant’s tax position…Like Judge Popplewell in Phillipou I agree that the issue of burden of proof in Information Notice cases was eloquently discussed by Judge Redston in Joshi Mathew v HMRC where she explained that there were cogent reasons as to why the burden of proof of establishing that documents and information are reasonably required may not lie with HMRC.  Instead, the burden might be on the appellant to show that such documents or information were not reasonably required.  However, like both judges, I find that HMRC has met the burden of establishing that the information sought by the Notice is reasonably required and therefore I do not need to decide this point.  I am content to adopt HMRC’s position on the burden and the standard of proof.” (Nicol v. HMRC [2017] UKFTT 529 (TC), §39, Judge Anne Scott).

 

Shifting burden

 

"[37] PML post-dates Joshy Matthew, and affirms the conclusion reached in Joshy Matthew after review of case law that the burden rests on the appellant on an appeal under paragraph 29(1) of Sch 36 to establish that the information and documents sought are not reasonably required. The tribunal in Joshy Matthew nevertheless acknowledged that 'it remains arguable that the burden is on HMRC' (at [85]) and determined the appeal 'on the working assumption' that HMRC have the burden. We adopt the same approach, noting that HMRC in the present case have accepted that the burden lies with them to prove the information and documents sought to be reasonably required to check the appellant's tax position. Thereafter, we consider that the onus shifts to the appellant, to demonstrate that the information and documents sought are not reasonably required." (Leen v. HMRC [2023] UKFTT 407 (TC), Judge Poon)
 

“The Tribunal is of the view that there are two stages in the operation of onus in an appeal against an information notice under the ‘reasonably required’ test...The first stage of proof is that HMRC have the burden of meeting the purpose test by establishing that the item is reasonably required for the purpose of checking the taxpayer’s tax position. The definition of ‘tax position’ is loosely drawn to allow a wide margin of appreciation…After the officer has met the burden to prove the purpose test at the first stage, the principle of a presumption of regularity arguably shifts the onus onto the appellant, to prove the contrary by establishing that the item requested is not reasonably required at the second stage. In other words, a presumption of regularity weighs in the officer’s favour that his decision on the information request has been reasonably reached once the purpose test is met, and the onus is shifted onto the taxpayer to prove the contrary.” (Carlyl v. HMRC [2017] UKFTT 525 (TC), §§140 – 142, Judge Poon).

Burden of proof

Standard of proof

 

Low burden on HMRC

 

“Furthermore, we consider that the overall intention of Sch 36 is to set the requisite threshold for the first stage of proof required of an officer at a low level. The encompassing nature intended by the statutory definition of ‘tax position’ means that the purpose test can be readily met on the level of relevance. The presumption that the taxpayer is in the best position to know his own affairs, together with the safeguard of the right of appeal against any item requested which is not statutory record, have the combined effect that a low threshold can be set for the ‘reasonably required’ test.” (Carlyl v. HMRC [2017] UKFTT 525 (TC), §143, Judge Poon).
 

Examples

 

Information on how the business operates reasonably required to check profits

 

“It is not right for the appellant and her advisers to say that HMRC has no right to know about the way in which the appellant's business is undertaken.  The information is reasonably required since it explains the specific way in which the appellant runs her business which, in turn, will have a significant impact (as the appellant accepts as being the case as regarding, for example, business expenses) on her tax position.” (Phillipou v. HMRC [2017] UKFTT 20 (TC), §44)

 

Documents relating to out of time periods not reasonably required

 

“Our view is that if HMRC wish to ask for information which goes beyond the four year enquiry window, they need to give a reason why, which we would expect to be that there is some suggestion of deliberate error on the part of the taxpayer. No such suggestion was made in this case.” (The Barty Party Company Ltd v. HMRC [2017] UKFTT 697 (TC), §64, Judge Short).

 

Doctor’s diary not reasonably required to check doctor’s tax position

 

“In light of the findings of fact, it seems to me to be impossible to hold that the business appointments diaries are reasonably required in order to check the taxpayer’s position.  They contain no financial information.  They are not necessarily an accurate record of patients seen and services provided or charged for.  On the evidence, there is no way of correlating the numbers of patients with the turnover generated.” (Long v. HMRC [2014] UKFTT 199 (TC), §18, Judge Gordon Reid QC).

 

Solicitor’s ledger, cash book and invoices reasonably required to check tax position

 

“The Revenue are entitled to satisfy themselves that all entries relating to the business are reconciled and that all relevant income has been returned and to seek explanations for unexplained payments into and out of the business. The method of accounting adopted by the taxpayer means that there are numerous entries in the office accounts which are not reconciled. The information already supplied to the Revenue is not sufficient to enable him to reconcile these entries and to satisfy himself that all relevant income has been returned. The clients' ledger and clients' cash book, with the supporting documents requested, will enable the various accounts to be reconciled.” (Guyer v. Walton [2001] STC (SCD) 75, §22, Dr Brice).
 

Standard of proof
Examples

Further conditions to be met where taxpayer submitted income tax, CGT or corporation tax return

 

"(1)     Where a person has made a tax return in respect of a chargeable period under section 8, 8A or 12AA of TMA 1970 (returns for purpose of income tax and capital gains tax), a taxpayer notice may not be given for the purpose of checking that person's income tax position or capital gains tax position in relation to the chargeable period.

(2)     Where a person has made a tax return in respect of a chargeable period under paragraph 3 of Schedule 18 to FA 1998 (company tax returns), a taxpayer notice may not be given for the purpose of checking that person's corporation tax position in relation to the chargeable period.

(3)     Sub-paragraphs (1) and (2) do not apply where, or to the extent that, any of conditions A to D is met.” (FA 2008, Sch 36, para 21(1) – (3)).

 

Early CGT return treated as tax return

"(1)     For the purposes of paragraph 21 any reference to the making by a person of a return under section 8 or 8A of TMA 1970 includes the making by the person of a return under Schedule 2 to FA 2019.

(2)     In the application of paragraph 21 in relation to a return under Schedule 2 to FA 2019, the return is to be treated as if it required a self-assessment of an amount of capital gains tax.

(3)     For the purposes of paragraph 21, the definition of “the notice of enquiry” in its application to a return under Schedule 2 to FA 2019 needs to be read in the light of the provision made by paragraph 20 of that Schedule." (FA 2008, Sch 36, para 21ZA).

HMRC do not have to specify which condition they are relying on

 

“Paragraph 21(3) of Sch 36 merely requires that condition A or B (or C or D) is met.  There is nothing which requires HMRC to rely on any particular condition when serving the information notice:  one or more of the conditions are met or they are not.” (Spring Capital Ltd v. HMRC [2016] UKFTT 246 (TC), §48).

 

Condition A: ongoing enquiry

 

"(4)     Condition A is that a notice of enquiry has been given in respect of—

(a)     the return, or

(b)     a claim or election (or an amendment of a claim or election) made by the person in relation to the chargeable period in respect of the tax (or one of the taxes) to which the return relates (“relevant tax”),

and the enquiry has not been completed [so far as relating to the matters to which the taxpayer notice relates

 

(5)     In sub-paragraph (4), “notice of enquiry” means a notice under—

(a)     section 9A or 12AC of, or paragraph 5 of Schedule 1A to, TMA 1970, or

(b)     paragraph 24 of Schedule 18 to FA 1998.” (Sch 36, para 21 (4))

 

Information notice and notice of enquiry may be issued at the same time

 

“The purpose of Condition A is therefore to ensure that HMRC’s Sch 36 Notice powers do not undermine the existing statutory restrictions on its enquiry powers.  Para 21(4) states that, if a CT return has been filed, a Sch 36 Notice can only be issued if (a) an enquiry notice “has been given” and (b) the enquiry “has not been completed”.  In other words, the purpose of the Condition is to ensure that a Sch 36 Notice can be given if there is an open enquiry.  That purpose does not prevent a notice of enquiry and a Sch 36 Notice from being issued at the same time.” (Gold Nuts Ltd v. HMRC [2017] UKFTT 354 (TC), §80, Judge Redston).

 

Condition B: reason to suspect underassessment of tax etc.

 

“(6) Condition B is that an officer of Revenue and Customs has reason to suspect that, as regards the person,
(a) an amount that ought to have been assessed to relevant tax for the chargeable period may not have been assessed,
(b) an assessment to relevant tax for the chargeable period may be or have become insufficient, or
(c) relief from relevant tax given for the chargeable period may be or have become excessive.” (Sch 36, para 21(6))

 

See next section

Condition C: check tax position other than income tax, CGT or corporation tax position 

 

“(7) Condition C is that the notice is given for the purpose of obtaining any information or document that is also required for the purpose of checking the person's position as regards any tax other than income tax, capital gains tax or corporation tax.” (FA 2008, Sch 36, para 21(7))

 

Condition D: PAYE checks

 

(8) Condition D is that the notice is given for the purpose of obtaining any information or document that is required (or also required) for the purpose of checking the person's position as regards any deductions or repayments of tax or withholding of income referred to in paragraph 64(2) or (2A)(PAYE etc).” (FA 2008, Sch 36, para 21(8))

Partnership returns and claims

"(2)     Where, in respect of a chargeable period, any of the partners has—

(a)     made a tax return under section 12AA of TMA 1970 (partnership returns), or

(b)     made a claim or election in accordance with section 42(6)(b) of TMA 1970 (partnership claims and elections),

paragraph 21 (restrictions where taxpayer has made tax return) has effect as if that return, claim or election had been made by each of the partners." (FA 2008, Sch 36, para 37(2))

Exception: conditions do not apply to notice given to seller following change of ownership where seller might be liable for unpaid corporation tax

"(1)     Sub-paragraph (2) applies where it appears to the Commissioners that—

(a)     there has been a change in the ownership of a company, and

(b)     in connection with that change a person (“the seller”) may be or become liable to be assessed and charged to corporation tax under [section 710 or 713 of CTA 2010.

(2)     Paragraph 21 (restrictions on giving taxpayer notice where taxpayer has made tax return) does not apply in relation to a taxpayer notice given to the seller.

(3)     Chapter 7 of Part 14 of CTA 2010 applies for the purposes of determining when there has been a change in the ownership of a company." (FA 2008, Sch 36, para 36)

Exception: herd basis election

"(1)     This paragraph applies to a taxpayer notice given to a person carrying on a trade in relation to which a herd basis election is made if the notice refers only to information or documents that relate to—

(a)     the animals kept for the purposes of the trade, or

(b)     the products of those animals.

(2)     Paragraph 21 (restrictions on giving taxpayer notice where taxpayer has made tax return) does not apply in relation to the notice.

(3)     “Herd basis election” means an election under Chapter 8 of Part 2 of ITTOIA 2005 or Chapter 8 of Part 3 of CTA 2009." (FA 2008, Sch 36, para 37A)

Exception: information from persons liable under transactions in securities rules

"(1)     This paragraph applies to a taxpayer notice given to a person if—

(a)     it appears to an officer of Revenue and Customs that a counteraction provision may apply to the person by reason of one or more transactions, and

(b)     the notice refers only to information or documents relating to the transaction (or, if there are two or more transactions, any of them).

(2)     Paragraph 21 (restrictions on giving taxpayer notice where taxpayer has made tax return) does not apply in relation to the notice.

(3)     “Counteraction provision” means—

(a)     section 703 of ICTA (company liable to counteraction of corporation tax advantage), or

(b)     section 684 of ITA 2007 (person liable to counteraction of income tax advantage), or

(c)     section 733 of CTA 2010 (company liable to counteraction of corporation tax advantage)." (FA 2008, Sch 36, para 37B)

Further conditions to be met where taxpayer submitted self-assessment return

- Reason to suspect underassessment of tax etc. (condition B)

 

“(6) Condition B is that an officer of Revenue and Customs has reason to suspect that, as regards the person,
(a) an amount that ought to have been assessed to relevant tax for the chargeable period may not have been assessed,
(b) an assessment to relevant tax for the chargeable period may be or have become insufficient, or
(c) relief from relevant tax given for the chargeable period may be or have become excessive.” (Sch 36, para 21(6))

 

‘Reason to suspect’ is higher threshold than ‘reasonably required’ 

 

“[HMRC] accepted that “reason to suspect” was a higher threshold than “reasonably required”.” (Harrydev Ltd v. HMRC [2017] UKFTT 616 (TC), §129, Judge Redston)

 

“This reading fits with Condition B, which provides that a Sch 36 Notice can be issued if the officer “has reason to suspect” there is an underassessment, or that a tax relief is excessive.  This is a higher threshold than the “reasonably required” test in Sch 36 para 1.” (Gold Nuts Ltd v. HMRC [2017] UKFTT 354 (TC), §81, Judge Redston).

 

Objective test

"[9] This suggests to us that the reasonably required test is an objective one. We take the same view of the reason to suspect condition (see paragraph 52 of Newton in which Judge Thomas records that the qualifying condition of “reasonable grounds to suspect” which was tested in the case of Kahn v Assets Recovery Agency [2006] UK SpC 523, “does not involve proof of criminal conduct but a genuine suspicion which is reasonable viewed objectively…..” (Gilmore v. HMRC [2022] UKFTT 116 (TC), Judge Popplewell)

Suspicion is lower bar than the belief required for discovery

"[91] It was suggested in Hegarty, that the level of suspicion required is higher than that in “discovery” cases under section 29 Taxes Management Act 1970. We prefer the view of Judge Aleksander in Hackmey v HMRC [2022] UKFTT 160 (TC) [see below]...

[92]  We also consider that the bar for suspicion is a low bar and is lower than that required for discovery. It it were at the same level or higher, the officer could make a discovery assessment, rather than seeking information." (Davies v. HMRC [2022] UKFTT 369 (TC), Judge McKeever)

"[37] I disagree with Judge Thomas that the bar for reasonable suspicion is set at about the same height as that for making a discovery. In the case of a discovery, the officer must believe there to be – rather than merely suspecting - an insufficiency of tax. “Belief” sets a higher bar than mere “suspicion” (see Jerome Anderson v HMRC [2018] UKUT 0159 (TCC) at [28] – not cited to me). So, I find that the bar in Paragraph 21(6) is set somewhat lower than the bar for a “discovery”. But on any basis, that bar is low." (Hackmey v. HMRC [2022] UKFTT 160 (TC), Judge Aleksander)

HMRC being interested in a tax issue is not the same as having a suspicion of an insufficiency

"[95] We accept that some if not all of the nine factors on which HMRC relied may have given HMRC cause to be interested in whether the appellant’s case as to residence was true.  After all, there was a lot of tax at stake.  But the notice under appeal was not, as Mr Gordon pointed out, given in the course of an enquiry.  HMRC had lost that opportunity.  They could not therefore rely on the more generous terms of condition A as compared with those of condition B.  Being interested does not suffice to meet condition B in our judgment." (Betts v. HMRC [2013] UKFTT 430 (TC), Judge Perez)

Reasonable suspicion requires an objective basis

"[40] We agree with the FTT in Perring that for an Officer to have reasonable grounds to suspect that an assessment has become deficient, it requires 'not only that the Officer to have formed that view but in addition that it must also be objectively reasonable to hold that view' and that some evidence must exist to indicate a deficiency in relation to the tax year for which the Notice has been issued: (at [19](1) of Perring)." (Leen v. HMRC [2023] UKFTT 407 (TC), Judge Poon)

"Mr Simpson accepted that HMRC bore the burden of proof, on the balance of probabilities, to provide evidence that it was objectively reasonable for Officer Cormack to have suspicions. For that proposition he relied on paragraph 57 of Newton v HMRC [2018] UKFTT 513(TC), with which I agree." (Asset House Piccadilly Limited v. HMRC [2023] UKFTT 385 (TC), Judge Scott)

"[39] The requirement for reasonable grounds was also considered by Judge Gething in Perring [2021] UKFTT where she said at [19](1) that:

"the requirement that an Officer has reasonable grounds to suspect that an assessment has become deficient requires not only that the Officer to have formed that view but in addition that it must also be objectively reasonable to hold that view and that means that there must be some evidence to indicate a deficiency in relation to each year in respect of which the notice has been issued."

[40] I find that the requirement for the suspicion to be based on “reasonable grounds” means that this suspicion must have an objective basis. In order for HMRC to meet the burden of proof as regards Condition B, not only must they share the grounds for their officer’s suspicion, but they must provide evidence demonstrating that the officer is entitled to have that suspicion and that it is objectively reasonable for him or her to have it."  (Hackmey v. HMRC [2022] UKFTT 160 (TC), Judge Aleksander)

HMRC must explain facts and evidence that they rely on for suspicion

"[89] The expression “reason to suspect” was considered in Michael Hegarty and Flora Hegarty v HMRC [2018] UKFTT 774 (TC), where the Tribunal said at [95]

“95. It is, as Judge Thomas in Newton suggested, not a high bar for HMRC to surmount. On reflection Judge Thomas thinks that the bar here may be somewhat higher than that in s 29(1) TMA where a discovery is concerned. But if a statutory provision requires a particular person to show their reasons for suspicion, the Tribunal must be in a position to decide whether the officer did in fact genuinely hold that suspicion, and whether the suspicion was objectively justified by reference to the facts put forward. It may be that in a very straightforward matter the facts do speak for themselves, but if an officer is relying on evidence they have that enabled them to form their suspicion, it seems to us to be an irreducible necessity to expose it to the scrutiny of the tribunal and to enable the officer giving their reasons for suspicion to be cross-examined by the appellant and to answer any questions the tribunal might have.”

[90] So a suspicion must be objectively justified and the officer must explain what facts and evidence they are relying  on which have given rise to their suspicion." (Davies v. HMRC [2022] UKFTT 369 (TC), Judge McKeever)

Suspicion must exist prior to asking for documents

"[95] [The taxpayer] also relied on Betts for the proposition that HMRC must have the suspicion first, before they can ask for the documents which may allay or confirm their suspicion. What they cannot do is to seek the documents first in order to see whether they have a reason for their suspicion...

[97] That must be correct. In Betts itself, HMRC sought the bank statements in order to get the “full picture” of Mr Betts life in the year in question so they could decide whether they had a reason to suspect that he was resident. At [20]:  “20. We asked Mr Birkett whether he was really saying, as indicated in paragraph 29 of HMRC's statement of case …, that he needed the information in order to satisfy condition B. Mr Birkett replied “yes"”.

[98]  In those circumstances, the Tribunal found that Condition B was not satisfied." (Davies v. HMRC [2022] UKFTT 369 (TC), Judge McKeever)

"[90] But it is clear, in our judgment, that in order for condition B to be met, there has to be reason to suspect that an amount that ought to have been assessed to relevant tax for the chargeable period may not have been assessed as regards the appellant.  That is the plain and ordinary meaning of paragraph 21(6)(a), and we see no reason to go behind that.  Seeking information or documents in order to try to meet condition B is simply the wrong way round in our judgment." (Betts v. HMRC [2013] UKFTT 430 (TC), Judge Perez)

Query whether actual suspicion required

"[86] I agree with Judge Mosedale in Spring Capital Limited v HMRC [2016] UKFTT 246 (TC) at paragraph 53 where she states that “the question asked by the legislation is whether [the officer] … ‘has reason to suspect [tax]…may not have been assessed’. It did not ask if a particular officer actually suspected …”. 

[87] In that context, whilst, I do accept Mr Mullan’s argument that Officer Cormack may not have fully understood the detail of the meaning of “abusive tax arrangements” in the context of the GAAR I do not accept that that means that “her suspicion that the Appellant is liable to a penalty cannot have been reasonably formed”. All that is required is that she had reason to suspect and the evidence on that was clear. She did." (Asset House Piccadilly Limited v. HMRC [2023] UKFTT 385 (TC), Judge Scott)

Suspicion must exist at time of information notice and hearing

"[101] [HMRC] submitted that we must look to see whether there was a reason to suspect at the date the information notice was issued. He goes on to concede that we may also need to look at the position at the date of the hearing as well as, if the officer no longer had a reason to suspect, the information/documents would no longer be reasonably required to check that reason to suspect.  

[102]  It seems to us that that is exactly what Hackmey says. Mr Roberts clearly must have had a reason to suspect at the time the information notices were issued, or he would fall into the error highlighted in Betts. However, in our view that suspicion must still exist at the time of the hearing. If it had been allayed beforehand or if information/documents had been provided which meant that it was no longer objectively reasonable to harbour that suspicion, the information and documents requested would not be reasonably required to check the taxpayer’s tax position." (Davies v. HMRC [2022] UKFTT 369 (TC), Judge McKeever)

Burden of proof on HMRC

"[34] Although the law is not wholly clear, the parties have agreed that the burden of proof rests on HMRC to satisfy me that these requirements have been met, and I agree that this is probably the better view of the legislation: see, for example, the decision of Judge Nicholl in Cliftonville Consultancy [2018] UKFTT 231 (TC) and that of Judge Vos in Hargreaves [2021] UKFTT 80 (TC)." (Hackmey v. HMRC [2022] UKFTT 160 (TC), Judge Aleksander)

"[7] In our view the burden of proof is on HMRC to establish that the notices were valid, that they were reasonably required for the purposes of checking the appellant’s tax position, and that the Condition A or B has been met. HMRC’s view was that the burden of proving that they were reasonably required rests with the appellants. Whilst we disagree (our view is the same as that set out at paragraph 45 in Judge Thomas’s decision in Morris Newton v HMRC UKFTT 513 (“Newton”)) nothing turns on this." (Gilmore v. HMRC [2022] UKFTT 116 (TC), Judge Popplewell)

Need for HMRC officer to give evidence

"[98] We go back to what was said in Khan at §82 (and in [52] and [53] in Newton).  We might well have been able to agree that Miss McKinney’s suspicions were genuine and objectively justified had we heard her telling us exactly what they were and why she held them, and had we heard her answers to any questions Mr Gordon asked her.  But we didn’t have that opportunity.

[99] We therefore hold that the notices insofar as they related to the BATR claim for 2007-08 do not meet Condition B and we therefore uphold the appeal in relation to 2007-08.

...

[103]...But in relation to the grounds for reasonable suspicion, no documents or submissions by a presenting officer can explain what was in a person’s mind better than that person giving evidence.  If they could the Special Commissioners would not have said what they did in Khan.

[104] We do not know why there was no evidence given to the Tribunal by Miss McKinney about the transfer to Niall, but the fact is that it wasn’t and we do not think the facts on this issue such as we have speak for themselves.  We therefore hold that Condition B is not met in relation to the transfer to Niall." (Hegarty v. HMRC [2018] UKFTT 774 (TC), Judge Richard Thomas)

- Reason to suspect underassessment of tax etc. (condition B)

     - HMRC entitled to change the basis on which they have a suspicion between notice and hearing​

 

"[137] We found that Mr Roberts had a “reason to suspect” an underassessment of tax at the time he issued the information notice on the basis that there were serious and justified concerns about how the Appellants were able to support their lifestyle with their apparent means.

[138]  We also found that, by the date of the hearing, the evidence provided showed, on the balance of probabilities, that the Appellants were able to support themselves and buy and refurbish an expensive property. That reason to suspect therefore falls away.

[139]  However, the evidence provided to show how the Appellants were able to support their lifestyle also gave rise to an objectively reasonable reason to suspect that tax relief given for the relevant years was excessive. It remains a suspicion, not, as Mr Marks submits,  a certainty as there is only a problem if the Appellants’ capital accounts were overdrawn and we do not know if that was the case.  

[140]  Although Mr Roberts did not raise the issue of interest deductions until he made his first witness statement, Mr Marks submits that he had this in mind at the time he issued the information notice as “why else would he have asked the question?” [in item 1]

[141]  Again, assessments could have been raised for the years for which the information is sought at the time the information notice was issued.

[142]  We conclude that Condition B remains satisfied to date, albeit on a different basis than that originally contemplated. If the current basis was contemplated, it was not articulated at the time." (Davies v. HMRC [2022] UKFTT 369 (TC), Judge McKeever)

     - HMRC entitled to change the basis on which they have a suspicion between notice and hearing​

     - Still test with information reasonably required​

 

"[143] Even though we have found that Condition A and/or Condition B are satisfied, we must still consider the overriding question of whether the information and documents actually requested in the information notice is reasonably required for the purpose of checking the Appellants’ tax position." (Davies v. HMRC [2022] UKFTT 369 (TC), Judge McKeever)

     - Still test with information reasonably required​

- Names of trusts giving reasonable grounds to suspect connection with the UK

"I agree with Mr Turnbull, and find, that the fact that the trusts of which HMRC are aware are named after London districts gives HMRC reasonable grounds for suspecting that the trusts have (or had) a connection with property in London. Mr Hackmey’s CV and the statement given on his visa application is evidence that he manages family property projects, and so I also find that HMRC have reasonable grounds for suspecting that Mr Hackmey is involved in managing the affairs of trusts associated with the Hackmey family. As Mr Hackmey is known to be a discretionary beneficiary of some of these trusts, it is reasonable to suspect that he is a discretionary beneficiary of other trusts associated with the Hackmey family." (Hackmey v. HMRC [2022] UKFTT 160 (TC), Judge Aleksander)

Examples​ (reason to suspect)

Examples​ (reason to suspect)
- Names of trusts giving reasonable grounds to suspect connection with the UK

- Various factors did not give reasonable grounds to suspect UK residence

 

"[47]...The mere availability of the property, in the circumstances of this case, did not in our judgment give HMRC reason to suspect that the appellant may have been resident in the UK at some time during the period of that availability.  We so find in view of what we say below about the possessions being packed up.  Nor did the availability of the Walsall property give HMRC reason to suspect, in our judgment, that the appellant may have stayed in the property.  We so find for two reasons.  The first relates to the possessions being packed up. The second relates to the council tax exemption.

...

[51] But there is nothing in our judgment in or arising from the evidence about the packed-up possessions to give reason to suspect that the appellant may have stayed in the Walsall property during the tax year in question.  Nor did mere availability of the property give reason to suspect that the appellant had not sufficiently broken the tie with the UK that the Walsall property might be said to represent;  even on HMRC’s case, the property was not readily usable.  Finally, there was nothing in the mere availability of the property in its unready state to give reason to suspect that ties to the UK other than that property had not been sufficiently broken (indeed, Mr Birkett did not suggest otherwise).

...

[59]...What was important was what Mr Birkett accepted, which we consider undermines his reliance on this fourth factor.  He accepted—

(1)        that although the visits accounted for 68 days’ presence in the UK, the appellant spent only 42 midnights in the UK in the course of those visits;

(2)        that four of the visits comprised purely four connections in the UK between connecting flights in the course of two holidays;

(3)        that the remaining visits (whether that amounted to 18 or 22) were for business; and

(4)        that repeated business visits did not of themselves necessarily amount to residence.

...

[61] In light of what Mr Birkett accepted in relation to the admitted visits, those visits did not in our judgment give HMRC reason to suspect that an amount that ought to have been assessed to relevant tax for the chargeable period may not have been assessed as regards the appellant.

...

[66]...[The taxpayer] submitted therefore that [HMRC's] assertion that the appellant’s principal source of income for the tax year in question was in the UK was a mere assumption and not a fact or evidence.  [HMRC] did not dispute that either.

...

[80]...In addition, a person may choose to be non-resident in the knowledge that that will assist his tax position.  But we do not accept that that choice, of itself, gives reason to suspect that the appellant may be only pretending to be non-resident, as Mr Gordon put it.  Nor do we accept that that choice, of itself, gives reason to suspect that an amount that ought to have been assessed to relevant tax for the chargeable period may not have been assessed as regards the appellant." (Betts v. HMRC [2013] UKFTT 430 (TC), Judge Perez)

- Various factors did not give reasonable grounds to suspect UK residence

- HMRC not proving discrepancy between income and lifestyle and other concerns allayed

 

"[127] The problem we have is that we do not know what the income available in those years actually was. HMRC have not provided the evidence. The burden lies on HMRC to prove, on the balance of probabilities that they had, and have, a reason to suspect an underassessment of tax as a result of undeclared income, owing to the discrepancy between income declared on the tax returns and lifestyle. In relation to the day to day living expenditure they have not done so. 

[128] In relation to the bigger means issues of the house purchase and refurbishment, we consider that the explanations and evidence produced about how these were financed allay the Respondents’ concerns about means. Although Mr Roberts continued to assert that there must have been refurbishment costs in the first year of ownership, there is no evidence at all that that was the case." (Davies v. HMRC [2022] UKFTT 369 (TC), Judge McKeever)

- HMRC not proving discrepancy between income and lifestyle and other concerns allayed

Further conditions to be met where taxpayer submitted SDLT or ATED return

 

SDLT 

"(1)     Where a person has delivered a land transaction return under section 76 of FA 2003 (returns for purposes of stamp duty land tax) in respect of a transaction, a taxpayer notice may not be given for the purpose of checking that person's stamp duty land tax position in relation to that transaction.

(2)     Sub-paragraph (1) does not apply where, or to the extent that, any of conditions A to C is met." (FA 2008, Sch 36, para 21A(1) - (2)).

 

Condition A: Notice of enquiry has been given

"(3)     Condition A is that a notice of enquiry has been given in respect of—

(a)     the return, or

(b)     a claim (or an amendment of a claim) made by the person in connection with the transaction,

and the enquiry has not been completed.

(4)     In sub-paragraph (3) “notice of enquiry” means a notice under paragraph 12 of Schedule 10, or paragraph 7 of Schedule 11A, to FA 2003." (FA 2008, Sch 36, para 21A(3)).

Condition B: reason to suspect underpayment of tax

"(5)     Condition B is that, as regards the person, an officer of Revenue and Customs has reason to suspect that—

(a)     an amount that ought to have been assessed to stamp duty land tax in respect of the transaction may not have been assessed,

(b)     an assessment to stamp duty land tax in respect of the transaction may be or have become insufficient, or

(c)     relief from stamp duty land tax in respect of the transaction may be or have become excessive." (FA 2008, Sch 36, para 21A(5)).

 

Condition C: required for checking another person's tax position

"(6)     Condition C is that the notice is given for the purpose of obtaining any information or document that is also required for the purpose of checking that person's position as regards a tax other than stamp duty land tax.” (FA 2008, Sch 36, para 21A(6)).

 

ATED

"(1)     Where a person has delivered, for a chargeable period with respect to a single-dwelling interest—

(a)     an annual tax on enveloped dwellings return, or

(b)     a return of the adjusted chargeable amount,

a taxpayer notice may not be given for the purpose of checking the person's annual tax on enveloped dwellings position as regards the matters dealt with in that return.

(2)     Sub-paragraph (1) does not apply where, or to the extent that, any of conditions A to C is met." (FA 2008, Sch 36, para 21B(1) - (2)).

 

Single dwelling interest

"(7)     In this Schedule references to a “single-dwelling interest” are to be read in accordance with section 108 of FA 2013." (FA 2008, Sch 36, para 21B(7)).

Condition A: Notice of enquiry has been given

"(3)     Condition A is that notice of enquiry has been given in respect of—

(a)     the return, or

(b)     a claim (or an amendment of a claim) made by the person in relation to the chargeable period,

and the enquiry has not been completed.

(4)     In sub-paragraph (3) “notice of enquiry” means a notice under paragraph 8 of Schedule 33 to FA 2013 or paragraph 7 of Schedule 11A to FA 2003 (as applied by paragraphs 28(2) and 31(3) of Schedule 33 to FA 2013)." (FA 2008, Sch 36, para 21B(3) - (4)).

Condition B: reason to suspect underpayment of tax

"(5)     Condition B is that, as regards the person, an officer of Revenue and Customs has reason to suspect that—

(a)     an amount that ought to have been assessed to annual tax on enveloped dwellings for the chargeable period may not have been assessed,

(b)     an assessment to annual tax on enveloped dwellings for the chargeable period may be or have become insufficient, or

(c)     relief from annual tax on enveloped dwellings for the chargeable period may be or have become excessive." (FA 2008, Sch 36, para 21B(5)).

 

Condition C: required for checking another person's tax position

"(6)     Condition C is that the notice is given for the purpose of obtaining any information or document that is also required for the purpose of checking that person's position as regards a tax other than annual tax on enveloped dwellings." (FA 2008, Sch 36, para 21B(6)).

Partnerships

"(2A)     Where, in respect of a transaction entered into as purchaser by or on behalf of the members of the partnership, any of the partners has—

(a)     delivered a land transaction return under Part 4 of FA 2003 (stamp duty land tax), or

(b)     made a claim under that Part of that Act,

paragraph 21A (restrictions where taxpayer has delivered land transaction return) has effect as if that return had been delivered, or that claim had been made, by each of the partners.

(2B)     Where, in respect of a single-dwelling interest (see paragraph 21B(7)) to which one or more companies are or were entitled as members of a partnership, any member of the partnership has—

(a)     delivered an annual tax on enveloped dwellings return or a return of the adjusted chargeable amount under Part 3 of FA 2013, or

(b)     made a claim under that Part of that Act,

paragraph 21B (restrictions where taxpayer has delivered return) has effect as if that return had been delivered, or that claim had been made, by each member of the partnership." (FA 2008, Sch 36, para 37(2A), (2B)).

Further conditions to be met where taxpayer submitted SDLT or ATED return

Pre-approval of taxpayer notice by FTT (optional)

 

“(2) An officer of Revenue and Customs may ask for the approval of the tribunal to the giving of any taxpayer notice or third party notice (and for the effect of obtaining such approval see paragraphs 29, 30 and 53 (appeals against notices and offence)).” (FA 2008, Sch 36, para 3(2)).

 

Failure to obtain approval does not breach Article 8 rights because the taxpayer must either be notified or the Tribunal’s approval sought – R (oao Cooke) v. HMRC [2008] STC 1847.

 

Up to HMRC to decide whether to seek approved notice

 

“It seems to me that HMRC are entitled to consider in any particular case whether proceeding by way of an unapproved notice might prejudice their investigation, either because it might lead to undue delay or because it might disclose their emerging analysis and strategy or the sources of information available to them.” (Without Notice Application v. HMRC [2017] UKFTT 148 (TC), §12, Judge Cannan).

Pre-approval of taxpayer notice by FTT (optional)

Conditions for FTT approval

 

"(3)     The tribunal may not approve the giving of a taxpayer notice or third party notice unless—

(a)     an application for approval is made by, or with the agreement of, an authorised officer of Revenue and Customs,

(b)     the tribunal is satisfied that, in the circumstances, the officer giving the notice is justified in doing so,

(c)     the person to whom the notice is to be addressed has been told that the information or documents referred to in the notice are required and given a reasonable opportunity to make representations to an officer of Revenue and Customs,

(d)     the tribunal has been given a summary of any representations made by that person, and

(e)     in the case of a third party notice, the taxpayer has been given a summary of the reasons why an officer of Revenue and Customs requires the information and documents." (FA 2008, Sch 36, para 3(3)).

Disapplication of certain conditions

"(4)     Paragraphs (c) to (e) of sub-paragraph (3) do not apply to the extent that the tribunal is satisfied that taking the action specified in those paragraphs might prejudice the assessment or collection of tax." (FA 2008, Sch 36, para 3(4)).

Recipient representations is to allow representations on practical difficulties

 

“It seems fairly clear that the reason the third party is to be told that the information or documents are required and be given a reasonable opportunity to make representations to HMRC is to enable it to state any practical difficulties with compliance. That is consistent with paragraph 30 of schedule 36, which provides that a person given a third party notice may appeal on the ground that it would be unduly onerous to comply with the notice or any requirement in it. It is equally clear that the reason the third party does not have to be given any explanation as to why the officer requires the information and documents is because it is not for the third party to argue any case for the taxpayer as to the width or nature of the investigation. It does not need to know confidential information relating to the affairs of the taxpayer.” (R (oao Derrin) v. HMRC [2016] EWCA Civ 15, §75, Sir Terence Etherton)

Summary reasons to taxpayer (not to enable representations)

 

“Consistently with the legislative objectives I have described, the giving of summary reasons to the taxpayer is not for the purpose of enabling the taxpayer to make representations directly or indirectly to the FTT…The reason for the giving of summary reasons to the taxpayer under schedule 36 is purely to guard against arbitrary conduct by the tax authority and to provide the context for any application to the FTT for approval of the third party notice, approval which cannot be given unless the FTT is satisfied pursuant to paragraph 3(3)(b) that the officer giving the notice is justified in so doing.” (R (oao Derrin) v. HMRC [2016] EWCA Civ 15, §§71…72, Sir Terence Etherton)
 

Conditions for FTT approval

Conduct of approval hearing 

 

Without notice application for approval

 

“(2A) An application for approval under this paragraph may be made without notice (except as required under sub-paragraph (3)).” (FA 2008, Sch 36, para 3(2A)).

 

Article 8 compliant – Re an Application by HMRC to serve section 20 Notice [2006] STC (SCD) 71.

Article 6 compliant - HMRC ex p. Certain Taxpayers [2012] UKFTT 765 (TC), §31.

Discretionary consideration of taxpayer’s representations by FTT

 

“Although there is no provision of Schedule 36 for the consideration of representations by the taxpayer as opposed to the third party to whom the notice is to be addressed, the representations raised a number of fundamental issues as to the Tribunal’s jurisdiction.  I therefore considered it right that consideration should be given to them, and I granted the adjournment.” (HMRC ex p. certain taxpayers [2012] UKFTT 765 (TC), §3).

 

No right to inter partes hearing

 

“The third party is not given any right to appear before the FTT because, consistently with the judicial monitoring scheme rather than an adversarial one and with the limited right of objection by the third party, it is sufficient that the third party is given a right to make representations to the officer, and the officer is obliged to provide the FTT with a summary of those representations…The judicial monitoring model was approved by the House of Lords in both T.C. Coombs and Morgan Grenfell, and there has been no decision of the ECtHR, including Ravon, which has held that such a scheme is inherently inconsistent with the Convention.” (R (oao Derrin) v. HMRC [2016] EWCA Civ 15, §75…118, Sir Terence Etherton).

 

“In conclusion, while the legislation provides for taxpayers to be put on notice that HMRC is applying for approval of a Sch 36 notice (save if HMRC make an application under ¶3(4) of Sch 36 to be excused giving any notice to the taxpayer), and while the Court recognised that, if the taxpayer chooses to make representations, HMRC must (if received in time) present them to the Tribunal, the applicants have no further rights other than to challenge any Sch 36 notice by way of judicial review.” (Mr E v. HMRC [2018] UKFTT 590 (TC), §56, Judge Mosedale).

“That was established in R v A Special Commissioner ex parte Morgan Grenfell & Co Ltd 74 TC 511, a case I discussed at some length in the published decision, Ex parte certain taxpayers [2012] UKFTT 765 (TC), and which was followed in the subsequent judicial review proceedings in R (on the application of Derrin Brother Properties Ltd and others) v Revenue and Customs Commissioners [2016] EWCA Civ 15.  It was accepted in Morgan Grenfell that the self-evident risk of compromising the investigation by accidental disclosure of material to which the taxpayer was not entitled, and the disclosure of which would run counter to Parliament’s purpose, excluded the possibility of such a hearing.  Arguments to the contrary based on article 6 when combined with article 8 of the European Convention on Human Rights were rejected in Derrin.” (A Taxpayer v. HMRC [2016] UKFTT 361 (TC), §5).

No discretion to have an inter partes oral hearing

 

“Judge Mosedale concluded that this tribunal has no jurisdiction to direct an inter partes hearing of an application for approval of a third party notice under Schedule 36. I agree with that conclusion for the reasons given by Judge Mosedale. The reasoning applies with greater force to an application for approval of a taxpayer notice.” (Without Notice Application v. HMRC [2017] UKFTT 148 (TC), §10, Judge Berner).

 

“I conclude that the FTT has no discretion to order an inter partes hearing, under which the third party is notified of the date of, and has the right to make representations at, the hearing of HMRC’s Sch 36 application.” (re an Application by HMRC ex p. Ariel [2017] UKFTT 87 (TC), §83, Judge Mosedale).

 

Or to permit oral representations from the taxpayer

 

“Bearing in mind that I have said the interpretation of Sch 36 clearly indicates Parliament intended the tribunal only to have a monitoring role, I do not think there is any scope for interpreting para 3(3)((d), which requires HMRC merely to provide a summary of the third party representations, as giving the Tribunal having the discretion to permit oral representations from the third party even without the third party being informed of HMRC’s case.” (re an Application by HMRC ex p. Ariel [2017] UKFTT 87 (TC), §86, Judge Mosedale).

To be heard in private:

 

“In those circumstances, in the absence of the taxpayer, it would not be in the interests of justice to permit the public to hear the details of the taxpayer’s personal and financial circumstances which may be put before the Tribunal in support of the application.” (A Taxpayer v. HMRC [2016] UKFTT 361 (TC), §4).

Conduct of approval hearing 

FTT approval decision final

"(4)     A decision of the tribunal under paragraph 3, 4 or 5 is final (despite the provisions of sections 11 and 13 of the Tribunals, Courts and Enforcement Act 2007)." (FA 2008, Sch 36, para 6(4))

FTT approval decision final

Form of notice​

 

Specify or describe information/documents

"(2)     An information notice may specify or describe the information or documents to be provided or produced." (FA 2008, Sch 36, para 6(2))

What is required must be identifiable in the information notice or a document expressly referred to

 

“In my view there is no reason why correspondence should not be incorporated into an information notice by reference. So for example, an information notice might require production of information or documents specified in a letter previously sent to the taxpayer.” (Kinsella v. HMRC [2017] UKFTT 623 (TC), §36, Judge Cannan).

 

“In this context it is also worth pointing out that the requirements made of the recipient of a Notice must be discernible from within the four corners of the Notice itself unless some other document is specifically incorporated by reference. It will not do for it to be argued, as it was argued before us, that some of the details about requested information might have been gleaned by looking at the earlier correspondence. That might be so; it might not be so. However, that is not a legitimate way to proceed because the Notice must be self-contained and must be construed to establish precisely what information and/or documents it properly requires the recipient to provide.” (Anstock v. HMRC [2017] UKFTT 307 (TC), §22, Judge Geraint Jones QC).
 

Must satisfy minimum requirement of certainty and precision

“The Notice relied upon by the respondents is so poorly thought through and so inadequately drafted that it fails the requirement of certainty and precision, which is a fundamental requirement (as explained above)…A taxpayer cannot be in breach of a Notice unless it is a valid notice. By “valid” we mean one which meets the requirements of certainty and precision, which we have discussed above.” (Anstock v. HMRC [2017] UKFTT 307 (TC), §§22…23, Judge Geraint Jones QC).

 

Information request with disputed premise defective

“The Tribunal takes the view that Information Notices should be expressed in clear terms and that it should be a straightforward matter for both parties to know whether an Information Notice has been complied with.  That is why HMRC guidance states that the Information Notice should request facts and not opinion.  In this case, the built-in assumptions on which the requests for information were based made it impossible for the parties to know whether the Notice had been complied with because the accuracy of the assumptions was disputed by the Appellant.  In those circumstances, I have concluded that it would be fair and just to set aside the request for “information” in the Information Notice.  I do so under paragraph 32 (3) (c) of Schedule 36 to the Finance Act 2008 because, in my view, information that it is impossible to supply cannot be “reasonably required” by HMRC.” (R D Utilities Ltd v. HMRC [2014] UKFTT 303 (TC), §10, Judge McKenna). 

Specify time and means for compliance

"(1)     Where a person is required by an information notice to provide information or produce a document, the person must do so—

(a)     within such period, and

(b)     at such time, by such means and in such form (if any),

as is reasonably specified or described in the notice." (FA 2008, Sch 36, para 7(1))

“The notice must be intended to contain means of compliance. A notice that contains no means of compliance cannot therefore, in our view, be a valid notice.” (Telng Limited v. HMRC [2016] UKUT 363 (TCC), §26, Judges Berner and Powell).
 

See further: I-6: Compliance and non-compliance.

State whether tribunal approved

"(3)     If an information notice is given with the approval of the tribunal, it must state that it is given with that approval." (FA 2008, Sch 36, para 6(3))

'Want of form' provisions in TMA apply

"Subject to the provisions of this Schedule, the following provisions of TMA 1970 apply for the purposes of this Schedule as they apply for the purposes of the Taxes Acts—

(a)     section 108 (responsibility of company officers),

(b)     section 114 (want of form), and

(c)     section 115 (delivery and service of documents)." (FA 2008, Sch 36, para56)

Form of notice​

Appealing information notice

 

"(1)     Where a taxpayer is given a taxpayer notice, the taxpayer may appeal against the notice or any requirement in the notice.

(2)     Sub-paragraph (1) does not apply to a requirement in a taxpayer notice to provide any information, or produce any document, that forms part of the taxpayer's statutory records." (FA 2008, Sch 36, para 29(1) - (2))

No appeal if tribunal approved the notice

(3)     Sub-paragraph (1) does not apply if the tribunal approved the giving of the notice in accordance with paragraph 3." (FA 2008, Sch 36, para 29(3))

No appeal against requirement to produce statutory records

See below.

No separate appeals against notice and requirements in the notice

"[36]...First, I do not accept that para 29 of the schedule envisages two separate appeals. That would be confusing and inefficient. There can only be one appeal at any one time and that appeal must encompass any complaint about the notice given by HMRC. If that appeal is then settled by HMRC agreeing to a variation of the notice (e.g. by agreeing an extension of time for compliance) then that settlement takes effect as if it were a determination of the tribunal varying the notice in the manner agreed." (R (oao PML Accounting Limited) v. HMRC [2018] EWCA Civ 2231, Longmore LJ)

Attempt to add additional matter later may be subject to late appeal rules

"[37] That is not to say that the taxpayer would necessarily be precluded from seeking to amend its appeal to include another ground of appeal. If that amendment was sought to be made within the statutory 30 days allowed by para 32 of the schedule, there would normally be no difficulty in it being dealt with. If it was sought to be made after time for appealing had expired, it would be necessary to consider the requirements of section 49 of the 1970 Act in relation to late appeals." (R (oao PML Accounting Limited) v. HMRC [2018] EWCA Civ 2231, Longmore LJ)

Appealing information notice

Procedure for appeal

 

Notice of appeal to HMRC within 30 days

"(1)     Notice of an appeal under this Part of this Schedule must be given—

(a)     in writing,

(b)     before the end of the period of 30 days beginning with the date on which the information notice is given, and

(c)     to the officer of Revenue and Customs by whom the information notice was given." (FA 2008, Sch 36, para 32(1))

 

Notice must state grounds of appeal

"(2)     Notice of an appeal under this Part of this Schedule must state the grounds of appeal." (FA 2008, Sch 36, para 32(2))

 

Tribunal role

"(3)     On an appeal the that is notified to the tribunal, the tribunal may—

(a)     confirm the information notice or a requirement in the information notice,

(b)     vary the information notice or such a requirement, or

(c)     set aside the information notice or such a requirement.

 

(4)     Where the tribunal confirms or varies the information notice or a requirement, the person to whom the information notice was given must comply with the notice or requirement—

(a)     within such period as is specified by the tribunal, or

(b)     if the tribunal does not specify a period, within such period as is reasonably specified in writing by an officer of Revenue and Customs following the tribunal's decision." (FA 2008, Sch 36, para 32(3) - (4))

 

Tribunal decision final

"(5)     Notwithstanding the provisions of sections 11 and 13 of the Tribunals, Courts and Enforcement Act 2007 a decision of the tribunal on an appeal under this Part of this Schedule is final." (FA 2008, Sch 36, para 32(5))

“Pausing there, it appears that HMRC are right: there is no right to appeal from the F-tT’s decision, the F-tT should not have referred in their decision to appeal rights, Judge Barlow should not have given permission to appeal and I must accede to HMRC’s application and strike out this appeal.” (Carmel Jordan v. HMRC [2015] UKUT 218 (TCC), §15, Judge Bishopp).

Application of TMA appeal provisions

"(6)     Subject to this paragraph, the provisions of Part 5 of TMA 1970 relating to appeals have effect in relation to appeals under this Part of this Schedule as they have effect in relation to an appeal against an assessment to income tax." (FA 2008, Sch 36, para 32(6))

Procedure for appeal

Tribunal varying notice

 

Limiting request to reasonable scope

"[32] I do however accept Mr Jenner’s submission that the requirement for “details of any sums drawn down from any trusts, partnerships, other individuals or any other entity…” does not specifically refer to sums drawn down by Mr Jenner and does not necessarily limit the request to information within his power or possession. I have therefore varied the drafting of this requirement accordingly." (Jenner v. HMRC [2022] UKFTT 203 (TC), Judge Sukul)

Tribunal varying notice

Statutory records (no appeal)

No right of appeal

"(2)     Sub-paragraph (1) does not apply to a requirement in a taxpayer notice to provide any information, or produce any document, that forms part of the taxpayer's statutory records." (FA 2008, Sch 36, para 29(2))

No appeal against decision to strike out appeal against notice insofar as it relates to statutory records

“Paragraph 32(5) identifies a class of excluded decisions and, for the reasons I have given and do not repeat, a decision striking out a purported para 29(1) appeal to the extent that the material to which it relates falls within para 29(2) is within that class.” (Carmel Jordan v. HMRC [2015] UKUT 218 (TCC), §23, Judge Bishopp).
 

But consider reasonableness of request first

 

“We have taken the approach that the need for the information requested to be reasonable in the whole context in which the notice is issued should be considered in priority to the restriction on appealing against a specific requirement of the notice to provide statutory information. Our view is that any other interpretation would be in danger of nullifying any rights of appeal against the notice as a whole in circumstances where statutory records were requested, however reasonable or unreasonable that request might be…In our view requesting information for periods outside the normal four year assessment period and for which a VAT check had already been made without providing a specific reason why information was required for those periods, is a sufficiently fundamental flaw to render the whole information notice invalid.” (The Barty Party Company Ltd v. HMRC [2017] UKFTT 697 (TC), §§68…69, Judge Short).

Meaning of statutory records

"(1)     For the purposes of this Schedule, information or a document forms part of a person's statutory records if it is information or a document which the person is required to keep and preserve under or by virtue of—

(a)     the Taxes Acts, or

(b)     any other enactment relating to a tax,

subject to the following provisions of this paragraph." (FA 2008, Sch 36, para 62(1))

 

What is a statutory record is context specific

"[27] It might be argued that as the appellant was a company within the charge to corporation tax the records were statutory records within the meaning of paragraphs 21 and 22 Schedule 18 FA 1998.  But that was not how HMRC justified the paragraph 1 notice, and in our view the meaning of “statutory records” must be derived from the relevant enactment, not just any enactment relating to tax that happens to also apply to the person concerned." (Mumbai Kitchen (Bromley) Ltd v. HMRC [2016] UKFTT 313 (TC), Judge Richard Thomas)

Non-business information not statutory records until chargeable period ends

"(2)     To the extent that any information or document that is required to be kept and preserved under or by virtue of the Taxes Acts—

(a)     does not relate to the carrying on of a business, and

(b)     is not also required to be kept or preserved under or by virtue of any other enactment relating to a tax,

it only forms part of a person's statutory records to the extent that the chargeable period or periods to which it relates has or have ended." (FA 2008, Sch 36, para 62(2))

 

Not statutory records after time limit for retention expires

(3)     Information and documents cease to form part of a person's statutory records when the period for which they are required to be preserved by the enactments mentioned in sub-paragraph (1) has expired." (FA 2008, Sch 36, para 62(3))

Information forms part of statutory records irrespective of whether it was recorded as required

 

"[52] However, Items 2 and 3 were requests for information and not a request for a record.  How can something be a statutory record if it is merely information that may not previously have been written down?  I consider my analysis at Spring Capital 4219 at [69-78]  on this question to be correct.  In a nutshell, information which ought to have been recorded under paragraph 21 of Sch 18 FA 98 is a statutory record even if it wasn’t in fact recorded.  So a request for information can be a request for a statutory record:  this is plain from paragraph 62(1) of Sch 36 of FA 08." (Codexe Limited v. HMRC [2017] UKFTT 569 (TC), Judge Mosedale)

“When s 62 Sch 36 is read with s 12 B TMA/para 21 Sch 18, it is plain that information which the taxpayer is required to keep and preserve, whether or not he has done so, is information which amounts to statutory records, and therefore information he can be required to deliver up to HMRC.” (Spring Capital Ltd v. HMRC [2016] UKFTT 232 (TC), §76).

 

Query whether it has to be recorded in some form        

 

“However, in Spring Capital Ltd v HMRC [2016] UKFTT 362 at [69]-[78] Judge Mosedale disagreed with the analysis in Mathew, saying at [75] that TMA s 12B only applies to information preserved “in a medium that is reasonably permanent and accessible, and not merely in someone's head”… I did not find this part of her judgment easy to follow.  She seems to be saying that information “held in a person’s head” is not a statutory record for the purposes of the relevant Act, but that it nevertheless “amounts to” statutory record under Sch 36 because it is “information which the taxpayer is required to keep and preserve” (my emphasis).  If information is not a statutory record, as she suggests is the position, it is difficult to understand the basis on which he is “required to keep and preserve” that information.  However, as Judge Mosedale appears to accept that a person can be required both to preserve information, and to provide that information to HMRC if issued with a Sch 36 Notice, our disagreement may be academic.” (Gold Nuts Ltd v. HMRC [2017] UKFTT 84 (TC), §§135…136). 

 

“In Schedule 36 it is both documents and information which can be statutory records.  It seems to us that a requirement to keep records in FA 1998 includes a requirement to keep both documents and information.” (Couldwell Concrete Flooring v. HMRC [2015] UKFTT 136, §18 (Judge Cannan)).

 

“We therefore find that information does not necessarily have to be set down in writing before it can be a ‘record’ and that therefore ‘information’ as well as ‘documents’ comes within TMA s 12B.” (Mathew v. HMRC [2015] UKFTT 139 (TC), §55 (Judge Redston)).

 

Company required to keep all records necessary to establish return is accurate

 

“In our view paragraph 21(1)(a) requires a company to keep all records which are necessary to establish, without doubt, that a return is accurate.  That will include all documents and information necessary to establish the sales, purchases, assets and liabilities of the company in the relevant accounting period and at the end of the accounting period. The requirement that the return must be correct and complete implies a requirement that the documents and information to be kept must evidence that the return is correct and complete…” (Couldwell Concrete Flooring v. HMRC [2015] UKFTT 136, §23 (Judge Cannan) agreed with in Gold Nuts Ltd v. HMRC [2017] UKFTT 84 (TC), §139).

Bank statements are/may be statutory records

 

"[47] In my view, the bank statements are statutory records. That was the conclusion of this Tribunal (Judge Anne Redston and Mrs Myerscough) in Joshy Mathew v HMRC [2015] UKFTT 139 (TC) at Para [89] and I respectfully agree." (Fresh Consulting and Support Limited v. HMRC [2022] UKFTT 353 (TC), Judge McNall)

“The Tribunal takes judicial notice of the fact that without the intermediary of the banking system, there is no way of processing any of the card payments. The bank account through which the card sales have gone through is an indispensible operative part of the business, and therefore forms part of its business records under the definition of statutory records.” (Shimlas Ltd v. HMRC [2016] UKFTT 670 (TC), §69).

 

Personal bank account used for business purposes makes bank statements statutory records

 

“Quite apart from these unanswered questions, the appellant’s numerous accounts as regards the transactions between the personal and business bank accounts have rendered the so-called personal RBS–1576 account an indispensable operational part of the business.  For these reasons, the statements form the RBS–1576 account form part of the “statutory records” of Ms Milligan’s business.” (Milligan v. HMRC [2017] UKFTT 703 (TC), §29, Judge Poon).

 

VAT records statutory records

 

“All the Companies are VAT registered, and therefore required to comply with extensive statutory record-keeping requirements at VATA Sch 11 para 6 and Reg 31 VATR.  The latter states that the records which must be retained include the “business and accounting records”; copies of all VAT invoices; documentation issued or received by the company relating to “the transfer, dispatch or transportation of goods” and to “importations and exportations”, as well as “all credit notes, debit notes, or other documents which evidence an increase or decrease in consideration”.” (Gold Nuts Ltd v. HMRC [2017] UKFTT 84 (TC), §141, Judge Redston)

 

“We note in passing that the requirement for taxable persons to keep records extends to “his business and accounting records”. It seems to us that this applies to all business and accounting records that the trader in fact keeps. All such records would therefore be statutory records for the purposes of Information Notices.” (Couldwell Concrete Flooring Ltd v. HMRC [2015] UKFTT 135 (TC), §38).

 

Business and accounting records widely drafted

 

“‘Business and accounting records’ is widely drafted.  It is entirely within the control of a business whether it keeps such records and it is a question of fact whether a business does in fact keep records.  It would therefore be impossible to design an exhaustive or exclusive list of what documents constitute ‘business records’ but must include all electronic or hard copy correspondence, purchase and sales invoices etc. and any electronic material or paperwork received or generated by a business in the course of its operation or trading.” (Drinks Stop Cash and Carry Ltd v. HMRC [2016] UKFTT 730 (TC), §60, Judge Rupert Jones). 

 

Includes due diligence and transportation documents

 

“We are therefore satisfied that the due diligence and transportation documents required from the appellant under the information notices, in the context of the factual background, were and are statutory records.” (Drinks Stop Cash and Carry Ltd v. HMRC [2016] UKFTT 730 (TC), §76, Judge Rupert Jones). 

 

PAYE records statutory records

 

“Reg 97 of the Income Tax (Pay As You Earn) Regs 2003 (“the PAYE Regs”) requires employers to retain all documentation relevant to the calculation of employees’ PAYE income or the deduction of tax from those payments, and “all documents relating to any information which an employer is required to provide to HMRC” in relation to the completion of forms P11D and P9D.  For the purposes of those Regulations, the term “employee” encompasses directors, see Reg 2(1) and the Income Tax (Earnings and Pensions) Act 2003, ss 4 and 5.  Reg 97(1) provides that “An employer must keep and preserve for not less than three years after the end of the tax year to which they relate all PAYE records which are not required to be sent to HMRC…””(Gold Nuts Ltd v. HMRC [2017] UKFTT 84 (TC), §142, Judge Redston).

 

Contracts are statutory records

 

"[51] Were the 3 items requested by HMRC in the information notice the subject of this appeal (see §9) statutory records?  HMRC’s case was that the purchase contract was a statutory record as it was the primary record of the price paid and date of purchase both of which needed to be known to create a correct tax return;  both pieces of information at items (2) and (3) were also necessary to create a correct tax return.  I agree." (Codexe Limited v. HMRC [2017] UKFTT 569 (TC), Judge Mosedale)

“[143] In relation to the contracts a company makes with its customers and suppliers, or with its workforce, I understand HMRC’s positon to be that these are statutory records, but that it is in any event reasonable to require copies of these contracts in order to understand the taxpayer’s tax position…As already set out at §133, the relevant OED definition of a “record” is “the fact or condition of being preserved as knowledge or information, esp. by being set down in writing”.  A contract preserves what has been agreed between the parties and is a “record” of that agreement.

[144] Contracts are therefore “business records” within the meaning of Reg 31(1)(a) of VATR; they are also “such records as may be needed to enable [the company] to deliver a correct and complete return for the period” under FA 1998, Sch 18, para 21(1)(a).  That conclusion is consistent with the purpose of both sets of provisions, namely to ensure a business retains the key documents which underpin its transactions.” (Gold Nuts Ltd v. HMRC [2017] UKFTT 84 (TC), §§143…144, Judge Redston).

 

Explanation of accounting entries/transactions are statutory records

 

“[146] However, in the absence of such information, entries in the accounts are simply a list of numbers.  It is not possible for a person to “deliver a correct and complete return” unless he knows to what the entries relate.  For example, a list of payments to a director is a statutory record, but so too is information as to the purpose and nature of the payments.  It is that information which allows the person to know whether the sum is a dividend, a loan, salary, the reimbursement of an expense, or something else.  Similarly, a list of debts written off is a statutory record, but so is the information which explains why a decision has been made that these debts are not collectible; it is that information which allows the person to know whether he can deduct them from his profits.  Explanations of accounting entries and of invoices therefore constitute information forming part of a company’s statutory records.” (Gold Nuts Ltd v. HMRC [2017] UKFTT 84 (TC), Judge Redston).
 

Statutory records (no appeal)

Statutory records must be provided unredacted

 

"[56] The second point is this. The bank statements provided are very heavily redacted. They should have been provided in an unredacted form, and must now be so. Treating them as statutory records, the self-same point was dealt with by the Tribunal (Judge Jonathan Cannan and Mr John Agboola) in Andreasberg Developments LLP v HMRC [2017] UKFTT 756 (TC), which said (at Paras 17 and 18): " There is simply no basis for the appellant to argue that whilst the bank statement is a statutory record, the Appellant is entitled to redact information in the statutory record before providing a copy to HMRC. There is no authority to support such a submission and it is inconsistent with the scheme of Schedule 36 ... where a document is a statutory record, HMRC are entitled to full unredacted copies of that document ..."

[57] Although that decision is not binding on me, I respectfully agree with it, and its reasoning." (Fresh Consulting and Support Limited v. HMRC [2022] UKFTT 353 (TC), Judge McNall)

Statutory records must be provided unredacted

Invalid information notice

 

Judicial discretion as to return of documents/deletion of information

[79] PML said that, if the Notice was invalid, it must follow that any material derived from the documents or information obtained pursuant to it must be deleted so as to ensure it is never used.

[80] That was not the approach of the Divisional Court in R (Cook) v Serious Organised Crime Agency [2011] 1 WLR 144, R (Cummins) v Manchester Crown Court [2010] EWHC 2111 (Admin) or R (Business Energy Solutions Ltd) v Preston Crown Court [2018] EWHC 1534 (Admin) which considered applications pursuant to the Police and Criminal Evidence Act 1984 and the 2001 Act. In the first of these cases, Leveson LJ was concerned about the scope for satellite litigation any such order as sought by PML would encourage...

[...]

[82] The judge therefore had a discretion whether to grant relief and on well established principles this court will not interfere with the exercise of that discretion unless the judge took irrelevant considerations into account or failed to take relevant considerations into account or was otherwise wrong.
As already indicated the judge gave five reason for refusing relief:-
1) PML had initially failed to engage with HMRC's enquiry, the issue of the Notice was therefore justifiable and, even after it was issued, there was substantial non-compliance;

2) there was nothing reckless in the issue of the Notice and PML itself did not want a third party notice to be issued;

3) PML never exercised any right of appeal even during the penalties appeal, when the matter was only raised at the initiative of the tribunal;

4) if the order were made as asked in relation to work product, there would be a substantial risk of satellite litigation; and

5) compliance with any order would require HMRC to review thousands of its files which amounted to a substantial practical difficulty.

[...]

[89] The judge's decision not to grant relief was plainly a decision open to him and I would not have interfered with it, if it had been relevant to consider the matter." (PML Accounting Ltd v. HMRC [2018] EWCA Civ 2231, Longmore LJ)

Invalid information notice

Powers to copy and remove documents inspected

 

Power to copy documents
 

"Where a document (or a copy of a document) is produced to, or inspected by, an officer of Revenue and Customs, such an officer may take copies of, or make extracts from, the document." (FA 2008, Sch 36, para 15)

Power to remove documents
 

"(1)     Where a document is produced to, or inspected by, an officer of Revenue and Customs, such an officer may—

(a)     remove the document at a reasonable time, and

(b)     retain it for a reasonable period,

if it appears to the officer to be necessary to do so." (FA 2008, Sch 36, para 16(1))

 

Document includes copy

"(5)     In this paragraph references to a document include a copy of a document." (FA 2008, Sch 36, para 16(5))

Receipt to be provided on request

(2)     Where a document is removed in accordance with sub-paragraph (1), the person who produced the document may request—

(a)     a receipt for the document, and

(b)     if the document is reasonably required for any purpose, a copy of the document,

and an officer of Revenue and Customs must comply with such a request without charge." (FA 2008, Sch 36, para 16(2))

 

Compensation where documents lost or damaged

"(4)     Where a document removed under this paragraph is lost or damaged, the Commissioners are liable to compensate the owner of the document for any expenses reasonably incurred in replacing or repairing the document." (FA 2008, Sch 36, para 16(4))

Lien not broken

"(3)     The removal of a document under this paragraph is not to be regarded as breaking any lien claimed on the document." (FA 2008, Sch 36, para 16(3))

Powers to copy and remove documents inspected

- Request must be proportionate

 

"[204] The Appellants also submitted that compliance with the Sch 36 Notices would involve a “huge amount of time and resources”.  My task is to decide whether the Items are “reasonably required”; this incorporates an obligation to consider whether they are proportionate, but that task can only be carried out in relation to each Item.  I cannot allow the Appellants’ appeals, and close the enquiries, simply on the basis that responding to all the Sch 36 Notices, taken together will take a long time and consume resources." (Gold Nuts Limited v. HMRC [2017] UKFTT 84 (TC), Judge Redston) 

- Request must be proportionate
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