© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
Procedure.Tax
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i3a. Taxpayer notice: return submitted
INCOME TAX, CGT, CORPORATION TAX
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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
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"(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).
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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))
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
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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))
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Partnership returns and claims
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"(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))
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Exception: conditions do not apply to notice given to seller following change of ownership where seller might be liable for unpaid corporation tax
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"(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)
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Exception: herd basis election
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"(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)
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Exception: information from persons liable under transactions in securities rules
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"(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)
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Request permitted 'to the extent' condition is satisfied
"(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(3)).
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"116. Mr Jones submitted that there is an additional requirement, which is that a Notice that relies on Condition B must be tailored to the specific issue said to have given rise to the relevant reason to suspect. Otherwise, according to Mr Jones, the limitation period for opening an enquiry would be almost meaningless.
117. I have not found this to be a straightforward question, but I consider that, in any event, the Notice is (to use Mr Jones's term) “tailored” to the relevant reason, or reasons, to suspect. Items 1, 2 and 5 are designed to elicit more information on the football consultancy income which the officer suspected may have been omitted from the tax returns for the relevant periods. Items 4 and 7 relate only to the period ending on 30 September 2019, for which the officer suspected that loss relief may have been applied incorrectly as a result of a failure to separate the results of the two trades. The requested items are relevant to that suspicion because they would enable HMRC to distinguish between expenses incurred in the farming trade, and those which related to football consultancy.
118. This means that I do not need to decide whether Mr Jones's submission on the “tailoring” issue is correct." (Furlong Services Ltd v. HMRC [2024] UKFTT 705 (TC), Judge Gauke)
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Burden on T to show return submitted, then burden on HMRC to show condition met
"[34] We agree with the FTT in MIS that the Appellant has the burden of proving that paragraph 21(2) applies in the first instance. If paragraph 21(2) does apply then the burden moves to HMRC to prove that one of the conditions A - E in sub-paragraphs (4) to (8A) is met so that sub-paragraph (3) disapplies sub-paragraph (2).
...
[37] The October 2023 taxpayer notice requests information and documents for the period 7 March 2022 to 8 March 2023. We were not provided with a copy of the relevant company tax return or returns, nor any information as to the chargeable period or periods covered by those tax returns and whether the returns relate to the same period as is covered by the October 2023 taxpayer notice.
[38] Counsel for the Appellant stated in his oral submissions that it is not in dispute that the Appellant made a company tax return.
[39] The Respondents did not challenge this assertion nor did they make any submissions or provide any evidence that the company returns made did not cover the same period as that for which documents were requested in the October 2023 taxpayer notice.
[40] We therefore find that on a balance of probabilities the Appellant had made a company tax return or returns covering the same period as that covered by the October 2023 taxpayer notice." (AAA Oriental Limited v. HMRC [2025] UKFTT 69 (TC), Judge Snelders)
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- Burden on T to show that notice is checking the tax position for the return period (to limit relevant information to that period)
"[41] Moving then to the second condition in paragraph 21(2) and the purpose of the October 2023 taxpayer notice. The burden is on the Appellant to prove that the purpose was to check the Appellant's corporation tax position." (AAA Oriental Limited v. HMRC [2025] UKFTT 69 (TC), Judge Snelders)
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- Correspondence showing HMRC checking PAYE position, not corporation tax
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"[52] The correspondence from HMRC to the Appellant clearly states that the purpose of the October 2023 taxpayer notice is to check the Appellant's PAYE tax and National Insurance Contributions ("NICs") position and the context of the legislative framework governing employer's PAYE and NICs responsibilities makes it clear why the requested documents are needed for this purpose.
[53] While we accept that some of the requested records could also have an impact on the Appellant's corporation tax position, this is not sufficient to persuade us that the purpose of the October 2023 taxpayer notice is, contrary to all the explanations in the Respondents' correspondence, to check the Appellant's corporation tax position.
[54] It follows that the Appellant has not met the burden of proving that, on a balance of probabilities, the purpose of the October 2023 taxpayer notice is to check the Appellant's corporation tax position and paragraph 21(2) does not therefore apply to prevent the Respondents from issuing it." (AAA Oriental Limited v. HMRC [2025] UKFTT 69 (TC), Judge Snelders)
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- 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)
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CONDITION A: enquiry open and not completed in relation to relevant matter
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- 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)
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- HMRC may request information relating to other matters even if they open a 'limited' enquiry
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"[60] By "tailpiece" Mr Jones means the wording at the end of this subparagraph, namely "the enquiry has not been completed so far as relating to the matters to which the taxpayer notice relates." Mr Jones suggested I should read these words as meaning that if HMRC have only opened a limited enquiry, they may only issue an information notice for the purpose of checking the aspects of Mr Sangha's tax position that are the subject of the enquiry.
[61] I do not accept this submission, because I find that the statutory language does not bear this meaning. I consider that the most natural reading of this provision is that the words "so far as relating to the matters to which the taxpayer notice relates" qualify the word "completed", rather than having the effect that the notice of enquiry must have been given in respect of the matters to which the taxpayer notice relates. In other words, the tailpiece of FA 2008, Sch 36, para 21(4) only comes into play if an enquiry has been completed, whether fully or partially. HMRC have not issued either full or partial closure notices in respect of their enquiry into Mr Sangha's tax return for 2016-17.
[62] Under TMA 1970, s 9A, an enquiry extends to anything contained in the return, or anything required to be contained in the return. HMRC can choose to limit an enquiry to certain aspects of a taxpayer's tax position; this is often referred to as an "aspect enquiry", although that is not a term used in the legislation. HMRC's guidance to their officers in the Enquiry Manual is that if an aspect enquiry is extended to a full enquiry, the taxpayer should be informed; but this is not a statutory requirement." ​(Sangha v. HMRC [2024] UKFTT 564 (TC), Judge Gauke)
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- Limited to information and documents reasonably required to check the period under enquiry
"[114] The problem with these submissions is that they do not explain why these documents are reasonably required to check Mr Sangha's tax position for the years under enquiry, namely 2015-16 and 2016-17. It appears, from Officer Andrews' witness statement, that he suspects Mr Sangha may have undeclared income from earlier years, dating back to 2010. However, HMRC do not seek to rely on Condition B in FA 2008, Sch 36, para 21(6) (which applies where HMRC have reason to suspect that an amount has been omitted from a return), but have relied instead on Condition A.
...
[133] However, 31 October 2014 does not fall within the tax years under enquiry. HMRC did not make any submissions that would explain why an alleged capital gain in a previous year would affect Mr Sangha's tax position for the years 2015-16 or 2016-17. I therefore find that HMRC have not discharged the burden of showing that this information is reasonably required to check Mr Sangha's tax position for the years under enquiry." (Sangha v. HMRC [2024] UKFTT 564 (TC), Judge Gauke)
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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))
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Burden of proof
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- Burden of proof on HMRC
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"[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)
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"[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)
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- Need for HMRC officer to give evidence
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"[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)
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Timing of reason to suspect
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- Reason to suspect/suspicion must exist prior to asking for documents
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"[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)
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"[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)
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- Suspicion must exist at time of information notice and hearing
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"[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)
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- 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)
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Whether actual suspicion required​
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- Objective test
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"[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)
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- Query whether actual suspicion required
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"[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)
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Threshold
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- ‘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)
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- Suspicion is lower bar than the belief required for discovery
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"[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)
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"[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)
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- HMRC being interested in a tax issue is not the same as having a suspicion of an insufficiency
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"[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)
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- Reasonable suspicion requires an objective basis
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"[83] I respectfully agree with the Tribunal in Hackmey [2022] UKFTT 160 (TC) (Judge Aleksander) at [35] that the requirement for an HMRC officer to have “reason to suspect” sets a low bar. “Suspicion” means something less than “belief”. However, there must still be a “reason” for the suspicion, and I also agree with the Tribunal in Perring [2021] UKFTT 110 (TC) (Judge Gething and Noel Barrett) (“Perring”) at [19] 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.”" (Furlong Services Ltd v. HMRC [2024] UKFTT 705 (TC), Judge Gauke)
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"[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)
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"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)
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"[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)
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- HMRC must explain facts and evidence that they rely on for suspicion
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"[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)
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- Open to T to show why suspicion not reasonable
"[99] It was open to Furlong to show that this suspicion was not reasonable, by explaining why the computations contain no reference to the consultancy trade, and how a loss in the accounts which represents the combined results of two trades is described in the tax computations as a loss from farming. However, neither Mr Jones in his submissions, nor Mr Foreman in his evidence, provided such an explanation.“the question as to whether the steps that HMRC took in response to the claim amount to an “enquiry”…is a question of law” (Portland Gas Storage Ltd v. HMRC [2014] UKUT 0270 (TCC), §38)." (Furlong Services Ltd v. HMRC [2024] UKFTT 705 (TC), Judge Gauke)
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- Still test whether 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)
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Suspicion required for each period
"[103] It is clear from the wording of Condition B that, as described in the extract from Perring reproduced above, Officer Jones must have a reason to suspect an underassessment of tax in relation to each chargeable period to which the Notice relates. The Notice covers five chargeable periods: those ending on 31 March 2017, 31 March 2018, 30 September 2019, 30 September 2020 and 31 July 2021. I consider each in turn..." (Furlong Services Ltd v. HMRC [2024] UKFTT 705 (TC), Judge Gauke)
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- Speculation based on other periods not necessarily sufficient: must be some objective evidence
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"(5) I had no submissions from HMRC that Officer Jones held evidence that gave him an objective reason to suspect that Furlong had failed to declare football consultancy income in the periods ending 30 September 2020 and 31 July 2021. The two-year consultancy agreement dated 7 April 2016 had expired by this time, and while it is clear from the contents of the Notice that Officer Jones suspected there may have been other such agreements, HMRC did not present evidence that there was an objective justification for this suspicion.
(1) I do not consider it is sufficient, for these purposes, for HMRC to contend that because Officer Jones suspected that Furlong had not declared income from the agreement dated 7 April 2016, it was reasonable for him to suspect that Furlong had, without HMRC's knowledge, entered into other consultancy agreements and failed to declare the related income. This might have happened, and would have been a legitimate subject for an enquiry, but what is required for Condition B is for there to be some objective evidence that this is what, in fact, took place. I therefore find that HMRC have failed to discharge the burden of showing that Officer Jones had reason to suspect that Furlong had failed to declare football consultancy income in the periods ending on 30 September 2020 and 31 July 2021." (Furlong Services Ltd v. HMRC [2024] UKFTT 705 (TC), Judge Gauke)
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- Names of trusts giving reasonable grounds to suspect connection with the UK
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"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)
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Examples​ (reason to suspect)
- 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)
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- 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)
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CONDITION C: information also required to check tax other than income tax, CGT or corporation tax
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- Satisfied if checking both income tax etc. and another tax
"[59] It follows that where the purpose of obtaining the documents in a taxpayer notice is to check the taxpayer's corporation tax position, but those documents are also required for the purpose of checking the taxpayer's position as regards any tax other than income tax, capital gains tax or corporation tax, condition C will be met." (AAA Oriental Limited v. HMRC [2025] UKFTT 69 (TC), Judge Snelders)
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- NICs not a tax for the purposes of Schedule 36
"[61] At the hearing the Tribunal alerted the Respondents to the definition of "tax" in paragraph 63 which does not include NICs.
...
[66] It follows therefore that if paragraph 21(2) did apply then the Respondents could not rely on Condition C to disapply it on the grounds that the purpose of the request was also to check the Appellant's NICs position. " (AAA Oriental Limited v. HMRC [2025] UKFTT 69 (TC), Judge Snelders)
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CONDITION D: checking deductions
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- Checking PAYE position
"[67] The Respondents did not submit that any of the other conditions A to E in paragraph 21 were met but given the correspondence from HMRC to the Appellant and our findings above that the purpose of the October 2023 taxpayer notice was to check the Appellant's PAYE tax position we would have had no difficulty finding that Condition D applied. " (AAA Oriental Limited v. HMRC [2025] UKFTT 69 (TC), Judge Snelders)
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SDLT AND ATED
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Further conditions to be met where taxpayer submitted SDLT or ATED return
SDLT
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"(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
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"(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)).
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Condition B: reason to suspect underpayment of tax
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"(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
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"(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
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"(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
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"(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)).
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Condition A: Notice of enquiry has been given
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"(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)).
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Condition B: reason to suspect underpayment of tax
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"(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
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"(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)).
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Partnerships
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"(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)).
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