HMRC Issues Notices Regarding Taxpayer Information

In the UK, HM Revenue and Customs (HMRC) has the power to issue information notices under Schedule 36 of the Finance Act 2008. This article aims to provide a clear understanding of what these notices mean for taxpayers.

HMRC's Information Requests

HMRC usually initiates an informal request for information before resorting to its statutory powers. However, if the taxpayer's response is unsatisfactory, or there's a history of non-cooperation, risk of information deletion, or suspected tax evasion or fraud, HMRC may issue a Schedule 36 notice.

The Scope of Schedule 36 Notices

A Schedule 36 notice can request a wide range of information, including documents and electronic records such as CCTV footage. It's crucial for taxpayers to be alert to any requests that seem particularly wide or burdensome, and consider whether they wish to appeal against them.

Determining 'Reasonable Requirements'

When determining what is 'reasonably required' for a Schedule 36 notice, the balance between the burden on the taxpayer to provide the information and the importance of the information to HMRC is considered.

The Role of the First-tier Tax Tribunal

In cases ruled on in 2021 and 2022, the first-tier tax tribunal held that the burden of proof for establishing that documents are 'reasonably required' under a Schedule 36 taxpayer notice lies with HMRC. If the notice is issued without approval from the tribunal, the taxpayer has a right to appeal the notice under paragraph 29 of Schedule 36.

The Taxpayer's Obligation

It would be prudent for taxpayers to keep records of all attempts made to request information to demonstrate to HMRC, or a tribunal, that documents are not in the taxpayer's power, should that be the case. In the 2022 case of One Call Insurance Services Ltd v HMRC, the first-tier tax tribunal ruled that a taxpayer must make 'serious efforts' to obtain documents if they are not in their physical possession.

Penalties for Non-Compliance

Information notices must be complied with by a date set by HMRC, otherwise penalties can be applied. The deadline for requests must be 'reasonable', with 30 days being suggested as normal, but dependent on the information requested and scale of the request. There are appeal rights against these penalties.

Types of Information Notices

There are five main types of information notices: taxpayer, third party, financial institution, identity unknown, and identification.

Uncertainty and Appeals

There remains some uncertainty around whether or not the tribunal can decide parts of the substantive case when deciding whether a notice is valid. Given the uncertainty of the scope of the first-tier tax tribunal's jurisdiction on penalty appeals, taxpayers would be well advised to consider this question on receipt of the notice, raising their concerns at the outset rather than seeking to rely on it as a defense against a penalty.

Broad Categories of Penalties

There are broadly four types of penalty for failures related to information notices: failure to comply, concealing or destroying documents, providing inaccurate information, and breaching a requirement not to disclose a notice or anything relating to a notice.

Conclusion

Understanding Schedule 36 taxpayer notices is crucial for taxpayers to ensure compliance and protect their rights. It's essential to seek professional advice if you receive a Schedule 36 notice and are unsure about its validity or implications.