Robert Maas, Tax Consultant at CBW, and one of the UK's leading tax experts, explains Schedule 36, HMRC's power to obtain information.
HMRC’s main information power is Schedule 36 of the Finance Act 2008. This entitles them to require a taxpayer to provide information or to produce a document if the information is reasonably required by HMRC for the purpose of checking the taxpayer’s tax position. This is a very widely drawn power. Checking includes carrying out an investigation or enquiry of any kind, and documents include part of this. The Appeals Tribunal has held that an “enquiry” is not limited to a formal enquiry; asking a question is an enquiry. A person’s tax position refers to their position regarding any of the UK taxes or a foreign tax levied by a country with which the UK has entered into a double tax treaty. The power extends to the tax position of a deceased individual and a company that has ceased to exist. A person’s tax position means that at any time or in relation to any period – although the Appeals Tribunal have held that HMRC cannot reasonably require something in relation to a period for which they are out of time to raise an assessment.
The taxpayer has a right of appeal to the Appeals Tribunal. However, there is no right of appeal against a requirement to produce something that forms part of a persons statutory records (under any statute, not just tax legislation) and there is no right of appeal at all if HMRC obtain the approval of the Appeals Tribunal to the issue of the information notice (which is a fairly unusual procedure).
Information notices are important because there can be heavy penalties for failure to comply with the notice. An information notice will refer specifically to Schedule 36 and will specify the time within which the information needs to be complied with. HMRC will not normally issue an information notice without first asking for the information informally.
Some HMRC officers use the issue of information notices when they do not receive a reply to an informal request for information within the (non-statutory) period that HMRC stated in their letter. They think that the issue of the information notice will speed up production of the information. This overlooks the fact that it is easy to appeal against an information notice on the ground that the information requested is not reasonably required by HMRC. If the taxpayer pursues his appeal to the Tribunal, it is likely to take many months for the Tribunal to fix a hearing date, and in the meantime the information notice is effectively in suspension.
We generally recommend appealing a notice even if you are happy to provide the information requested. This is because in many cases we will want to provide the information in a different format to answering a list of HMRC questions, and want to avoid any risk that by doing so we may not have fully responded to the questions asked.
Why might we choose a different format? Because we want to close enquiries as quickly as possible and often an explanation as to what has happened and why we think it has a specific tax effect is the best way to achieve this.
HMRC will often say that you have no right of appeal against a request because the item requested forms part of the taxpayer’s statutory records. However, it is often unclear whether something is a statutory record. There is nothing to stop a taxpayer appealing against the item on the basis that HMRC are mistaken in believing that it is a statutory record. That is a valid appeal. HMRC’s remedy is to ask the Tribunal to strike out the appeal, but the Tribunal will then want to hold a hearing to hear arguments from both sides as to whether or not it is a statutory record.
Schedule 36 gives HMRC power to issue an information notice to a third party. The right of appeal against a third party notice is more limited, but they can only issue such a notice either with the consent of the taxpayer or the prior approval of the Tribunal. If they apply to the Tribunal, they have to put before it all relevant information which will include any representations made to HMRC by the taxpayer. Accordingly if HMRC threaten to seek permission to issue a third party notice, it is important not to ignore the threat but to respond to HMRC setting out the taxpayer’s objections.
Schedule 36 also extends HMRC’s power to allowing them to enter a persons business premises and inspect business assets and documents that are on those premises. They have no right to enter someone’s private home (other than under a search warrant). There is no sanction for refusing HMRC entry, if they turn up at an inconvenient time unless they have obtained prior approval from the Tribunal. They are unlikely to do this for an initial visit, but if you turn them away, expect them to return later with a formal Tribunal notice. HMRC generally visit by appointment. They like to interview people they find on the premises. However, they have no power to seek oral information. You are within your rights to refuse to talk to them.
This does not mean that you should not do so. It may well be in your interest to try to alleviate their concerns at the time. You can, however, refuse permission for them to talk to staff and make available to answer questions only someone that you believe has the appropriate expertise to do so.
CBW has considerable experience of information notices, including arguing appeals against such notice at the Tribunal. If you have any questions or concerns regarding Schedule 36 or information notices, please get in touch with our tax team who will be able to assist you further.