What Information Does HMRC Require To Check A Tax Return?

Overview Of What Information Does HMRC Require To Check A Tax Return?

Metropolitan International Schools Ltd v Revenue & Customs [2021] UKFTT 438 (TC)

The case of Metropolitan International Schools Ltd v Revenue & Customs [2021] UKFTT 438 (TC) has led to this post “What Information Does HMRC Require To Check A Tax Return?”.

What Was The Case About?

HMRC had issued Information Notices after a risk assessment led to an HMRC Tax Enquiry being opened into matters relating to corporation tax, VAT and PAYE.

Two key generic issues resulted as follows:

(1) Issue 1 – Statutory Records. Whether Statutory Records must be produced even if the requirements of Para 1 were not satisfied and whether all Statutory Records must always be produced; whether the request must be proportionate and relate to the issues to be checked; when Statutory Records cease to be statutory records.

 

(2) Issue 2 – Reasonably Required. Whether the information and documents requested by HMRC in the first notice and the second notice, were “reasonably required by the officer for the purpose of checking the taxpayer’s tax position” as specified in Para 1. In addition, whether HMRC may request documents which are already in the public domain.

What Is The Relevant Law About Information HMRC Requires?

Schedule 36 Of The Finance Act 2008

HMRC has the ability under Schedule 36 of the Finance Act 2008 to obtain information and documents from the taxpayer reasonably required to check a tax return.

An HMRC Tax Information Notice (“Information Notice”) may be issued by HMRC to obtain information and documents if:

• An HMRC Tax Enquiry has been opened and notice given to the taxpayer; or
• Too little tax has been recorded by the taxpayer on a tax return.

The taxpayer can appeal but not if the information sought is ‘statutory records’ or if the Tax Tribunal has approved the Information Notice.

What Are Statutory Records?

Statutory records in general are documents and information that a person is required to keep under tax legislation:

21. It seems to us that the legislation is clear, HMRC may only obtain documents requested in a taxpayer notice if the notice satisfies the requirements of Para 1 and they are reasonably required. To be reasonably required the Statutory Records requested must be relevant to the issues that have prompted the enquiry and be capable of enabling the officer to check the tax position. Para 64 indicates that the tax position to be checked can be any period, past present or future, unless indicated otherwise. We consider that a request may be unreasonable where for example all the Statutory Records relating to all employees of the company are being requested to verify the position of a single employee, or where all the Statutory Records are being demanded but the issue under consideration is only one aspect of the Corporation tax return or VAT return.

 

22. The term Statutory Records is defined in Para 62 of Schedule 36 as information or a document which a person is required to “keep and preserve under the Taxes Acts or any enactment relating to a tax.” Records cease to be Statutory Records if the period for which documents and information must be preserved has expired. The definition of statutory records is different for each tax under consideration.

 

23. We note that the Taxes Acts means the Taxes Management Act 1970, the Tax Acts and the Taxation of Chargeable Gains Act 1992. The Tax Acts includes The Income Tax Acts and Corporation Tax Acts.

What Is Information Reasonably Required?

What The Tribunal Said Generally About Information HMRC Require

A particular piece of information or a document can only be reasonably required if it is relevant to one of the issues raised and can assist to check the tax position.

Paras 3 and 4 of Schedule 18 Finance Act 1988 indicate what a company must provide to HMRC when it files a “company tax return” for a period. Para 3 indicates that the return includes “such information, accounts, statements and reports-

(a) relevant to the tax liability of the company, or
(b) otherwise relevant to the application of the corporation tax Acts to the company,
as may reasonably be required by the notice.”

Strategic direction information sought by HMRC has no bearing on the tax position.

It was unreasonable for HMRC to demand all computer records and details of entries unless there is a reasonable ground to believe that the records are inaccurate or there is a reasonable ground to believe that the taxpayer is dishonest.

Disclaimer: What Information Does HMRC Require To Check A Tax Return?

This page: What Information Does HMRC Require To Check A Tax Return? is not legal advice and should not be relied upon as such. This article What Information Does HMRC Require To Check A Tax Return? is provided for information purposes only. You can contact us on the specific facts of your case to obtain relevant advice via a Free Initial Consultation.