HMRC Tax Information Notice Not Complied With Can Lead To An UNLIMITED Tax-Related Penalty

 

Overview Of What Is An HMRC Tax Information Notice?

An HMRC Tax Information Notice is a notification to the taxpayer by HMRC to provide information and or documents about their tax affairs.

By virtue of Paragraph 6 of Schedule 36 of the Finance Act 2008 an Information Notice is a request by HMRC that is submitted in writing to the taxpayer or a third party or a person whose identity is not known to HMRC.

Perhaps unsurprisingly HMRC Tax Information Notices are notices issued when an HMRC Tax Investigation is being undertaken.

SUMMARY OF KEY POINTS

  • An HMRC Tax Information Notice is a written request by HMRC for information and or documents.
  • An Information Notice can be issued if HMRC is undertaking an HMRC Tax Investigation.
  • Paragraph 39 of Schedule 36 of the Finance Act 2008 enables HMRC to issue an initial penalty of £300 for non-compliance with an Information Notice.
  • Paragraph 40 of Schedule 36 of the Finance Act 2008 enables HMRC to issue daily default penalties for non-compliance with an Information Notice up to £60 per day.
  • Paragraph 50 of Schedule 36 of the Finance Act 2008 enables HMRC to apply to the Upper Tribunal to impose additional penalties on the taxpayer in cases where an HMRC Tax Information Notice has not been complied with.
  • The Paragraph 50 provision confers on the Upper Tribunal the exclusive power to issue a fine without constraints.
  • Paragraph 50 is penal in nature and therefore is reserved for the most serious cases of non-compliance with HMRC Information Notices.
  • The penalties arising from Paragraph 50 are not intended to be set at a level so as to recover the unpaid tax but merely have regard to the anticipated unpaid tax.

It seems that taxpayers after reading this article and wishing to explore further how to deal with an HMRC Tax Investigation might wish to consider that a failure to cooperate with HMRC may serve to highlight an issue all the more.

Duty To Come Clean To HMRC With Information

All taxpayers should consider the following notable extract from the case of Nicholson v Morris (H M Inspector of Taxes) 51 TC 95 as to matters of responsibility ie. the taxpayer’s duty to come clean to HMRC:

… the Taxes Management Act throws upon the taxpayer the onus of showing that the assessments are wrong. It is the taxpayer who knows and the taxpayer who is in a position (or, if not in a position, who certainly should be in a position) to provide the right answer, and chapter and verse for the right answer, and it is idle for any taxpayer to say to the Revenue, “Hidden somewhere in your vaults are the right answers: go thou and dig them out of the vaults.” That is not a duty on the Revenue. If it were, it would be a very onerous, very costly and very expensive operation, the costs of which would of course fall entirely on the taxpayers as a body.

Standard Penalties For Non-Compliance With An HMRC Tax Information Notice

The standard penalties for non-compliance with an HMRC Tax Information Notice are as follows:

  • Paragraph 39 of Schedule 36 of the Finance Act 2008 enables HMRC to issue an initial penalty of £300 for non-compliance with an Information Notice.
  • Paragraph 40 of Schedule 36 of the Finance Act 2008 enables HMRC to issue daily default penalties for non-compliance with an Information Notice up to £60 per day.

Unlimited Tax-Related Penalty

An UNLIMITED fine can however be issued to a taxpayer in light of Paragraph 50 of Schedule 36 of the Finance Act 2008 in cases of continual non-compliance and obstruction in respect of an HMRC Tax Information Notice:

(1) This paragraph applies where—

(a) a person becomes liable to a penalty under paragraph 39,

(b) the failure or obstruction continues after a penalty is imposed under that paragraph,

(c) an officer of Revenue and Customs has reason to believe that, as a result of the failure or obstruction, the amount of tax that the person has paid, or is likely to pay, is significantly less than it would otherwise have been,

(d) before the end of the period of 12 months beginning with the relevant date (within the meaning of paragraph 46), an officer of Revenue and Customs makes an application to the Upper Tribunal for an additional penalty to be imposed on the person, and

(e) the Upper Tribunal decides that it is appropriate for an additional penalty to be imposed.

(2) The person is liable to a penalty of an amount decided by the Upper Tribunal.

(3) In deciding the amount of the penalty, the Upper Tribunal must have regard to the amount of tax which has not been, or is not likely to be, paid by the person.

Potential Additional Unlimited HMRC Tax-Related Penalty When Information Notices Are Not Complied With

The fine capable of being imposed by Paragraph 50 of Schedule 36 does have some safeguards for the taxpayer as set out by the Court of Appeal in the matter of Tager & Anor v Revenue And Customs [2018] EWCA Civ 1727:

(1) The fact that the power to impose a penalty was conferred exclusively on the Upper Tribunal was alone a clear indication that the power was intended by Parliament to be reserved for serious cases, which would need to receive a high level of judicial scrutiny: [8].

(2) The provision is a penal one, and it must be taken to be reserved for serious cases of non-compliance with information notices, typically where imposition of an initial fixed penalty of £300 and continuing daily penalties at the relatively modest rate of up to £60 per day have failed to secure compliance. Whilst it is not necessarily a last resort, it would be hard to envisage circumstances where it would be appropriate for HMRC to make an application under paragraph 50 until fixed and daily penalties have been imposed for a significant period to no avail: [86].

(3) In deciding whether a penalty should be imposed the Upper Tribunal should have regard to the usual considerations which apply when the imposition of a tax 86 penalty is in question, including such matters as the reasons for non-compliance, the extent to which the position has been remedied, the gravity and duration of the non-compliance, the presence of aggravating or mitigating factors, the availability of other methods for HMRC to recover the tax at risk (most obviously by making an assessment, if necessary on a best of judgment basis), and generally the need to achieve a fair and proportionate outcome, having regard to the interests of the public purse and the general body of taxpayers as well as the circumstances of the non-compliant taxpayer himself: [88].

(4) In determining the amount of the penalty, the obligation on the Upper Tribunal is only to “have regard to” the amount of tax shown to be at risk as a result of the failure to comply with the notice. The penalty is not intended to be a proxy for recovery of the unpaid tax, and Parliament has deliberately decided against providing for a fixed or mechanical relationship between the amount of the tax unpaid and the amount of the penalty. Indeed, a regime of tax-geared penalties would often make little sense, and could give rise to insuperable practical difficulties, in a situation where HMRC are by definition still trying to obtain the necessary information about the taxpayer’s tax position: [90].

(5) The “tax at risk” figure should be discounted by a substantial proportion before being used as a yardstick for the imposition of a tax-related penalty in cases where information available to HMRC is very limited: [98].

(6) Although there will be many cases where it is an acceptable approach to fix the amount of a penalty under paragraph 50 by applying a percentage to the “tax at risk” it is not always necessary to show a demonstrable link between the tax unpaid and the penalty imposed. It is enough if the amount of the tax unpaid, taken in conjunction with all the other relevant circumstances, informs the determination of quantum and yields a result which is proportionate to the scale and nature of the taxpayer’s default: [108].

Revenue and Customs v Sukhdev Mattu

A taxpayer was landed with a tax-related fine of £350,000 after not fully cooperating with an HMRC Tax Information Notice issued on 28 August 2019. Sukhdev Mattu (“SM”) on 4 October 2021 received the lugubrious decision handed down by the Upper Tribunal in the matter of Revenue and Customs v Sukhdev Mattu [2021] UKUT 245 (TCC)  (“Mattu”).

Because of the gravity of the tax law applied, this decision stretches to some 391 paragraphs. The whole decision is spread out over 111 pages and if it was a book, the title “How To Get HMRC Interested In Your Tax Affairs” might conceivably be apposite.

In the case of Mattu the Upper Tribunal articulated the position on the potential unlimited tax-related penalty as follows:

… Parliament has created a unique jurisdiction of the Upper Tribunal to impose an unlimited tax-related penalty in cases of serious non-compliance.

What Happened In Mattu?

Mr Mattu’s financial affairs were complex. There was a reference to a number of limited companies that were owned or had been formed by an offshore Trust of which Mr Mattu was sole beneficiary.

In Mattu the Upper Tribunal considered the nature of the non-cooperation with an HMRC Tax Information Notice and the following conduct was noted that gave rise to that suggestion:

  • Avoidance of cooperation with the HMRC Tax Information Notice.
  • Mr Mattu did not make direct efforts of his own to provide information to HMRC saying that he expected his accountants to do this.
  • The Trustee of the offshore Trust was not assisting HMRC yet Mr Mattu did not step in to prompt the Trustee to assist.
  • Mr Mattu did not reveal that he was the sole beneficiary of the Trust until somewhat late in the day and this was considered to be obstructive.
  • Mr Mattu was able to obtain documents from the Trustee when it was of assistance to him to do so.
  • The threat of the Paragraph 50 application did not appear to result in a material change in Mr Mattu’s approach.
  • The amount of tax said to be at stake was significant.

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