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.
What Is The ‘Reasonably Required’ Test?
In order for an HMRC Tax Information Notice to be upheld by the Tax Tribunal the information sought must be:
reasonably required by the officer for the purpose of checking the taxpayer’s tax position
But was is “reasonably required”?
In the case of Gold Nuts Ltd v HMRC  UKFTT 84 (TC) the following was set out to attempt to explain this test:
- A request for information or documents cannot be unreasonable, or entirely without foundation, but that does not rule out an element of uncertainty or speculation on HMRC’s part.
- Although proportionality is a relevant consideration, inconvenience and the fact that information sought by HMRC is a time-consuming exercise is not a sound basis for suggesting that an Information Notice request be dismissed.
The case of Perfectos Printing Inks Co Ltd  UKFTT 388 (TC) noted that the starting point for HMRC is to treat the taxpayer as honest unless there is good reason to the contrary. Perceived reticence is not sufficient to show the information is reasonably required (at ). In addition, the same decision had noted that HMRC’s information and enquiry powers had to be balanced with a taxpayer’s right to finality and privacy.
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.