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What Is An HMRC Tax Information Notice?

In this guide, you will learn what is an HMRC Tax Information Notice.

In this article you’ll learn about:

  • How An HMRC Tax Information Notice can arise.
  • When and if HMRC Tax fishing expeditions are permissible.
  • What the reasonably required test is for an HMRC Information Notice.
  • How a potentially unlimited penalty can arise from non-compliance with an Information Notice.

Let’s get cracking.

HMRC tax information notice

HMRC Tax Information Notice

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 Paragraphs 1 and 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 for information and or documents. The purpose set out in Paragraph 1 is if “reasonably required” to check a person’s tax position.

There is a restriction on the ability for HMRC to issue an Information Notice when there is already an appeal in respect of the relevant tax pending to the Tax Tribunal. This is set out in Paragraph 19 of Schedule 36 of the Finance Act 2008.

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.

Statutory Records

Statutory Records are those records the taxpayer is required to keep and preserve that are required under tax legislation. This will include those records which are required to be kept to compute and support the taxpayer’s returns. The general rule is that information must be kept until an enquiry into a return is completed.

When an Information Notice has been issued before the expiration of the period permitted then where Statutory Records are concerned there is no ability of the taxpayer to appeal the notice.

HMRC Fishing Expeditions Are Not Permitted

In the desire to check someone’s tax return requests for information may stray into the realms of what might be considered to be a fishing expedition. However, HMRC fishing expeditions arising from an Information Notice are not permitted:

In Derrin Brother Properties Ltd v HMRC [2014] EWHC 1152 (Admin) the following was said about HMRC Information Notices being considered fishing expeditiions:

Finally, HMRC may not use their Sch.36 powers for a fishing expedition – whether for their own or the purposes of another revenue authority. A broadly-drafted request will not be valid if in reality HMRC are saying “can we have all available documents because they form so large a class of documents that we are bound to find something useful”. What is required is that the request is genuinely directed to the purpose for which the notice may be given, namely to secure the production of documents reasonably required for carrying out an investigation or enquiry of any kind into another taxpayer’s tax position.

That said there is no need for HMRC to have suspicions to check someone’s return but the information that it seeks must be reasonably required to further such an HMRC tax enquiry.

In the case of Matthew Jenner v Revenue & Customs [2022] UKFTT 203 (TC) the Tax Tribunal put matters as follows:

It follows that HMRC are not permitted to make broad requests for the purposes of fishing for information but that does not mean that they need suspicion in order to check a tax return. HMRC are entitled to any documents or information reasonably required for the purpose of carrying out an investigation or enquiry of any kind. Broad requests made for the purposes of fishing for information would not meet the ‘reasonably required’ test.

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 what is “reasonably required”?

In the case of Gold Nuts Ltd v HMRC [2017] 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 [2019] 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 [29]). 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.

The burden of proving this is on HMRC as confirmed in Perring v Revenue and Customs [2021] UKFTT 110 (TC) to show:

(a) the information or document is reasonably required by the Officer to check the taxpayer’s tax position in a year in question – this requires that the Officer explains her position and that objectively the information requested is required to check the tax position of the taxpayer in that year.

(b) where a notice requests documents that originate more than 6 years before the date of the notice, that an authorised officer has agreed to the issue of the notice.

(c) where a return has been made by the taxpayer and no enquiry has been made into the return before the expiry of the statutory window to do so, that the officer has reasonable ground to suspect that either

(i) an amount that ought to have been assessed to tax in a tax has not been assessed,

(ii) an assessment to tax for the tax year has become insufficient, or

(iii) a claim for relief from tax in a year has become excessive.

Restrictions On HMRC Applying For An Information Notice

  • An HMRC Information Tax Notice cannot require the production of a document dated more than 6 years before the date of the notice, unless the notice is given by, or with the agreement of, an authorised officer.
  • If an individual has filed a tax return in respect of income tax and capital gains tax, then the Information Notice cannot be issued unless:
    • an enquiry into the return and the enquiry has not been completed; or
    • an officer has reason to suspect in respect of the tax year that “an amount that ought to have been assessed has not been assessed”, or ”an assessment may be or have become insufficient“, or “relief from tax for the [tax year] may be or have become excessive; or
    • the notice is given for the purpose of obtaining any information or document that is also required for the purpose of checking the person’s position as regards any tax other than income tax, capital gains tax or corporation tax; or
    • the notice is given for the purpose of obtaining any information or document that is required (or also required) for the purpose of checking the person’s position as regards any deductions or repayments of tax or withholding of income in respect of PAYE, CIS etc.
  • An Information Notice does not require a person to provide privileged information or produce any document that is legally privileged.

Penalties For Non-Compliance With 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 Arising From An HRMC Tax Information Notice

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].

HMRC Tax Information Notice On 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.

What Next?

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Disclaimer: What Is An HMRC Tax Information Notice?

This page is not legal advice and should not be relied upon as such. This article 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.

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