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Data demanded from tax investigation specialist

Qubic Tax Ltd and related companies appealed against notices demanding data concerning the group’s own tax affairs. The first tier tribunal (FTT) upheld all the notices but quashed the penalties for non-compliance.     

30th Jul 2020
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HMRC can require taxpayers to produce information and data by issuing data-holder notices (FA 2011 Sch 23) and information notices (FA 2008 Sch 36), and there are limited grounds for appealing. 

The scope for appeal against these notices was tested recently in the FTT in Qubic Tax Ltd and others TC07701.

Information notices

HMRC can issue a notice under FA 2008 Sch 36 in order to obtain information or documents (within the taxpayer’s ownership or power) which are “reasonably required” for the purpose of checking a taxpayer’s tax position.

The taxpayer can appeal if HMRC does not in fact reasonably require the information. This is an objective test and HMRC has the burden of demonstrating that the information is reasonably required for that purpose.

Data-holder notices

HMRC can issue a data-holder notice under FA 2011 Sch 23 to obtain relevant data from a relevant data holder. This includes someone whose business involves making relevant payments, which are payments for services provided by persons not employed by the business, together with certain intellectual property payments.

There are only three possible grounds to appeal against a data holder notice, which are:

  • It is unduly onerous to comply with the notice;
  • The person served with the notice is not, in fact, a relevant data-holder; or
  • The data specified in the notice are not relevant data.

Statutory records

For both types of notice, the taxpayer has no right of appeal where the information specified in the notice forms part of their statutory records. This is information or documents the taxpayer is required to keep and preserve by virtue of the Taxes Acts or any other legislation relating to tax.

Unduly onerous

The Qubic companies argued that the data-holder notices were unclear and too vague and that this vagueness meant it would be unduly onerous to comply, as it was impossible to deduce precisely what information HMRC was seeking.

Judge Staker concluded that: “It would be sufficiently clear to any recipient” what was required. He pointed out that what is “onerous” can only be determined based upon all of the facts and circumstances, and added that:

“Where only some of the items in a data-holder notice would be unduly onerous to comply with, the addressee of the notice must still be expected to comply with those parts which are not unduly onerous to comply with.”

Duty of confidentiality

The Qubic companies also argued that, since they were regulated by the ICAEW, they owed a duty of confidentiality to their clients, which would prevent them from complying with the notices.

The judge noted that this duty of confidentiality definitely constitutes a reasonable encouragement to appeal where possible against a notice (see Wilsons Solicitors LLP TC06778), but it does not of itself represent a ground for such an appeal. If the data-holder notice is valid, its force overrides the duty of confidentiality.

Reasonably required

The Qubic companies argued that HMRC, which was conducting enquiries into their tax returns, already had much of the information sought in the Sch 36 information notices. They suggested that the information was not reasonably required as HMRC was already in a position to make assessments.

The judge pointed out that “even if HMRC have enough information to make an assessment, that does not mean that additional evidence if obtainable would not be reasonably required for the purpose of checking a taxpayer’s tax position… It is not for a taxpayer to determine what information might or might not make a difference to the view that HMRC would otherwise take on the basis of the information that HMRC already has.”

In the judge’s view, the information sought by HMRC in these cases could objectively be seen as reasonably required.

Statutory records

“The fact that a request for information requires some act of accountancy does not mean that the information requested is not a statutory record. If there is a duty to keep the information then it is a statutory record.”

The judge was persuaded that the items in question were statutory records, (not that it mattered, since he had already determined that they were reasonably required).

Relevant communications

Two of the group companies, Qubic Trustees Ltd and Assethound Ltd, argued that the data notice should be withdrawn as the requested information was relevant communications between a tax adviser and a client (Sch 36 para 25). Paragraph 25 covers documents which actually contain the tax advice, not invoices for the provision of that advice.

The judge concluded that Qubic Trustees had not been asked to provide details of any advice given to its clients, as its business consisted of providing trustee services, not tax advice!

In the case of Assethound Ltd, the notices had asked for some information which could arguably fall within paragraph 25, but the judge clarified that this did not require the notice to be amended. HMRC can ask, but the company is under no obligation to supply items genuinely covered by paragraph 25.

The paragraph 25 point is more likely to be relevant in an appeal against a penalty for non-compliance (as it may become necessary to determine whether withholding certain documents was or was not permissible) rather than in an appeal against the notice itself.

Judgment and penalties

All appeals against the notices were dismissed, and the notices were upheld.

The period covered by the penalties coincided with the period during which the underlying notices were under appeal. This means that the companies had a reasonable excuse for not complying with the notices, and the penalties were quashed.

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