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glasses and moustache disguise | accountingweb | HMRC entitled to approach employee in disguised remuneration case

Disguised remuneration: HMRC can approach employee


Schedule 36 notices are tricky to contest and the tribunal in this case found that HMRC was entitled to request information about a potential disguised remuneration scheme from the employee, rather than the employer.

28th Dec 2023
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Contesting a statutory Schedule 36 Finance Act 2008 information notice issued by HMRC is hard. Even where you believe that HMRC has not complied with the few statutory protections contained within Schedule 36, or the information is not reasonably required by HMRC, or it is too onerous, it will be difficult to persuade a tribunal that the notice should be cancelled. 

In most instances at best a tribunal judge may ask HMRC to revise the terms of a notice or agree that some of the information requested is not required.

Nevertheless, despite the current statutory rules being designed to ensure as far as possible that HMRC’s attempts to obtain information and documents are not frustrated or made more costly by a cumbersome administrative process or taxpayers and others pursuing appeals, the appeal process can still result in a significant delay in HMRC being able to enforce its requests. 

Routine part of enquiry

Schedule 36 notices have become almost a routine part of any HMRC enquiry. In contrast to S20 TMA 1970 which Schedule 36 replaced, HMRC does not need the permission of a tribunal before it can issue a notice to a taxpayer, although the requirement to obtain tribunal permission has been retained for third-party notices. 

In addition, a third-party notice can be issued without tribunal approval if the taxpayer to whom the notice relates gives their approval. Appeal rights are more restricted than was the case with S20 and it is open to HMRC to ask a tribunal to approve the issue of a notice before it is issued so removing any right of appeal and potentially resulting in much higher penalties in the event the notice is not complied with. Similarly, no appeal can be made where the notice requires information and/or documents that are part of the taxpayer’s statutory records. 

Suspected loan-scheme participant

The recent tribunal case of Gareth Evans vs HMRC involved a taxpayer who was suspected by HMRC of being a participant in a loan scheme promoted by Total Recruitment Services Ltd (TRS). HMRC issued a Schedule 36 notice to Evans in January 2022 asking him to explain what he understood his position with TRS to be and to provide whatever documents he had. Evans appealed the notice and after a statutory review it was slightly amended by HMRC. 

Not content, Evans continued his appeal which came before the first tier tribunal (FTT) in July 2023 with judgment being given on 2 October 2023. 

The main thrust of Evans’s appeal was that HMRC was not looking to check his tax position but was trying to discourage him from participating in the TRS arrangements and HMRC should obtain such information as it needed from TRS. His further arguments included that HMRC was breaching his human rights against self-incrimination since some of the information could be used by HMRC in determining whether Evans was liable to a penalty.

HMRC entitled to request information

The tribunal rejected all of these arguments. However the judge did require HMRC to amend the wording of the notice to remove some of what was asked for and to rephrase another aspect of the request. The judge also made some important comments about how HMRC can go about collecting information. 

In particular, it is for HMRC to decide where they look and, in a case such as this, the judge described it as “misleading” to suggest that HMRC could obtain all they need from information reported through the PAYE system. The judge also had no issue with HMRC’s intention being to both request information to check a taxpayer’s tax position and in trying to discourage the take-up of tax avoidance schemes.

Hopeless and costly appeal

All in all, this was a hopeless appeal from the outset and since Evans was represented by a firm of tax consultants and by counsel it must have cost him quite a lot of money for little gain. The arguments presented demonstrated little obvious understanding of how a tribunal might be expected to approach the circumstances here.

That said, the delay in HMRC obtaining the information it requested is considerable and it may cause HMRC to consider whether the appeal arrangements in Schedule 36 should be tightened up. In truth what was being asked for was routine and should have been easily provided by Evans, a point also commented on by the judge.

Even so, the notice was issued in January 2022 and under the terms of the tribunal judgment Evans had until late November 2023 to comply – almost a full two years. And no doubt by now HMRC will have gathered substantial information on the TRS planning from other taxpayers making this appeal all the more pointless.

Replies (5)

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the sea otter
By memyself-eye
29th Dec 2023 10:30

Good 'Evans, all that wasted cash -he must be distraught!
Looks like he was fooled twice.

Thanks (1)
Replying to memyself-eye:
By Justin Bryant
31st Dec 2023 10:25

It's clearly wrong to say this appeal was "hopeless" or "pointless", as the judge cut down the information notice (viz the bits where HMRC were clearly going too far). Also, 14 days was clearly too soon to respond, as the judge gave him 28 days. The decision also suggests you should only provide information to HMRC under a Sch 36 Notice (and not voluntarily under a non-Sch 36 enquiry) in case HMRC apply penalties re HRA 1998, which seems a bit (gold) nuts to me (on policy grounds).

The taxpayer's barrister seems to have annoyed the judge with one not too great submission. Perhaps the taxpayer was lucky not to be asked who, if anyone, was paying his fee.

Thanks (0)
By hyper10
03rd Jan 2024 10:17

I laughed at the thought of our "hero" ( in his own mind and saviour to Evans) Mr Baig becoming more irrational and shouty the more he tried to push water up a hill. Barristers , in my experience and in general are really so self assured and full of it that they actually think they can perform miracles. At least remain dignified when you get a spannering.

Thanks (0)
By petestar1969
03rd Jan 2024 14:34

I used to work with a todger called Gareth Evans. I wonder if its the same one......

Thanks (0)
By Ian McTernan CTA
05th Jan 2024 16:18

He could have just copied and pasted the blurp issued by TRS as to what his position was and said he didn't understand any of it...

Bit extreme to employ a barrister and a tax consultant firm to conduct an appeal..unless he had insurance to pay for it.

Thanks (0)