The following tax investigation opened with the nightmare letter every taxpayer dreads – but in a dramatic turn round, the tribunal held that it was HMRC’s information notice that offended every rule in the book.
In a recent case [Fergus Anstock v HMRC TC05784] the tribunal upheld the taxpayer’s appeal for not complying with HMRC’s information notice, quashing a £300 penalty into the bargain.
HMRC opened the offensive with a letter stating it had “reason to suspect… you have committed tax fraud.”
This was followed up with meetings and letters over the subsequent two years, and culminated in the issue of a very broadly worded information notice.
The tribunal held that the information notice issued by HMRC (under Schedule 36 Finance Act 2008) was not valid. It failed to meet the requirements of ‘certainty and precision.’
HMRC had not even proved that Anstock had received the information notice - a necessary precondition for a penalty to be imposed.
Although HMRC ‘assured’ the tribunal that the letter had been sent, the tribunal pointed out somewhat tartly that assertions “do not amount to evidence”.
Tribunal’s criticism of the information notice was comprehensive.
“The notice offends just about every tenet for the proper drafting of a document which is intended to have legal effect, that is, in the sense that if it is not complied with, then a penalty can be imposed against the party to whom it is sent.”
Drafting was so poor that “it would be perverse to conclude that the recipient of it could know precisely what… he was required to provide,” the tribunal said.
HMRC was rapped on the knuckles for requesting information in too general terms.
A blanket request for information about properties that “HMRC has not been made aware of” was singled out as being unfair and incapable of being properly understood.
Rather than fishing, HMRC should have requested information relating to a specific time period, and specific details, such as purchases and sales not already listed.
Criticising HMRC’s understanding of a director’s access to company documents, the tribunal pointed out that such documents belong to the company, not to the directors.
“The notice proceeds on the erroneous basis that the appellant can be expected to provide documents and/or information held by third parties, in particular companies of which he either is or was a director.”
Third party information
HMRC misapprehensions about how to access third party information also came under fire.
To expect the taxpayer to produce third party documentation was held to be unreasonable. The tribunal reminded HMRC that it had “ample powers to obtain information from third parties… if that is desired, then the proper procedures should be adopted.”
Schedule 36 FA 2008 gives HMRC wide-ranging powers to require taxpayers and third parties to provide documents and information “reasonably required” to check someone’s tax position.
Schedule 36 runs to more than 90 paragraphs, setting out detailed conditions covering production of documents, inspection of premises and penalties for noncompliance.
HMRC power not unlimited
The moral of the story is that HMRC’s information powers while wide, are not unlimited.
‘Fishing’ letters by HMRC are out of scope. An information notice must be specific and self-contained. Information or documents requested must be realistically obtainable by the recipient.
In the words of the tribunal, HMRC’s requirements must be “discernible from within the four corners of the notice itself.”