Dealing with HMRC Information Notices

The most common of HMRC enforcement actions are:

1. a taxpayer notice;
2. a third party notice; and
3. a financial institution notice.

Can these be challenged, what approvals are required before issue and what are the consequences of failing to comply?

Taxpayer notices

An HMRC officer can, by written notice require a taxpayer to provide information or to produce documents which the officer considers to be "reasonably required" for the purpose of checking the tax position or collecting a tax debt. 

HMRC may obtain documents and information before a tax return is filed and also information related to future liabilities a taxpayer may have.

Where a taxpayer has already filed a self-assessment return or a company tax return, HMRC cannot issue a taxpayer notice for the period covered by the return unless:

1. There is an open enquiry for that period;
2. The officer has reason to suspect that:
   1. an assessment for tax for the chargeable period may be or has become insufficient;
   2. an amount which ought to have been assessed for the chargeable period was not;
   3. relief from tax given for the chargeable period may be or has become excessive.

An HMRC officer does not need to obtain prior judicial approval before issuing a taxpayer notice but can choose to seek approval from the First-tier Tax Tribunal ("FTT") in advance. 

If the FTT approves the issuing of the notice then the taxpayer has no right to appeal against the notice. In these instances, the taxpayer can seek a judicial review. 

If the FTT has not approved the issuing of a notice, the taxpayer can appeal against the notice or any requirement of the notice, other than a requirement to provide information or documents which form part of their statutory records. 

An appeal must be made within 30 days of the date of the notice. If appealed, the burden is on HMRC to demonstrate why the information requested is reasonably required.

Third party notices

A HMRC officer can, by written notice require any person to provide information or produce a document that is reasonably required for checking the  tax position or collecting the tax debt of a known person. 

The issue of a third party notice must be approved by the FTT in advance, unless the taxpayer consents to the issue of the notice.

The FTT can only authorise the taxpayer or third party notice if:

1. the application is made by an authorised HMRC officer;
2. the officer is justified in doing so;
3. the recipient of the notice has been informed that the information or documents referred to in the notice are required and is given a reasonable opportunity to make representations to HMRC;
4. the FTT has been given a summary of any representations made; and
5. the taxpayer has been given a summary of the reasons why HMRC requires the information and documents requested in the case of third party notices.

If the FTT has not approved the third party notice then the third party may appeal against the notice. Where it has been approved by the FTT then the only challenge is by way of a judicial review.

Financial institution notices

An HMRC officer can, by written notice, require a financial institution to provide information or produce a document if:

1. the information or document is, in the reasonable opinion of the officer, of a kind that it would not be onerous for the institution to provide or produce; and
2. the information or document is reasonably required for the purpose of collecting a tax debt of a taxpayer.
3. The financial institution notice must name the taxpayer to whom it relates and the officer must provide the taxpayer with a copy of the notice and a summary of the reasons as to why the officer requires the information or document.

Financial institution notices do not require approval from the FTT if the taxpayer does not consent to the notice. HMRC may apply to the FTT to waive the requirement to name the taxpayer or to give a summary of reasons for the notice. 

The FTT is required to grant the application where it is satisfied that the officer has reasonable grounds for believing that naming the taxpayer may prejudice the assessment or collection of tax.

Penalties for non-compliance

Those failing to comply with an information notice will be liable to a penalty of £300 and a daily default penalty of £60 for each subsequent day failure continues.

A penalty of £3,000 can be imposed for provision of inaccurate information or documentation where:

1. the inaccuracy is careless or deliberate;
2. the person knows of the inaccuracy at the time that the information or document is provided; and
3. the inaccuracy is discovered later but fails to take reasonable steps to inform HMRC.

An appeal is possible against imposition and/or quantum of the penalty. Liability to a penalty for failure to comply with an information notice does not arise if the person can satisfy HMRC or the FTT that there was a reasonable excuse for failure. The burden of proof in an appeal against a penalty for non-compliance is on HMRC.

Limitations to HMRC powers

An information notice cannot require a person to provide information or produce documents which are:

1. protected by legal professional privilege;
2. not in the person's possession or power; and
3. more than 6 years old before the date of the notice.

Moving forward

With HMRC's growing focus on increasing the tax yield and closing the tax gap, which is also high up on the new Governments agenda, it is anticipated that HMRC will be using these mechanisms to obtain information in order to carry out their compliance checks, enquiries or collecting tax. It I also likely that these mechanisms will be strengthened in the future.

Where information notices are sent to the taxpayer or third parties, it is advisable to seek professional guidance to ensure compliance where necessary and for the avoidance of penalties but more importantly to ensure that only the information as set out in the information notice and to which HMRC is properly entitled is made available to, thus maintaining taxpayer safeguards in place.

For further information, please contact Tajinder Barring or Nina Basra.