Mark McLaughlin points out that there are limits to the information that taxpayers can be required to provide for HMRC.
Many taxpayers see themselves as unpaid workers for HM Revenue and Customs (HMRC). For example, they may be required to self-assess their own tax position, or collect and calculate PAYE deductions from the employees of the business.
Information notices
Taxpayers may also find themselves on the wrong end of an information notice issued by HMRC. This could require the taxpayer to provide HMRC with information and documents to check the taxpayer’s tax position.
HMRC’s power to obtain information and documents is subject to certain exceptions and safeguards. The most fundamental safeguard is that the information or documents must be reasonably required to check the taxpayer’s tax position.
How onerous?
The requirement for the taxpayer to provide information or documents can be onerous. The question arises as to what lengths the taxpayers must go to comply. HMRC’s guidance (in the Compliance Handbook manual at CH21620) instructs its officers:
‘‘Reasonably required’ means getting the balance right between
- the burden put on someone to provide the information or face an inspection, and
-
how important the information or inspection is in deciding on the correct tax position.’
One of the difficulties with these considerations is that they are very subjective and call for HMRC officers to exercise their judgement. How far can HMRC reasonably go? Can they ask taxpayers to create information or a document that does not already exist? Can HMRC put taxpayers to the trouble of providing information if it would take weeks to do so? This point was considered in Davies & Ors v Revenue and Customs [2022] UKFTT 369 (TC).
Weeks of work
In Davies & Ors, the first taxpayer (D) and second taxpayer (M) (husband and wife) operated a partnership property investment business. In May 2019, HMRC opened an enquiry into D’s self-assessment return for the tax year 2017/18. A schedule was attached to the letter requesting 21 items of information and documents, many of them with further sub-divisions (an equivalent letter was issued to M). Subsequently, HMRC issued formal information notices (under FA 2008, Sch 36) in February 2020. The schedule outlined several items of information and documents required. HMRC sought information for the tax years 2014/15 to 2017/18. Essentially, HMRC’s view was that the taxpayers’ declared income was insufficient to meet their living expenses and to purchase and refurbish their home, so there was ‘reason to suspect’ undeclared income.
The main issue for the FTT was the extent to which HMRC was entitled to call for information which related to earlier tax years not under enquiry (i.e., 2014/15 to 2016/17 inclusive). The FTT noted that HMRC had requested a great deal of information. The FTT also accepted D’s witness statement that to provide all the information, records and documents from 6 April 2014 up to the issue of the information notices would take weeks of work by himself and M. The FTT accepted that there were very onerous requirements, and observed that compliance with the notice would not necessarily provide HMRC with the information they required.
The FTT decided that the information and documents requested in the information notices were not reasonably required to check the taxpayers’ 2017/18 tax position. Their appeal against the information notice was allowed, and the FTT directed HMRC to issue a final closure notice in relation to the enquiry for 2017/18 within 90 days of its decision being issued.
Practical point
The burden of proving that information and documents are ‘reasonably required’ rests with HMRC. Taxpayers who are not satisfied this burden has been met due to the onerous nature of HMRC’s requests should be prepared to stand their ground and require HMRC to convince the tribunal that their burden of proof has been satisfied.
