Jennifer Adams investigates the powers that enable HMRC to obtain documents from the taxpayer and third parties.
The ability of HMRC's Connect database to identify links between businesses, shareholders, properties, families and across different government departments is increasing in its sophistication such that investigations are being targeted rather than being on a speculative basis, as in the past. So, if a request for information is received, it is more than likely that HMRC has some information for which the taxpayer's input or confirmation is required.
The legal precedent is to be found in Sch 36 FA 2008, which enables an HMRC officer to send a written information notice, requiring the taxpayer or a third party, to provide information or documents if the ‘information or document is reasonably required for the purpose of checking the taxpayer’s tax position’. Revenue Scotland and the Welsh Revenue Authority have equivalent powers in relation to their devolved taxes. Such requests generally arise during an enquiry, but although these formal powers exist, usually HMRC first makes an informal request via a letter, at a meeting or in a phone call.
What is ‘reasonably'?
As they stand, these words are a 'grey area', as it is up to the particular HMRC officer dealing with the case to decide. Section CH20150 of HMRC's Compliance Handbook attempts at a definition stating that:
‘‘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.'
What HMRC cannot ask for
Whether the request is formal or informal, Schedule 36 sets out what HMRC can and cannot ask for. The documents must be:
- in the power or possession of the person receiving the notice either in a physical format or can be obtained easily;
- a document, the whole of which is more than six years old, unless authorised by a senior HMRC official;
- personal records (i.e. relating to the physical or mental health, spiritual or personal welfare of the taxpayer or personal expenditure, diaries);
- anything to do with a pending tax appeal;
- journalistic material (if the taxpayer is a professional journalist);
- information or documents relating to a person who has died if more than four years have elapsed since the death; and
- anything confidential between the taxpayer and legal adviser ('Privileged documents').
HMRC can always ask for a document that contains personal information with the relevant passages blocked out.
Identity unknown requests
The blocking of personal data is also possible where HMRC requests details on a group of persons (e.g. where a group entered into a particular tax planning scheme). Such powers enable HMRC to gather information bearing in mind the cost of investigating individuals.
Third-party request
Such requests require both judicial and the taxpayer's approval and are frequently used to obtain bank details (approval is not needed if the information relates to VAT returns). Certain tax avoidance arrangements must be disclosed under the Disclosure of Tax Avoidance Scheme rules. HMRC is also permitted to approach UK entities of offshore service providers to request relevant data to any record or list they are required to maintain e.g. offshore trust, companies formed by the service provider.
Right of appeal and penalties
Appeal against formal 'information requests' is to a tribunal within 30 days of the date of the information notice. Non-compliance renders the taxpayer liable for a penalty of £300 plus £60 each day.
Practical tip
Informal requests, by their nature, do not attract penalties, but the same Sch 36 rules can give guidance as to whether HMRC has the right to request something. It is advisable to be aware of the legal rules and respond as if to a formal request in deciding whether the information requested is 'reasonable'. Information requests are evolving and are yet another reason to keep personal and business details separate.
