10 things to think about when receiving a request for information and documents from HMRC

HMRC can request or even demand data from taxpayers in different ways, the most common being known as ‘Schedule 36’ notices. Those powers are not open-ended or unfettered and there are several points to consider.

1. Is it really a Schedule 36 notice? HMRC often initially request data on an informal basis, meaning there is no legal obligation for the taxpayer to provide the information requested, it is entirely voluntary. Maybe the request also goes beyond what could be requested in a formal notice as, unlike a formal notice, an informal one is not subject to the statutory safeguards and boundaries.

2. What type of notice is it? There are various different types of formal notice, the most common being first-party notices issued directly to the taxpayer and third-party notices asking the recipient to provide data about the tax position of another person. The distinction is important as there are different rules applicable to each different type of notice.

3. What is the basis for the information notice? HMRC cannot simply issue notices at will, there are underlying conditions which must be satisfied, for example an open self-assessment enquiry or a genuine suspicion of discovery. The notices cannot be used as a tool to form such a suspicion, it must already genuinely exist before any such notice can be validly issued.

4. Consider critically what HMRC is asking for. An overriding condition is that the data requested must be ‘reasonably required’ for the purposes of checking the recipient’s (or someone else’s if it is a third-party notice) tax position. Perhaps the data demanded is not relevant to the tax position at all or it is more than is reasonable in order to test that position. If the notice is, for example, supported by an underlying self-assessment enquiry, consider whether the data requested relates to the year(s) under enquiry rather than any other years.

5. Consider what timeframe HMRC has given to respond to the notice. It is usual (but not always the case) for HMRC to allow at least 30 days to comply with the notice. Several days of that time period may have elapsed before the notice is received in the post and, after evaluating the data requested along with other factors such as holidays or other commitments, it may be that the deadline for compliance is considered unrealistic. In those circumstances it is important to engage with HMRC as early as practicable, they will usually be amenable to a reasonable extension.

6. Consider an appeal, there is a statutory right to appeal against formal information notices. The validity of the notice itself should be considered carefully, not just the content of the notice. It may be, for example, that on the face of it the data requested is reasonable, but the underlying conditions for issuing a valid notice have not been met. It is often overlooked that the legislation allows an appeal against the notice itself as well as any requirement listed in the notice.

7. It is common for HMRC to assert that at least some of the data requested consists of ‘statutory records’ as a request for such data cannot be appealed. Broadly, these are records required to be kept in order to be able to prepare an accurate tax return, a fairly narrow band of documents which HMRC sometimes tries to widen so any such assertion should be carefully and critically reviewed.

8. If any data requested is more than four years old it may be worth questioning HMRC further depending on what, if any, enquiries remain open as, ordinarily, HMRC cannot asses tax periods more than four years previously although there are exceptions.

9. If any data requested is more than six years old that is very much out of the ordinary and suggests HMRC has an inkling that any irregularities found are more serious than simple human error or carelessness. In addition, there are further rules concerning requests for such old documents meaning that the notice itself may not be valid. Any such documents are also unlikely to be ‘statutory records’ given the passage of time even if they were previously classed as such.

10. Finally, treat any information notice with the seriousness it deserves, do not put it to one side to deal with later. HMRC have certain hoops to jump through before issuing these notices so do not scatter them around randomly like confetti. There are penalties for non-compliance so early engagement with the process is advisable, do not leave it until the last minute.

The interaction between rights, powers, safeguards, self-assessment enquiries, discovery and the ‘Information and Inspection powers’ in Schedule 36 is complex and often spreads beyond the UK, for example if HMRC is interested in the beneficiary of an overseas Trust. Any information notice should be taken seriously and the case worked with expert input from an experienced specialist who is skilled in the complexities of what HMRC can and cannot demand depending on the underlying circumstances. It is of course not black and white, it may be that HMRC cannot strictly demand the data requested but it is advisable to provide it or compliance with an informal notice is the best option; it is always a judgement call that an experienced specialist is best placed to help with.

For further information, please get in touch with a member of Crowe’s Tax Resolutions team or your usual Crowe contact.