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HMRC request for information – Schedule 36 Finance Act 2008 Notice

Please note that tax law is a complex subject and you should not rely on this article without professional advice on the facts of your case.

What is a Schedule 36 notice?

A Schedule 36 notice is a notice which is given by HMRC to a taxpayer requesting him to provide information or documents.

When can HMRC send one to a tax payer?

A Schedule 36 notice can only be sent to a tax payer if the information and/or documents HMRC is asking for are “reasonably required” to check the tax payer’s tax position. In addition to the information/documents being reasonably required, to be able to give a Schedule 36 notice, HMRC must have given formal notice of enquiry into the tax payer’s tax return. Alternatively, if no such notice has been given, HMRC must have a reason to suspect that the amounts which should have been assessed in the tax payer’s tax return have not been assessed or have not been assessed properly.

As an example, HMRC receives a tax return from a tax payer stating that the tax payer is resident outside the UK. The tax payer only declares his UK income. HMRC, however, is not convinced that the tax payer is non-resident and is of the view that the tax payer’s foreign income should have been included in the return on the basis he is UK resident. HMRC serves a Schedule 36 notice on the tax payer asking for his bank statements, employment information, details about days in and out of the UK and information about worldwide income and gains.

Am I obliged to answer all HMRC’s questions in the notice?

The notice is a legal request for information and failure to comply with it will lead to penalties. Penalties will also be imposed if any information or documents are concealed, destroyed or disposed of or if the information provided is inaccurate. However, the questions must be ones HMRC can legally ask.

How do I contest the validity of the notice?

The tax payer can appeal against the notice to the Tax Tribunal. Written notice of appeal must be given to HMRC within 30 days of the date of issue of the notice and must state the ground of appeal.

One of the reasons for an appeal may be that the information requested does not help to ascertain the tax payer’s position, is irrelevant for the purpose and is too wide and onerous to gather. Alternatively, it may be possible to prove that HMRC does not have a reason to suspect that the assessment on the tax return was not sufficient.

Other points to look out for:

  • If particular information or documents asked for in the notice are not in the tax payer’s power or possession, the tax payer will not be obliged to provide these and will not have failed to comply with the notice in this case.
  • If the document HMRC is asking for originates more than six years ago, the notice can only be given with the agreement of an authorised officer. The notice should state whether such agreement has been obtained.
  • The documents HMRC is requesting must be clearly described in the notice and easily identifiable.
  • Sufficient time must been given to comply with the notice. It may be possible to appeal on the grounds that the time allowed for the provision of information is insufficient.

What is meant by “reasonably required”?

Looking at the Tax Tribunal’s decisions it appears that it is relatively easy for HMRC to justify its requests and prove that a particular piece of information or document is reasonably required. The tax payer’s bank statements, for example, are likely to satisfy this condition as may be reasonably required to check whether the tax payer is a non-UK resident as these might show expenditure indicating social activities in the UK beyond that expected of a non-resident.

Nevertheless, whether particular information or documents are reasonably required will turn on the facts of the tax payer's individual case. All the requests in the notice will need to be considered carefully before any information and/or documents are provided. It may, for example, be unreasonable to ask for information about the tax payer’s foreign assets and business transactions which are not related to the UK.

What are third party notices?

A third party notice is a notice by HMRC to a person, other than the tax payer, requiring them to provide information or document. As with the notice to the tax payer, the information or documents requested must be reasonably required.

In most cases HMRC must give a copy of the third party notice to the taxpayer. The Tax Tribunal may, however, dispense with this requirement where providing a copy might prejudice the assessment or collection of tax.

If prior tribunal approval to issuing the notice has not been obtained, the third party can appeal the notice if it is too onerous to comply with.

How do I deal with things tactically?

The notice will specify a date by which the tax payer will have to comply with HMRC’s requests. This will normally be 40 days from the date of issue of the notice. If the notice is to be appealed, the tax payer will only have 30 days to write back to HMRC (please see above). As the time allowed is short, advice of a tax specialist should be sought at once. The notice will need to be analysed carefully before it is decided whether the information and documents can be provided or whether the notice should be appealed.

If HMRC has written to the tax payer asking for information informally, it is best not to ignore this and wait until a formal notice is given. It may be easier to communicate with HMRC and resolve any issues whilst still at an informal stage.

What are the costs consequences of appealing to the Tax Tribunal?

Normally, each party will bear their own costs, regardless of the outcome of the case. In complex cases, however, the Tribunal will have a wide jurisdiction to award costs. The tax payer may, therefore, be ordered to pay HMRC’s costs but equally, if successful, may be able to recover his costs from HMRC. The tax payer should be prepared, however, that the amount awarded by the Tribunal is unlikely to cover the total amount of costs incurred.

Sykes Anderson LLP will act on your behalf and appear before the Tribunal. Usually it is not necessary to instruct a barrister and so this additional fee will not be payable. A fixed fee is usually agreed for these cases.

January 2014

Sykes Anderson LLP
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London EC2M 4YF
Telephone 020 3178 3770