HMRC Information Powers
16 October 2009
HMRC new powers to obtain information and documents are now well embedded. They stem from Schedule 36 to the Finance Act 2008, as amended by Finance Act 2009. This applies to most direct taxes with effect from 1 April this year, and to further taxes (eg. SDLT etc) from 1 April next year.
These information powers replace those under, for example, Sections 19A and 20 of the Taxes Management Act.
Although considerable representations were made by HMRC to Parliament about the safeguards which would accompany the extended information powers, those safeguards are in many cases illusory.
Information notices do what they say on the tin. They are simply a notice which is served by HMRC, on somebody, asking for information or for a document. So it is not restricted just to existing paperwork. A taxpayer may be obliged to provide information which requires input from records that it keeps.
There are four types of information notice:
- a taxpayer notice; served on a taxpayer asking for information or documents from that person
- a known third party notice; served on a person who is then obliged to provide information or produce a document relating to a third person whose identity is known to HMRC
- a third party notice served in respect of an unknown third party. Here, HMRC serve a notice on a person requiring information about a third party, whose identity is not known to HMRC
- an "involved third party" notice. Involved third parties are specifically identified in para 61A of Schedule 36 (for example a child trust fund provider). HMRC can serve a notice on an involved party requiring disclosure of relevant information and relevant documents (which are specified in the same paragraph).
One important issue concerns the circumstances in which HMRC can serve a notice. Under the "old" regime there were restrictions on serving notices under Section 19A (there must have been an open enquiry) or under Section 20 (the board of Inland Revenue had to agree to the issue of the notice and a Tax Commissioner had to consent to its issue). No such safeguards protect the issue of the notices mentioned above. In basic terms a notice can be issued if the information or document is reasonably required by an HMRC officer for the purpose of checking a taxpayer's tax position. Tax position is very widely defined and includes past, present and future tax, and overseas taxes.
The requirement for "reasonableness" does not afford a taxpayer much protection.
Whilst at first blush it may seem that if a tax return has been submitted, no taxpayer notice may be served, this isn't in fact the case. If HMRC have reason to suspect that an amount should be assessed on a taxpayer, it can issue a notice even though a tax return has been submitted.
HMRC's compliance manual does admonish HMRC officers to consider whether a Schedule 26 notice is an appropriate way to obtain information, and that the officer "should choose the power that is most appropriate and proportionate in the context of the particular compliance check".
What is also heartening is that there is an internal filter within HMRC that an officer who wishes to issue an information notice must test it internally (basically getting internal authorisation to do so). Such requests are not rubber stamped.