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Where Taxpayers and Advisers Meet
No Suspicion Needed!
07/08/2020, by Mark McLaughlin CTA (Fellow) ATT TEP, Tax Articles - Tax Investigations & Enquiries
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Mark McLaughlin points out that HMRC’s power to request information or documents may be wider than some taxpayers appreciate.

Introduction

Where a taxpayer is unfortunate enough to be subjected to an enquiry into their tax return, it is not uncommon for HM Revenue and Customs (HMRC) to issue a formal notice requiring the taxpayer to provide information or produce documents which HMRC considers is ‘reasonably required’ to check the return (FA 2008 Sch 36 para 1).

For example, in Holmes & Anor v Revenue and Customs [2018] UKFTT 678 (TC), the taxpayers (directors of the same company) filed self-assessment returns for 2015/16 disclosing identical income from employment and dividends from the company. HMRC opened enquiries into both returns, and subsequently issued information notices requiring the taxpayers to provide information and documents including personal bank statements, details of investment accounts and explanations as to movements of capital and sources of deposits in relation to those investment accounts for the year of enquiry.

Is the Information ‘Reasonably Required’?

The taxpayers appealed on the grounds that the documents and information:

(1) Were not ‘statutory records’ (there is no right of appeal against an information notice requiring statutory records); and

(2) Were not reasonably required to check the taxpayers’ tax positions.

On ground (1), the First-tier Tribunal (FTT) was not satisfied that the information and documents required by the information notices were statutory records.

However, on ground (2) the FTT considered that HMRC can check a tax return without needing to have any suspicions in relation to that return before checking it. There was evidence before the FTT of a disparity between the taxpayers’ declared income and their personal expenditure. There may be a perfectly proper explanation for the apparent disparity between income and expenditure, consistent with the tax returns made, but HMRC was at the stage of gathering documents and information. In the FTT’s view, the taxpayers could be reasonably required to produce the documents and information in the information notices.

‘Fishing Permit'?

The tribunal in Holmes and Anor noted an earlier case, Spring Capital Ltd v Revenue and Customs [2015] UKFTT 8 (TC), in which the taxpayer company appealed against an information notice and argued (among other things) that the information and documents requested by HMRC were not reasonably required on the basis that the information notice was a ‘fishing expedition’ (i.e. seeking to investigate the taxpayer’s return without having any reason to suspect it was wrong).

However, the FTT in that case dismissed this argument, stating: “HMRC are entitled to check the taxpayer’s tax position and they are entitled to any documents or information reasonably required for the purpose of doing so. In other words, HMRC are entitled to undertake ‘fishing expeditions’ when checking returns: they do not need suspicion to check a tax return.”

From the Horse’s Mouth

Nevertheless, in some cases it may be helpful to refer HMRC to the internal guidance in its Enquiry manual (at EM1570): ‘…you should only ask to see private bank statements at this stage [on opening the enquiry] if you can demonstrate their relevance to the return and that you reasonably require them for the purpose of checking its accuracy’ (emphasis added).

The above article was first published in Property Tax Insider (June 2019) (www.taxinsider.co.uk).

About The Author

Mark McLaughlin is a Fellow of the Chartered Institute of Taxation, a Fellow of the Association of Taxation Technicians, and a member of the Society of Trust and Estate Practitioners. From January 1998 until December 2018, Mark was a consultant in his own tax practice, Mark McLaughlin Associates, which provided tax consultancy and support services to professional firms throughout the UK.

Mark  is a consultant with The TACS Partnership LLP (www.tacs.co.uk). He is also editor and a co-author of HMRC Investigations Handbook (Bloomsbury Professional).

He is a member of the Chartered Institute of Taxation’s Capital Gains Tax & Investment Income and Succession Taxes Sub-Committees.

Mark is Chief Contributor to McLaughlin’s Tax Case Review, a monthly journal published by Tax Insider.

Mark is the Editor of the Core Tax Annuals (Bloomsbury Professional), and is a co-author of the ‘Inheritance Tax’ Annuals (Bloomsbury Professional).

Mark is Editor and a co-author of ‘Tax Planning’ (Bloomsbury Professional).

He is a co-author of ‘Ray & McLaughlin’s Practical IHT Planning’ (Bloomsbury Professional) 

Mark is a Consultant Editor with Bloomsbury Professional, and co-author of ‘Incorporating and Disincorporating a Business’. This content is available as part of a number of Bloomsbury Professional's online modules.

He is Editor and co-author of ‘HMRC Investigations Handbook‘ (Bloomsbury Professional).

Mark has also written numerous articles for professional publications, including ‘Taxation’, ‘Tax Adviser’, ‘Tolley’s Practical Tax Newsletter’ and ‘Tax Journal’, which provides free information and resources on UK taxes to taxpayers and professionals, and TaxationWeb’s sister site TaxBookShop.

Mark is a Director of Tax Insider, and Editor of Tax Insider, Property Tax Insider and Business Tax Insider, which are monthly publications aimed at providing tax tips and tax saving ideas for taxpayers and professional advisers. He is also Editor of Tax Insider Professional, a monthly publication for professional practitioners.

Mark is also a tax lecturer, and has featured in online tax lectures for Tolley Seminars Online.

Mark co-founded TaxationWeb (www.taxationweb.co.uk) in 2002.

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