HMRC formal notice for information: traps and entrapment

The first Schedule 36 notices requesting information were issued in the last week of November 2020. Ironically, the new taxpayer’s charter, HMRC’s Charter, was published on the 5 November 2020. You would think a newly published Charter would be fresh in an officer’s mind but apparently not.

A formal notice for a taxpayer to provide information may be issued immediately. Normally they are only issued immediately in some circumstances: If the taxpayer has refused to comply with an informal request or failed to provide all the information and documents requested informally by the specified or agreed date.

A formal notice must be given in writing and may:

• require information or documents which are:
  1. reasonably required for the purposes of checking the tax position of the relevant person; and
  2. within the person’s power or possession;
• require the recipient to create new documents, e.g. explanations or data lists; and
• provide the recipient with a reasonable time to respond and comply.

The Taxpayer’s Charter includes provision for ‘treating you fairly’, ‘being aware of your personal situation’ and ‘recognising that someone can represent you’.

The Charter doesn’t actually specify what treating someone fairly looks like although it seems reasonable that to treat someone fairly means to treat them equally with other taxpayers, after all ‘taxpayers lives’ matter’. The Charter stipulates that ‘We’ll assume you’re telling the truth, unless we’ve good reason to think you’re not’. Fortunately, the Charter doesn’t state that if HMRC ‘assume you’re not telling the truth, they will ignore treating you fairly’.  What isn’t clear is, if there is a trigger point that means they won’t treat a taxpayer fairly. The only reason this point is of interest is because there are still clear inconsistencies on how HMRC treat taxpayers.

The new Charter also has provision for being aware of a taxpayer’s personal situation. There is increased focus on personal circumstances and accepting mental health issues, so the provision is welcomed. Although, do HMRC try to ascertain a taxpayer’s personal situation? Even when HMRC are aware of the personal situation, are they ‘mindful’ and do they give extra support?

HMRC suggest they will respect your wish to have an agent act for you. An agent needs to be appointed and this may be through form 64-8 or a comp 1. It appears that unless the ‘standard expected of professional agents’ is not met, HMRC won’t refuse to work with a professional. Although, recent acts may suggest that HMRC may still be unnecessarily difficult.

We don’t make comments lightly – any suggestion that a Government body does not behave in the manner they set out to is obviously of grave concern. You wouldn’t expect a politician to behave in a manner not appropriate for their office, would you?

“Further to your letter of [] issuing a Schedule 36 Information Notices, the notice is dated [] and the ‘reasonable time’ given to provide the extensive information requested is fourteen days. You also required an appeal by this date. Guidance has historically indicated a minimum 30 days is provided although the law requires the request to be simply a reasonable amount of time.

In the situation and given it can take up to ten days for post to work its way through HMRC’s postal system we are firmly of the opinion that the time provided is not reasonable.

We further question what motivates an officer upon the approval of a senior officer to issue a notice without providing a reasonable time to respond. In this situation, it appears the notice was issued knowing that the taxpayer would not be able to respond. We will consider what, if any, further action we will require in this regard but kindly request your explanation in the first instance.”

For a client receiving a letter on say the 10th of the month and dated the 7th of the month, allows 11 days to prepare and respond. A request with a short time to respond would indicate HMRC consider the information could be provided with ease. Guidance suggests thirty days be provided to respond. Anything less than thirty days may be ‘unfair’ unless the request can be responded to with ease. HMRC’s Compliance Handbook (CH23420) states “It might be reasonable to expect a person to comply with a notice to provide simple information or produce a readily available document within a fairly short period.” It also states:

“As a general rule of thumb, it might be reasonable to expect that most information or documents could be provided or produced within 30 days from the date of the notice but may need to be longer around a business’s seasonal peaks.”

In this situation, the same request was made for a significant number of companies under common control. This may indicate the seriousness of HMRC’s enquiries. However, the approach does not consider the time-frame to respond and instead appears to be tactically applying pressure. Reasonableness is considered for each information request independent of the other although HMRC should take into consideration any personal restrictions complying with a request. HMRC would obviously not set out to make taxpayers fail to comply, would they? CH23420 states “Each notice should be judged on its own merits.”

CH23420 also sets out that an information notice should specify a reasonable period within which the person must provide the information or the documents. Neither legislation nor guidance provides for a minimum period although it must be reasonable and “must take account of the nature of the information or documents required and how easy it will be for the person to provide or produce them”.

HMRC’s information powers include powers to inspect:

• Business premises,
• Business assets,
• Tax related statutory records of a business if reasonably required for the purposes of checking the tax position,
• Goods on premises and documents in any circumstances where the officer reasonably believes that the premises are being used for certain VAT purposes,
• Any premises and any property on the premises, to value, measure or determine the character of the premises or property if the valuation is reasonably required for the purposes of checking any person’s position in relation to one of a number of taxes, and
• Business premises, business assets, and relevant documents of an involved third party if reasonably required for the purposes of checking the tax position of any persons or class or persons in relation to specific taxes and taxable events.

CH24300 states that an officer visiting business premises may informally request documents not included on a notice previously issued and they may be voluntarily provided, or the taxpayer may prefer a notice to be issued: “You may issue the notice requiring production of the documents there and then.” The taxpayer may refuse to produce the documents if they wish to appeal against the notice.

CH243300 also states an officer should consider carefully any reasonable request the person makes for more time to comply with an information notice, although in practice that guidance may be ignored on occasion:

“I note your four questions and having only been appointed we have yet to review the detailed arrangements that were put in place to our satisfaction. You will appreciate that our email to you was only a week ago and the time to respond you have suggested was and remains unreasonable. Furthermore, your suggestion that it is reasonable to permit a response by [Date 1] indicates HMRC consider in light of our appointment an alternative time frame is reasonable.  Although I note we suggested the [Date 1 + 1 week] and you have not indicated why in light of the circumstances a week earlier is reasonable. Furthermore, I am not aware, in the legislation or case law regarding what is a reasonable time period to respond being dependent on the proviso we respond to some of the questions you raise within a week of communicating our appointment to HMRC.”

It would appear that the guidance, which states “Where appropriate you should extend the period to take account of any new or relevant factors” is ignored both having disregard for treating a taxpayer fairly and recognising they may be represented by an agent.

If HMRC are willing to take this approach, those taxpayers without specialist advisers appointed are vulnerable.

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