Under Schedule 36 of the Finance Act 2008, HMRC has the authority to request information from taxpayers to ensure tax compliance. This wide-reaching power allows HMRC to check an individual’s or company’s tax position, whether for routine checks or more in-depth investigations. Here’s an in-depth look at what Schedule 36 entails, the rights taxpayers have, and how best to respond if you receive an information notice.
What is Schedule 36?
Schedule 36 is HMRC’s main information-gathering power, designed to help them obtain details about a taxpayer’s financial situation. This authority lets HMRC request documents or other relevant information if they believe it’s reasonably required for verifying a taxpayer’s tax position. The term “checking” is interpreted broadly and includes all types of enquiries or investigations. For example, simply asking a question can count as an enquiry under Schedule 36.
A taxpayer’s “tax position” covers their status in relation to any UK taxes or foreign taxes under a double tax treaty agreement. Additionally, the scope of Schedule 36 extends to include the tax status of both deceased individuals and dissolved companies. However, HMRC can’t demand information for a period where they no longer have the right to raise an assessment.
Your Right to Appeal
Taxpayers do have rights under Schedule 36. If HMRC issues a notice, taxpayers can appeal the requirement, to the officer who raised the notice in the first instance and ultimately to the First Tier Tax Tribunal on the basis that the information requested is not reasonably required.
However, this right to appeal can be limited in certain situations. For example, if HMRC requests documents that are defined as “statutory records” under UK legislation, there is no right of appeal against that request but only where the notice itself isn’t defeated as not being reasonably required. The right to appeal also doesn’t apply if HMRC receives Tribunal approval to issue an information notice, though this scenario is relatively uncommon.
Information Notices and Compliance Requirements
When HMRC issues an information notice, it will clearly reference Schedule 36, indicating the legal basis for the request. This document will outline the exact information required and the timeframe for providing it. Ignoring an information notice can lead to serious penalties, so it’s essential to comply, even if you believe the request is unnecessary.
In practice, HMRC often begins with an informal request before issuing an information notice. However, some HMRC officers may escalate to a formal notice if they don’t receive a response to their informal request within the specified period. Taxpayers can appeal if they believe the information being requested isn’t reasonably required. Once filed, the appeal puts the information notice on hold until the issuing officer or the Tribunal decides the appeal.
Why It’s Often Beneficial to Appeal
Even if you’re willing to provide HMRC with the information they request, appealing the notice may still be in your best interest. Often, taxpayers prefer to present the information in a way that directly addresses HMRC’s questions, rather than adhering strictly to the format of an information notice. By providing a contextual explanation of relevant events, taxpayers can clarify complex situations and potentially resolve HMRC’s concerns more quickly.
Statutory Records and Ambiguities
HMRC sometimes claim that specific documents fall under “statutory records,” which, if correct, would eliminate the taxpayer’s right to appeal (if the information in the notice is reasonably required). However, what constitutes a statutory record can be the subject of dispute, and there are situations where this classification may be open to challenge.
Third-Party Information Notices
Schedule 36 doesn’t only apply to taxpayers directly; it also allows HMRC to issue an information notice to third parties, such as accountants, other professionals or financial institutions (now usually dealt with by Financial Institution Notices) with access to the taxpayer’s records. HMRC can only issue a third-party notice with either the taxpayer’s consent or prior Tribunal approval. If HMRC seeks Tribunal approval, they are required to submit all relevant information, including any objections raised by the taxpayer, for consideration.
Inspections of Business Premises
Under Schedule 36, HMRC also has the right to conduct physical inspections of business premises to review documents and assets. While this can be an unsettling prospect, it’s important to know what this inspection does and doesn’t involve. HMRC cannot enter private residences without a search warrant, and there are no penalties for refusing HMRC access to business premises at an inconvenient time—unless they have obtained prior Tribunal approval. Typically, HMRC will arrange appointments for such visits, but if entry is refused, they may return with a Tribunal-approved notice.
During these inspections, HMRC officers may request interviews with staff on-site, but taxpayers are under no obligation to provide oral information. Cooperating and providing some information may help to alleviate HMRC’s concerns. Taxpayers can choose which members of their team to make available for these discussions.
Steps to Take if You Receive an Information Notice
If you receive an information notice from HMRC, it’s vital to assess your options carefully. Here are some practical steps to consider:
- Review the Notice: Make sure you understand what information is being requested and why.
- Consider an Appeal: Even if you’re willing to comply, appealing may give you the flexibility to respond in a format that suits your situation better.
- Consult a Specialist: Tax law is complex, and responding to HMRC notices requires careful handling.
- Document Everything: Keeping records of your communication with HMRC is essential.
- Plan for Business Inspections: Designate appropriate staff members to meet with HMRC officers and address any concerns.
How We Can Help
Our tax team has extensive experience in dealing with Schedule 36 information notices and appeals. Whether you need guidance on responding to HMRC, want to appeal an information notice, or simply have questions about your obligations, we’re here to support you. Contact us to learn more about how we can help you handle HMRC enquiries with confidence.
If you need more information on Schedule 36, get in touch with Tax Investigations and Dispute Resolution Partner, Dion Laycock.
