HMRC are Not All Powerful

Reality check for Revenue over use of powers

Whilst HMRC possess extensive powers to enquire into a taxpayer’s affairs, there is a danger in thinking and accepting that what HMRC says goes. That is not the case and taxpayers should be aware that HMRC cannot simply ride rough shod over all and sundry.

Schedule 36 Finance Act 2008 contains information powers that enable HMRC to extract documents and information that are “reasonably required” to check a person’s tax position. However, this does not give HMRC carte blanche to ask for everything and anything as there are conditions that HMRC must follow for the notice to be enforceable. This was something that the Revenue failed to observe in the recent First Tier Tax Tribunal case of Anstock v HMRC (2017).

On 1st April 2014, HMRC sent Mr Anstock a letter informing him that they were in possession of information “that gives us reason to suspect that you have committed tax fraud” and that an investigation would ensue. A meeting followed a few months later, between HMRC and Anstock and his advisors, at which various topics were discussed. On 19th June 2014, HMRC issued a letter to Anstock informing him that enquiries were being opened into The Kathryn Stud, Haldanes Partnership and Newhaven Ltd.

A further meeting took place on 1st April 2016 but there were a number of points with which Mr Anstock disagreed.

On 27th May 2016 HMRC sent a letter to Anstock seeking information and documents. It wasn’t until 13th July that Anstock responded to this but, in the meantime, HMRC had issued an Information Notice dated 5th July. As no specific response was given to this notice, HMRC imposed a £300 penalty for alleged non-compliance on 16th August. This was appealed by the taxpayer.

For the Information Notice penalty to be enforceable a number of fundamental requirements had to be met:

1. HMRC must prove that the Information Notice was properly sent to and received by the taxpayer. In many cases that will involve no more than demonstrating that the taxpayer has acknowledged receipt of the notice. If HMRC could prove that it had been sent, then they could rely upon the presumption of delivery by post; and
2. The notice sets out precise, clear and unambiguous requests for relevant information and documents, so that the notice could be readily understood and complied with. This was essential as a person cannot be subject to a penalty for being in breach of an obligation unless he is made aware of that which must be done to avoid such a penalty; and
3. If the first two criteria are satisfied, was there substantial compliance with the notice?

HMRC sought to assure the tribunal judge that the letter had been sent but they failed to prove that it was more probable than not that the notice was (i) sent to Anstock and/or (ii) received by him. For that reason alone the appeal would succeed.

Even if HMRC had been able to overcome the first hurdle, the appeal would still succeed as, in the words of the judge, “The Notice offends just about every tenet for the proper drafting of a document which is intended to have legal effect.” The notice was so poorly drafted that Mr Anstock could not know precisely what it was that he was required to provide. It proceeded on the erroneous basis that Anstock could be expected to provide documents/information held by third parties, in particular companies of which he either is or was a director. That information and documents were the property of the company and nobody else and HMRC have ample powers to obtain information from third parties.

A property in Coventry Garden was referred to in the notice with the request, “please provide further information about this property and any others HMRC has not been made aware of.” There was nothing whatsoever to indicate what type of information was being requested and it was not for the taxpayer to guess what was being asked for. The request for unspecified information about properties the Revenue had not been made aware of was singularly unfair and incapable of being understood.

The notice also requested “fee lists for any companies within the Newhaven Group structure, whether in the UK or overseas from 2010 to date”, without explaining what was meant by a “fee list” or “Newhaven Group Structure”.

So poorly thought through and so inadequately drafted was the notice that it failed the requirement of certainty and precision. The judge said that it was unacceptable for HMRC to argue that some of the details about requested information might have been gleaned by looking at the earlier correspondence.

Mr Anstock’s appeal was therefore allowed and the £300 penalty quashed.

As wide ranging as HMRC’s powers may be, the department cannot carry out ‘fishing’ expeditions and where they do issue Information Notices these must be precise and specific and the information and documents requested be capable of being obtainable by the taxpayer.

This article is provided by Qdos Accounting.