What to do when an information notice is unreasonable
Since the new approach to IR35 over a year ago now, HMRC are quicker to issue a Schedule 36 (information) notice in an attempt to coax the contractor into responding within the Revenue's time frame. This can, of course, be a very persuasive weapon with penalties for failing to comply starting at £300 and then increasing to £60 per day where such failure continues.
HMRC will normally have no hesitation in issuing an information notice if their original request has not been responded to by the deadline stipulated in their previous correspondence, although there are still one or two officers who are happy to take a more relaxed attitude and agree an extended deadline for providing information by less informal methods, such as a quick telephone conversation.
What can be done when you need more time to comply with a Schedule 36 notice and HMRC won't relent? Are you doomed to a penalty? Not necessarily, as there is a right of appeal against information notices which is exactly what Mr Deegan did and was the subject of a recent First Tier Tax Tribunal hearing.
In November 2011, HMRC opened an enquiry into the taxpayer's 2010 Self Assessment Tax Return. Documents and information were provided, some in response to Schedule 36 notices. At least one meeting took place between the two parties and correspondence between HMRC and Mr Deegan's accountants was exchanged.
On 5th December 2012, HMRC wrote posing various questions and seeking various documents and saying:
“Please let me have a reply to this letter by 18 January 2013. I am concerned at the length of time taken to progress this enquiry. If for any reason you are unable to reply within the proposed timescale then please contact me accordingly.”
The accountants replied on 10th January 2013 explaining that they would not be able to respond until early February due to the pressures of Self Assessment deadlines.
HMRC wasted no time in issuing a formal information notice on 25th January requesting details concerning various motorcycle sales, which was one of the matters contained in their letter of 5th December. The deadline for complying was 30 days after the receipt of the Notice.
On 14th February the accountants, Parkers Accountancy & Taxation, appealed the Notice and argued the following points at Tribunal:
- HMRC's conduct was wholly unreasonable. Whilst the Revenue routinely issue Schedule 36 notices during enquiries to exert pressure on taxpayers and their agents, HMRC are not as quick to answer queries. Parkers described HMRC as a “hideous organisation” and the firm had lodged 17 complaints against them in May alone.
- It was accepted that the information being sought was relevant to the enquiry. HMRC's letter of 5th December had not been ignored and more time had been sought to comply with the request because of the Self Assessment silly season that is January of each year. For HMRC to issue a formal notice was therefore unnecessary and unreasonable. Previous delays had been caused by the accountant’s workload and their client's business commitments.
- All the material listed in the Notice had since been assembled and was ready to be submitted. As such the Notice should be withdrawn.
HMRC's response was:
- During the enquiry there had been a catalogue of delays in providing information, hence it had been necessary to issue formal notices early in the enquiry. Before issuing the Notice, the Inspector was required to obtain the consent of his manager and both had felt it was merited.
- The deadline of 28th February took into account Parkers undertaking to produce the information in February.
- HMRC dealt with correspondence promptly and had never taken any longer than a month to deal with correspondence.
As Mr Deegan accepted that contents of the Notice were relevant to the enquiry there were no grounds for varying its terms. The only variation that the Tribunal could make was to extend the deadline, which they duly did to 19th July 2013.
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