At first, HMRC may seek information from taxpayers on a voluntary basis. If this approach proves fruitless, HMRC may then exercise its statutory powers to obtain documents and information that allow them to check tax positions or to collect tax owed.
Such powers can only be used if they are reasonably required for:
- Checking a tax position.
- Collecting tax owed.
‘Tax position’ is widely defined and covers:
- Past, present, and future liabilities.
- Penalties
- Claims, elections, applications, and notices that have been or may be made or given in connection with [the person’s liability to pay] any tax, and references to a person’s position as regards a particular tax (however expressed) are to be interpreted accordingly.
Reasonably required
According to HMRC guidance, ‘reasonably required’ means getting the balance right between:
- the burden put on someone to provide the information, and
- how important the information is in deciding on the correct tax position.
HMRC is only required to demonstrate that the information or documents are reasonably required for its investigation, not that the investigation is reasonably required.
Information notices
To exercise its statutory information powers, HMRC must issue an information notice, which requires a person to provide information or documents. The notice must be expressed clearly so the parties can understand whether it has been complied with.
In statute, there is no minimum period for compliance with an information notice, although it does state it must be a reasonable period. HMRC guidance suggests, as a 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. There is also reference in HMRC guidance to considering reasonable requests for extensions of time to comply with information notices.
Types of information notice
There are five types of information notice, namely:
- taxpayer notices
- third-party notices
- financial institution notices
- identity unknown notices, and
- identification notices
Appeals against information notices
A person who is issued with a taxpayer notice or a third-party notice may appeal against the notice or any requirement in the notice, except in cases in which:
- There is any requirement in a taxpayer notice to provide any information, or produce any document, that forms part of the taxpayer’s statutory records.
- If the First-tier Tax Tribunal approved the giving of the notice.
Penalties
There are penalties for:
- Failing to comply with an information notice.
- Concealing or destroying (or arranging the concealment or destruction of) of a document that is the subject of an information notice.
- Providing inaccurate information in response to an information notice (subject to some exceptions where the inaccuracy has taken place despite the person taking reasonable care.)
- Breaching a requirement not to disclose a notice or anything relating to it.
There is a right of appeal against some penalties, for example where there is a reasonable excuse for non-compliance with an information notice. On appeal, the FTT can change the amount of the penalty, if it so wishes.
The amount of the penalty for failing to comply, or concealing or destroying documents is linked to how long the failure continues, so the penalty can be significant. If necessary, HMRC can also apply to the Upper Tribunal for the enforcement of an additional, potentially unlimited, penalty, the sum of which should reflect the amount of tax in contention.
Contact James Edes today for advice.
Find out more on HMRC’s powers relating to Landfill Tax here and the consequences of non-compliance here.