Challenging HMRC information notices
HMRC has extensive information powers. An HMRC officer can issue a notice requiring a taxpayer to provide information or produce documents that the officer 'reasonably requires' for the purposes of checking that taxpayer's 'tax position' or 'collecting a tax debt'.
When faced with a demand by HMRC for information, taxpayers and their advisers understandably normally comply as best they can, and seek to resolve any dispute as quickly as possible. Sometimes recipients of HMRC’s demands (mistakenly) assume that it is simply a case of HMRC asserting the ‘reasonableness’ of its investigations, and that information notices are in practice impossible to challenge. However, in cases where HMRC’s requests are unreasonable, taxpayers and their advisers might well consider challenging the notice and seeking for it to be varied or set aside.
There are a number of statutory protections, including the fact that if a tax return has been submitted an information notice can normally only be given if a valid enquiry notice has been issued by HMRC into that tax return. What about investigations into earlier years, where a tax return was submitted, and HMRC is no longer able to issue an enquiry notice? In such situations, to issue an information notice an HMRC officer has to show that he has “reason to suspect” that there is an under-assessment (FA 2008, Sch 36, para 21(6), condition B). The vital point here (not always observed by HMRC) is that there is an onus on the officer to be able to show why he has ‘reason to suspect’.
HMRC’s published guidance is less clear than it ought to be on this point (see for example HMRC’s Compliance Handbook at CH23560 which merely suggests that an officer be able to ‘identify specific risks’). A number of recent tax cases – from Betts (2013), through to Hackmey (2022) have seen taxpayers successfully challenge HMRC information notices which failed this statutory test and where officers were unable to provide evidence that satisfied the court. An officer may desire additional background information for an earlier year but this alone is insufficient to justify the issue of a notice and may be seen as no more than fishing.
HMRC must be able to both show reasonable grounds (based on evidence) to suspect an insufficiency of tax and that the information sought by the notice is reasonably required. Possible challenges should be considered in all formal information notices (even in COP9 cases, which have specific considerations of their own) . In the absence of HMRC being able to show why it holds suspicions, an information notice might be successfully appealed.
