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In 2009 new powers to force people to provide information to HMRC were brought into force to make it easier for HMRC to gather information.
Despite assurance that these powers would not be abused it would appear that as with most such assurances they have come to nothing. HMRC staff have been instructed to issue information notices at an early stage, regardless of the circumstances, and accountants and individuals will soon find themselves at the forefront of this unreasonable approach by HMRC.
Is this to improve the quality of cases as they have suggested to us? Or merely a way of getting more fines by making unreasonable requests, with insufficient time given so that people who are not represented properly end up paying thousands of pounds in fines?
HMRC will also then use the imposition of these fines to restrict penalty mitigation if any tax is due and this will add more costs for individuals merely by the fact that HMRC are, in our opinion, abusing their powers to send out information notices.
HMRC are now sending requests for information to taxpayers and if it is not provided in the time scale they suggest (and we have seen a 21 day deadline where the post has taken 10 days from leaving HMRC to arriving at our client) then HMRC are in many cases automatically issuing formal information notices. If this information notice is not complied with or appropriate action taken, then an initial fine is imposed of up to £300 for failing to comply with the information notice. In addition to this fines of up to £60 per day can be imposed for each day after the initial penalty is determined and the information provided. This equates to £1830 for 30 days.
Thus when anyone receives a formal information notice they should take this very seriously otherwise they could be looking at a total fine of £2,130 for a 30 day delay.
Realistically the process starts when HMRC send a request for the information informally. HMRC have due processes with regards to what information they are allowed to ask for and why they ask for it.
Out of all of the information notices we have seen as a firm, there has not been one information notice which follows these due processes.
So the first thing to do when you receive an information notice is to look at it to see if it is valid.
Where HMRC request information they should have regard to the requirements and considerations as set out in their own guidelines and instructions as well as the requirements of the legislation.
Human Rights Act Restrictions:
It is recognised in law that, with regard to information requests, Article 8 of the Human Rights Act (HRA) applies and in order to be valid the request must not breach the overrides to the legislation set out in Article 8(2).
In HMRC's own words, when issuing information notices they should consider the following:
"Any activity that intrudes upon a person's privacy must be reasonable and proportionate to the underlying needs if it is to comply with the conditions of Article 8(2)."
Every request for information should be considered on its merits but that the information request must be reasonable and proportionate and HMRC must consider:
It is also a requirement that the information requested should relate to the tax position being considered. It is therefore a key consideration that before any information notice is issued HMRC officers should ask themselves as to what this information has to do with the tax position being considered.
HMRC should be able to show why seeking the information may help:
Again this is something that HMRC do not do.
A prime facet of the legislation is that the information must be reasonably required to check the tax position of the individual.
This partly links back to the fact that it can only be reasonably required if it relates to a tax position and "reasonably required" (once it has been established that it relates to a tax position) is getting the balance right between:
Again this is something else HMRC do not appear to consider when information notices are issued.
On many occasions when asked to justify why it is reasonable to request the information the response is "it is reasonable, because I think it is reasonable" we will not put what our response to this is.
Quantum of Information Requested:
HMRC have detailed instructions relating to "what to ask for and when to ask for it".
This states that HMRC should aim to gather all of the information it is reasonable, at that point in time, to examine for the purpose of the check.
This implies that before any information is requested that in that particular case each and every request for each and every piece of information should not only be considered for the purpose of the HRA, whether it relates to a tax position, and whether it is reasonably required, but also if it is appropriate to ask for it at that moment in time.
Again it is our experience that this does not occur.
It is our experience that HMRC appear to have various templates which they just send out without any consideration as to the wording or content, indeed we have seen ones with the wrong reference number and name which are obviously just information notices that have been used before.
This goes against what HMRC are supposed to do when sending out an information notice as it should be specific considered and focused not a generic catch all notice.
If the information has been informally requested and an information notice has not been issued then we always try to speak and be reasonable with HMRC. This approach used to work and still does on occasions. You should consider whether the information exists and if so what relevance it has to the tax return being checked. It is surprising how many items have no relevance to the particular circumstances of the client.
If a reasoned approach does not work and HMRC insist that they will be issuing an information notice then we would initially write to HMRC and point out what they are supposed to do with regard to the information notice and ask them to explain each of the above headings for each point on a line by line basis. Experience shows that they cannot. They do sometimes write a wholly inadequate letter back.
If an information notice is received then we would always recommend a protective appeal. HMRC need to be made aware that it is for them to justify their request to the Tribunal, not for you to defend why it should not be provided.
This both stops the clock on the issue of penalties but also causes delays so that information you agree is appropriate can be gathered and sent.
The appeal has to be correctly worded and have genuine reasons for appeal but HMRC should have given sufficient ammunition in the information notice to enable an appeal to be justly made.
There are no rights of appeal with regards to statutory information, but this is really only basic business books and records. On many occasions we have seen information notices where HMRC have described things under the heading of statutory records which are clearly not statutory records.
Again this can be appealed to the Tribunal.
Generally accountants and HMRC have worked well together to get the records and information which is relevant to an enquiry sent to HMRC. This process is now starting to be undermined by HMRC’s insistence on short time scales between HMRC writing and them issuing information notices.
Accountants reading this will no doubt have noticed that more and more letters from HMRC insist on them replying by a certain date. This is the start of information notice requests for not only records but responses to letters.
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"We understand that people sometimes make mistakes in their dealings with HMRC and that HMRC make mistakes in dealing with taxpayers. Many people do not know how to deal with HMRC or who to turn to for help resolve the tax dispute.
Our firm of tax advisors specialise in resolving people's problems with HMRC. We have extensive expertise in dealing with all forms of tax investigations and tax disputes as well as with taking matters to the Tax Tribunal where agreement cannot be reached.
We deal both directly with the individual who is under enquiry and also work with many firms of accountants supporting them in dealing with HMRC disputes and advising them on how to handle HRMC to get the best result.
The fact is that proper management of HMRC is the best way of reducing the tax, interest and penalty as well as the time taken in resolving any tax dispute.
Our expert team are none judgemental and rigorously defend your position within the scope and parameter of the law. We take control and manage the process to minimise the interruptions that any form of tax investigation causes to an individual's life and business."