HMRC issued information notices to two landlords who hadn’t declared income from their let properties. Andy Keates explains why the challenges against those notices failed.
Facts (in brief)
The cases concerned information notices issued under Schedule 36, Finance Act 2008, and were heard by the FTT as Sarah Duncan and Khalid Mahmood.
Both taxpayers own and let a number of properties, but neither of them had notified HMRC of their chargeability. HMRC issued information notices to each of them concerning the properties. Their accountant (the same adviser for both) asked for additional time to respond, but in neither case answered the specific queries raised in the notices.
The taxpayers filed their tax returns, but these returns didn’t provide HMRC with enough detail to satisfy the requests in the information notices.
Eventually, both taxpayers received £300 fixed penalties for failing to comply with the notices. They submitted appeals against both the notices and the penalties.
In both cases, the tribunal upheld the notices and the penalties. The tribunal’s reasoning explores what aspects of an information notice can, and cannot, be challenged on appeal.
The legislation allows an officer of Revenue & Customs to call on a taxpayer to produce information and/or documents which are “reasonably required by the officer for the purpose of checking the taxpayer’s tax position”.
The notice is (and remains) valid as long as the information was reasonably required “at the time that notice was issued”. Subsequently filing a tax return might count as complying with the notice, but only if the return itself is complete and correct, and explicitly includes the information being sought by the notice.
Information not reasonably required can be subject to appeal. The tribunal struck out HMRC’s request for details of the “type” of each property (house, flat etc) on the basis that this information would not assist in establishing how much rent the taxpayers actually received.
Where the information notice requests submission of items which make up the taxpayer’s current “statutory records”, they can’t appeal against that part of the notice.
Statutory records are what the taxpayer is required to keep and preserve by virtue of tax legislation (such as TMA 1970 s12B). Items cease to be statutory records “when the period for which they are required to be preserved… has expired.”
In the case of someone carrying on a trade, profession or business (which includes the letting of property), that expiry date is the latest of:
- the date when any enquiry into that year’s tax return is concluded;
- the date when HMRC no longer has the power to open an enquiry into that year’s tax return; and
- The fifth anniversary of 31 January next following the tax year.
Until that expiry date, the taxpayer can’t challenge a requirement for information or documents included in an information notice insofar as it concerns statutory records. After the expiry date, HMRC would need to demonstrate that it was reasonably required.
The FTT noted the expiry date is not frozen by litigation. An item which was a statutory record on the day the notice was issued may no longer be one by the time the appeal comes to be heard. This means that, if there have been long delays, what had initially been an unchallengeable request for a statutory record can become fully challengeable on reasonableness grounds.
Something is an “old document” if the whole of the document originates more than six years before the date of the notice. Old documents can only be validly included in a notice on the sign-off of an “authorised officer” – a provision to deter HMRC from routinely calling for old records without good need.
However, there is no corresponding exclusion for information. Any officer can issue a notice requiring the taxpayer to draw up schedules covering periods covering more than the previous six years.
The exclusion also only applies to documents which were entirely finalised more than six years previously: the tribunal drew the distinction between, say, a completion statement on the one hand and an ongoing ledger on the other.
Finally, even if an information notice called for an old document without the requisite signature of an authorised officer, that doesn’t mean the whole notice can be challenged – merely the invalid item.
Information available elsewhere
The accountant argued that his client was not obliged to copy public records such as those at the Land Registry and send them to HMRC, and it was therefore unreasonable for HMRC to require their provision. The FTT rejected this argument as:
- documents concerning the purchase and sale of properties are statutory records for periods up to the expiry date;
- after that date, such documents are still reasonably required.
In this instance, the client had not provided enough information (such as addresses of the let properties) for HMRC to search the Land Registry database.
The statutory records provisions of TMA 1970 s12B only apply where an individual “may be required by a notice under section 8… to make… a return”.
The accountant argued that as Duncan had not been issued with notices to complete tax returns under TMA 1970 s 8, but had filed voluntary returns, her business records were not statutory records.
The tribunal dispensed firmly with this argument:
- “May be required” is not the same as “has been required”. It would be absurd if no-one was required to keep business records unless and until they were served with an s8 notice.
- The voluntary returns are irrelevant: as outlined in several recent cases (including in Patel), voluntary returns do not count for s8 purposes.
The accountant advising the taxpayers failed to overturn the notices for two reasons:
Some of the information asked for was statutory records. The law gives the taxpayer no choice: these records have to be provided when asked.
The information was reasonably required: the limited amount of detail supplied in the various returns meant that HMRC needed a lot more in order to be comfortable that those tax returns were complete and correct.