04/06/24

HMRC Schedule 36 Notices | HMRC Investigations

HMRC Schedule 36 Notices | HMRC Investigations
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When conducting HMRC investigations, as part of its obligations to ensure that all individuals and corporates, pay the correct amount of Tax for which they are liable, HMRC, as the UK’s tax authority, may implement a HMRC Schedule 36 Notice under the Finance Act 2008 (‘the Act’).

These Notices enable HMRC to demand, when reasonably required, the production of information and documents for inspection and to conduct inspection of sites.

HMRC cannot request the production of a document unless that person has possession or the power to produce it.

Tim Thompson of KANGS outlines the operation of HMRC Schedule 36 Notices.

HMRC Schedule 36 Notice Procedure

General Procedure

HMRC will generally pursue its enquiries in an informal manner provided the taxpayer cooperates. Where the taxpayer fails to co-operate in a satisfactory manner, for example by delaying too long or not producing adequate information, HMRC may exercise its statutory powers.

However, HMRC is not required to proceed informally and may issue a Schedule 36 Notice straight away, especially where tax evasion or fraud is suspected.

There are five different types of Information Notices being:

  • Taxpayer Notices,
  • Third-party Notices,
  • Financial Institution Notices,
  • Notices relating to a person whose identity is unknown,
  • Notices relating to a person whose identity is unknown but is capable of being ascertained.

Paragraph 21 of Schedule 36 of the Act lists the following four scenarios where HMRC can make an Information Request once a taxpayer has submitted a relevant tax return, when:

  • there is a valid and open enquiry into the tax returns or claim,
  • HMRC has a ‘reason to suspect’ an under-assessment,
  • information is required by HMRC to enable it to check a taxpayer’s tax position in relation to tax other than Income Tax, CGT or Corporation Tax.
  • information is required to check the taxpayer’s tax position in relation to deductions, repayments or the withholding of tax.

Disclosable Documents

HMRC can require relevant documents, when reasonably required and within the individual’s possession including:

  • Invoices
  • Time Sheets
  • Due Diligence Documents
  • Attendance Notes
  • AML and KYC documents
  • Contracts

Reasonably Required

Paragraph 1(1) of Schedule 36 of the Act, enables HMRC in writing to require a taxpayer to

  • provide information, or
  • produce a document,

if the information or document is reasonably required for the purpose of checking the taxpayer’s tax position or for the purpose of collecting a tax debt of the taxpayer.

Normally, HMRC will not request information or documents:

  • created more than six years ago on the assumption that the time limit for an assessment will have expired. However, where HMRC suspects fraud, the limit could be extended to twenty years.
  • relating to personal records,
  • provided by tax advisors, auditors and legal professionals which relate to their professional services.

Documents ‘in possession.’

A person cannot be required to produce a document unless

  • it is in their possession, or
  • they have the power to produce it.

The Civil Procedure Rules 1998 state:

‘Duty of disclosure limited to documents which are or have been in party’s control.

31.8— (1) A party’s duty to disclose documents is limited to documents which are or have been in his control.

   (2) For this purpose, a party has or has had a document in his control if—

   (a) it is or was in his physical possession,

   (b) he has or has had a right to possession of it; or

   (c) he has or has had a right to inspect or take copies of it.’

Power to Inspect Business Premises

The Act states:

’10 (1) An officer of Revenue and Customs may enter a person's business premises and inspect—

   (a) the premises,

   (b) business assets that are on the premises, and

   (c) business documents that are on the premises,

if the inspection is reasonably required for the purpose of checking that person's tax position.

(2) The powers under this paragraph do not include power to enter or inspect any part of the premises that is used solely as a dwelling.

(3) In this Schedule—

“business assets” means assets that an officer of Revenue and Customs has reason to believe are owned, leased, or used in connection with the carrying on of a business by any person.

“business documents” means documents (or copies of documents)

   (a) that relate to the carrying on of a business by any person, and

   (b) that form part of any person's statutory records, and

“business premises,” in relation to a person, means premises (or any part of premises) that an officer of Revenue and Customs has reason to believe are (or is) used in connection with the carrying on of a business by or on behalf of the person.’

Penalties and Appeals

A HMRC Schedule 36 Notice can be appealed in full or in part, in writing within thirty days of receipt, to the First-tier Tax Tribunal.

The Appeal can only allege that certain documents or information falls outside the scope of what is reasonably required. The Tribunal has the power to confirm, vary or set aside the Notice in its entirety or specific parts.

Failure to respond to an Information Notice may result in the following:

  • failure to comply or obstructing HMRC: £300.
  • daily default penalties: up to £60 per day.
  • increased daily penalties where default exceeds 30 days: up to £1,000 per day.
  • tax-related extreme default penalty.
  • inaccurate information and documents: up to £3,000.

How Can We Assist?

HMRC Schedule 36 notices and other forms of tax investigations can be lengthy, complicated, and stressful to all concerned, whether an individual or corporation. Upon becoming aware of any form of investigation, immediate legal assistance should be obtained.

Strict time limits for compliance with any form of Notice may well be imposed requiring prompt attention to the compilation of all documentation which may be required to respond to any requests or rebut any allegations.

The Team at KANGS is experienced at responding under pressure of imposed time limits to any form of Notice served by HMRC and will be delighted to assist.

Should you require expert advice and guidance our Team would be thrilled to hear from you. We welcome enquiries by:

Tel:       0333 370 4333

Email: info@kangssolicitors.co.uk

We provide initial no obligation discussion at our three offices in London, Birmingham, and Manchester. Alternatively, discussions can be held through live conferencing or telephone.

Hamraj Kang

Hamraj Kang
Senior Partner

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Tim Thompson

Tim Thompson
Partner

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John Veale

John Veale
Partner

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