< Go Back HMRC - Access to Personal Bank Statements and Information Notices Posted: Jan 23, 2019 A recent First Tier Tax Tribunal (FTT) decision appeared to have shifted the goalposts in favour of HMRC in Carol Holmes & Andrew Knight (TC06824).
, HMRC may issue a notice (information notice) to any taxpayer requiring the production of information or documents that are "reasonably required for the purpose of checking the taxpayer’s tax position". A taxpayer can appeal against the notice (or any part of it) on the grounds that the information or docummentation requested are not 'reasonably required' for that purpose. The exception is any information that forms part of the taxpayer’s "statutory records”, no appeal is permitted in that case. Statutory records are defined as any information or documents which the taxpayer "is required to keep and preserve under or by virtue of" the taxes acts. In addition; FA 2008, Sch 36 para 1 requires any person who has to make a self assessment return to keep and preserve "all such records as may be requisite for the purpose of enabling him to make and deliver a correct return". TMA 1970 s12B
The appellants are directors of Seal Designs Ltd. Their 2015/16 tax returns showed income from employment and dividends, but both omitted small amounts of interest. As part of an enquiry into the returns, HMRC issued information notices requesting:
All bank and/or building society books or statements for accounts into which any personal income or from which any personal expenditure was paid for the period 6 April 2015 to 5 April 2016. Certificates or statements of any investment accounts held personally such as ISAs or bonds, showing any interest received and movement of capital from 6 April 2015 to 5 April 2016. For each deposit into each investment account, a description of the source of funds.
The directors provided interest certificates identifying bank accounts, savings accounts and a joint mortgage account, but objected to providing anything further and appealed against the notices.
Are the Private Accounts Statutory records?
If the information and documents requested proved to be part of the directors’ statutory records, their appeal fails. The judge decided that HMRC did
not have an absolute and unchallengeable right to call for these documents, as he couldn’t determine whether the documents amounted to statutory records. Are they Reasonably required?
Information, which is not part of the statutory record, can only be included in a notice if it is 'reasonably required for the purpose of checking the taxpayer’s tax position'. As there is no judicial authority on who has the burden of proof in these instances; the judge decided to assume, 'for present purposes only', that HMRC should demonstrate that the information was reasonably required. In an earlier case,
Spring Capital Ltd TC04220, it was decided that HMRC was entitled to undertake ‘fishing expeditions’ when checking tax returns. The HMRC officer does not need suspicion in order to check a tax return and all HMRC need show is that their request for information is 'reasonable'.
In this case, there was a disparity between the directors’ declared income and their personal expenditure, including capital injections into their company. Whilst there may have been innocent explanations for these concerns it could also be indicative of an understated or undeclared source of taxable income. It is part of HMRC’s legitimate enquiries to determine which is the case; the judge considered it was not unreasonable for HMRC to call for documents which would help explain the matter. HMRC's actions did not amount to a disproportionate interference with the appelant's right to privacy.
The information was therefore reasonably required and the appeals were dismissed.
Any other limitations on Sch 36 Notices?
Meanwhile, in another case,
Michael & Flora Hegarty TC06908, the Tribunal considered if an information notice requesting documentation or information for a period beyond HMRC's ability to assess was reasonable. HMRC may assess up to 4 years for any error, if an error or omission was due to the taxpayer being careless, that is extended to 6 years and, in the case of deliberate conduct by a taxpayer, to 20 years. In Hegarty, HMRC had issued notices requesting information for a period that they could only assess if there was deliberate conduct.
The tribunal decided that it was not reasonable for HMRC to request information for a period of time that they could not assess. The Tribunal also noted that there must be a consideration by HMRC when issuing a notice to their ability to assess the period and, in particular, the potential use of 'discovery assessments' under
which would require reasonable evidence of deliberate conduct to assess beyond the 6 year period for careless conduct. There was no evidence to suggest any error was casuse dby deliberate conduct and so HMRC were unable to assess the years concerned in any event. The Judge's final comment suggested that HMRC had, "missed the boat and should move on". S29 (4) TMA 1970 Conclusion
The two cases, above, demonstrate the wide ranging issues, dependent on the particular facts of each case, that need to be considered when challenging a notice for information and documentation from HMRC. The relevant legislation is widely worded and the interpretation by the Tribunal tends to allow HMRC sufficient leeway to be able to check a tax position, even if they cannot yet say if something is wrong. Taking the mantra in Hegarty would lead us to say that the time period in any notice must be commensurate with the nature of the taxpayers alleged behaviour and unless HMRC can sensibly argue that the taxpayers conduct is careless, they are restricted to 4 years, careless will extend that to 6 years but beyond that HMRC must demonstrate some form of deliberate action led to a loss of tax.
The only certainty is...it all depends on the facts!
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