Power Struggle - Understanding HMRC's Schedule 36 Rights
HMRC holds significant authority to ensure compliance with UK tax law, and one of its most powerful tools is found in Schedule 36 Finance Act 2008. This legislation allows HMRC to request information and documents from taxpayers to check their tax affairs. If you've received an information notice under Schedule 36, it's essential to know your rights and obligations.
What Is Schedule 36?
Schedule 36 was introduced in 2009 to assist HMRC in gathering information in respect of ongoing enquiries. It was originally intended that these powers would be used only in cases of serious non-compliance. However, the issuing of Schedule 36 Notices has become a popular tool for HMRC.
Schedule 36 gives HMRC the legal right to obtain documents or data it reasonably needs to assess someone's tax position. This can involve anything from straightforward compliance checks to more intensive investigations. Even a simple query may fall under these powers.
The term tax position is broadly interpreted and covers all UK taxes, and in some cases, overseas taxes under double taxation agreements. However, Schedule 36 cannot be used to request information for tax periods in which HMRC no longer has the right to raise an assessment.
Schedule 36 notices do not only affect the taxpayer directly. HMRC can also issue notices to third parties such as accountants, banks, customers and suppliers. These notices usually require the taxpayer’s consent or prior approval from a Tribunal.
HMRC may also carry out on-site inspections of business premises under Schedule 36 to examine records and assets. However, these often require Tribunal approval.
YesTax routinely supports clients facing HMRC enquiries and we understand how Schedule 36 requests can feel intrusive or complex.
Do You Have the Right to Appeal?
In many cases, you do. It has been said that HMRC increasingly issues Schedule 36 notices willy nilly, thus improving the chances of a successful appeal.
Taxpayers can appeal a Schedule 36 notice if they believe the information requested isn't reasonably required. Appeals can first be made to the HMRC officer who issued the notice and, if needed, escalated to the First Tier Tribunal. Appeals should be made within 30 days of the notice being issued, clearly stating the grounds of the appeal.
However, some requests are not appealable, the most notable being when HMRC is asking for ‘statutory records’ (documents required by law to be maintained). Additionally, if the notice was pre-approved by a Tribunal, the taxpayers right to challenge it may be limited.
Schedule 36 notices are sometimes used by HMRC for the purposes of ‘fishing’. This is where HMRC requests information, without any genuine suspicions. The term ‘reasonably required’ is important here. Whilst HMRC need no firm suspicions that a tax position is incorrect, it is still bound by the requirement for its information requests to be reasonable. What constitutes reasonable has been tested in numerous Tribunal cases.
At YesTax, we have successfully appealed many Schedule 36 notices on the grounds that the information was not reasonably required.
What to Expect from an Information Notice
A Schedule 36 notice will outline the specific documents or information HMRC wants and set a deadline for submission (often 30 days). Ignoring this notice can lead to penalties, even if the information request is viewed as unreasonable.
Sometimes, HMRC will issue an informal request for information. If its requests are not met, they are likely to issue a Schedule 36 notice.
Challenging HMRC’s Interpretation of Statutory Records
Sometimes, HMRC may classify certain requested documents as statutory records to limit the taxpayers right to appeal. However, what qualifies as a statutory record isn’t always clear-cut, and may be open to interpretation.
For example, in In New Way Cleaning Ltd v HMRC [2017] UKFTT TC5769 the First Tier Tribunal (FTT) considered what statutory documentation was reasonably required under a Schedule 36 Notice relating to PAYE. It was found that items such as bank statements, purchase ledger, mileage records and documentation relating to the director’s loan account were all statutory records. Interestingly, the FTT found that even if it was established that this information did not constitute statutory records, the information would be considered reasonably required, meaning the Schedule 36 notice was perfectly valid.
Schedule 36 notices are a powerful tool for HMRC, granting them the legal authority to compel taxpayers and third parties to provide detailed information and documents. Although Schedule 36 notices are often successfully appealed, the receipt of such a notice should be taken seriously. As such, we recommend that professional advice is immediately sought if a taxpayer receives a Schedule 36 notice. If you need help dealing with HMRC, appealing a notice, or understanding what needs to be done, contact us at hello@yes.tax.
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