Tribunal sets aside HMRC information notice for lack of clarity
R D Utilities Ltd v HMRC  UKFTT 303 (TC)
In the recent case of R D Utilities Ltd v HMRC  UKFTT 202 (TC), heard before Judge Alison McKenna, the First–tier Tribunal (Tax Chamber) ('FTT'), set aside an information notice issued by HMRC due to its vague drafting and lack of clarity.
HMRC first raised its concerns with R D Utilities Ltd (the 'Company') in 2009, when it began an enquiry into the Company's 2007 Corporation Tax Self-Assessment Tax Return. In particular, HMRC sought information about the Company's accounts, in which a £700,000 contribution to a Remuneration Trust was shown.
Lengthy correspondence between the parties ensued, and in July 2012, HMRC eventually served an Information Notice on the Company, pursuant to its powers contained in paragraph 1, Schedule 36, Finance Act 2008. Under this provision, a HMRC officer can (by written notice) require a taxpayer to provide information, or to produce a document, reasonably required for checking the taxpayer's tax position.
The Information Notice required the Company to provide two pieces of information and two documents. The Company filed a Notice of Appeal with the FTT in March 2013, and its appeal was heard in February 2014.
By the time of the hearing of the appeal, the parties had agreed that Part B of the Information Notice (requiring two documents) had been complied with by the Company. It was only Part A, which requested two pieces of information, that remained in dispute. The information required in Part A was drafted as follows:
a. Please specify for each year what the Directors considered to be the pre-existing constructive obligations that arose to their suppliers. In doing this they should:
- explain precisely why they considered there was a constructive obligation
- what the constructive obligation was
- why charging the constructive obligation would benefit their trade
b. Do the lists provided with the resolution provided to the Trust provide the suppliers relevant to that year, and, if not, how are the Trustees to know to whom the payments are relevant? For each year please let me have a full list of the potential 'providers', a term used in the Trust deed to describe the class of Beneficiary; the names, addresses, services provided and the total amount paid to each provider by the company for their services".
The Company argued that the Information Notice had been complied with so far as it was possible to do so; the requested documents had been provided, but the requested information could not be provided. The Company went on to claim that the Notice itself was defective in asking for a subjective opinion, which was not lawfully required. Counsel for the Company referred to HMRC's Compliance Handbook at CH23240, which makes clear that an Information Notice may not be used to require the supply of "opinion or speculation", but only the supply of "facts".
HMRC argued that the two pieces of information were reasonably required and remained outstanding.
Having heard the submissions made by the Company, and the response of HMRC, Judge McKenna began by making a helpful and general statement on the form, and drafting, of Information Notices:
"The Tribunal takes the view that Information Notices should be expressed in clear terms and that it should be a straightforward matter for both parties to know whether an Information Notice has been complied with. That is why HMRC guidance states that the Information Notice should request facts and not opinion".
The Judge was of the view that the Information Notice had been drafted with little clarity. She also criticised the built in assumptions on which the requests for information were based, which made it "impossible" for either party to know whether the Notice had been complied with.
As a result, the Judge concluded that it was just and fair to set aside the request for information as, in her view, "information that is impossible to supply cannot be 'reasonably required' by HMRC".
HMRC has formidable information powers at its disposal and these powers are often used in the context of an HMRC enquiry. It is not unusual for Information Notices to be widely drafted and compliance is often an onerous task involving the recipient of the Notice having to spend a great deal of time in complying with the Notice. This case is a timely reminder that careful consideration should be given to the wording of Information Notices by HMRC. Where a Notice is not expressed in clear terms, or requests opinion, or invites the taxpayer to speculate, then the Notice should be challenged.