Hegarty – HMRC information notices invalid

15 February 2019. Published by Michelle Sloane, Partner

In Hegarty v HMRC [2018] UKFTT 0774 (TC), the First-tier Tribunal (FTT) has held that HMRC issued invalid information notices under paragraph 1, Schedule 36, Finance Act 2008 (FA 2008), as it had not provided sufficient evidence to support its suspicion that the taxpayers had paid insufficient tax.


Mr and Mrs Hegarty (the taxpayers) jointly owned a property which was gifted to their son who also lived at the property. The taxpayers retained the lands surrounding the property for continued use in their business.

The taxpayers' son later sold the property to a developer with the sale price being listed at four times the market value stated in the taxpayers' individual capital gains tax (CGT) calculations at the time of the transfer to their son.

The taxpayers later sold the land they had retained (plus additional adjacent land they had purchased over the years) to the same developer. The taxpayers benefitted from CGT relief after claiming that their land was used as a car yard in their CGT calculation in their 2006/07 tax return.

HMRC questioned the value used when transferring the property to their son and also the relief in respect of the car yard.  HMRC subsequently wrote to the taxpayers on 31 March 2016, informing them that they were being investigated under Code of Practice 9 for alleged tax fraud. HMRC did not say in its letter why they suspected tax fraud.  

Following a meeting between HMRC and the taxpayers on 17 November 2016, HMRC requested information and documents in relation to the taxpayers' CGT returns for the 2006/07 tax year. On 16 January 2017, the taxpayers refused to supply the requested information and documents.

On 1 February 2017, HMRC issued information notices to the taxpayers, pursuant to paragraph 1, Schedule 36, FA 2008. 

The information notices were appealed to the FTT. 

HMRC decided not to defend the appeals and an FTT clerk wrote to the taxpayers stating that the FTT had allowed their appeals.

On 1 May 2018, HMRC issued further information notices to the taxpayers, requesting almost identical information (the Second Notices).

The taxpayers appealed the Second Notices to the FTT.

FTT decision

 The appeals were allowed and the Second Notices were set aside under paragraph 33(3)(c), Schedule 36, FA 2008.

The taxpayers argued that HMRC was estopped from issuing or enforcing the Second Notices on the grounds of res judicata or because of abuse of process by HMRC as the notices had originally been issued and then withdrawn by HMRC. The FTT rejected this argument. In the view of the FTT, res judicata could not apply as the clerk had been mistaken in informing the taxpayers that the appeals had been allowed by the FTT, which had not considered the original information notices as they had been withdrawn by HMRC. Similarly, there had been no abuse of process as HMRC could have achieved the same result by varying the original information notices and HMRC had reserved the right to issue further information notices in its withdrawal letter.

However, the Second Notices were only valid if an HMRC officer had reason to suspect an under-assessment of tax. HMRC did not call the relevant officer to give evidence and therefore the FTT had insufficient evidence to conclude that this condition had been satisfied. The FTT noted that if HMRC had provided appropriate evidence, it might have been able to agree that HMRC had reason to suspect an under-assessment of tax.  

This was sufficient to dispose of the appeals, but the FTT went on to consider whether in order for an information notice to be valid, there had to be a "sensible or practical" possibility of a discovery assessment being issued. The FTT expressed the view that there did have to be such a possibility.


HMRC frequently issue information notices and there is a suspicion that on occasion such requests are little more than a 'fishing expedition'. It is important that taxpayers who receive an information notice give careful consideration to whether the notice satisfies all of the statutory criteria.

The FTT also confirmed that in circumstances such as in this case, HMRC can only issue a valid information notice when there is sensible or practical possibility of a discovery assessment being issued.   

This case also illustrates how a case before the FTT can be lost if a party does not properly prepare for the appeal hearing and adduce all necessary evidence. If HMRC had called appropriate witnesses the outcome of the appeal may have been very different. Although litigation before the FTT is less formal than litigation in the High Court, certain rules of evidence still have to be complied with and it is therefore sensible to seek advice and assistance from a lawyer with the necessary experience and expertise in this area when embarking on such litigation.  

A copy of the decision can be viewed here.

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