HMRC cannot require an auditor to provide information regarding a taxpayer's audited accounts even if the auditor also acts as the taxpayer's tax accountant

19 October 2018. Published by Adam Craggs, Partner

In HMRC ex parte a Taxpayer [2018] UKFTT 541 (TC), the First-tier Tribunal (FTT) has held that paragraph 24, Schedule 36, Finance Act 2008 (FA 2008), protects a taxpayer's auditor, who also prepares and files the taxpayer's tax returns, from having to disclose information and documents to HMRC regarding the taxpayer's audited accounts.


A number of UK resident companies (the taxpayers) are members of a group of companies. The statutory auditor of those companies provided a qualified audit opinion for a particular accounting period. The auditor also prepared the taxpayers' corporation tax returns.

HMRC had concerns about the qualified audit opinion which indicated that:

i. because of the complex nature of the related party structure in respect of intra-group debt in the group of companies, the auditor was unsure of the appropriate amount to include in the taxpayers' statutory accounts; and

ii. the auditor was uncertain whether the stated turnover figures were correct.

HMRC's concerns were such that it applied to the FTT, under paragraph 3, Schedule 36, FA 2008, for approval to issue a third party information notice under paragraph 2, Schedule 36, FA 2008 (the information notice), requiring the auditor to provide:

i. for each of the taxpayers, information on the checks that it attempted to carry out to verify intra-group debtor balances and a copy of its working papers to those checks; and

ii. for those taxpayers whose turnover figures had been qualified, information on the checks that the auditor performed to verify turnover and a copy of its relevant working papers.

FTT decision

HMRC's application was rejected and the FTT refused to approve the issue of the information notice.

In reaching its decision, the FTT was satisfied that HMRC's application met the conditions in paragraph 3(3)(a)-(e), Schedule 36, FA 2008, as a named authorised officer of HMRC had approved the application for the information notice, the auditor had been provided with a reasonable opportunity to provide representations, HMRC had provided a summary of those representations to the FTT and the taxpayers had been given a summary of the reasons why HMRC required the information and documents which it sought.

The FTT then turned to the main issue, namely, whether the requested information and documents fell within the exclusion in paragraph 24, Schedule 36, FA 2008 (which protects certain information held by auditors from being disclosed to HMRC), as some of the information and documents requested related to checks performed by the auditor when acting in its capacity as auditor.

HMRC argued that although the requested documents fell within paragraph 24, the auditor was required to disclose them due to paragraph 26. Paragraph 26 provides that paragraph 24 does not have effect in relation to information explaining any information or document which the recipient of the notice has, acting as tax accountant, assisted a client in preparing or delivering to HMRC. HMRC's position was that questions could be asked of the auditor to explain the accounts as the audited accounts had  been delivered to HMRC by the auditor when acting in its capacity as tax accountant, rather than in its capacity as auditor.

The FTT rejected HMRC's argument. In the view of the FTT, the information and documents requested by HMRC related to the statutory audit and not to information and documents held by the auditor in its capacity of tax accountant. If the taxpayers had not used their auditor to prepare their corporation tax returns, HMRC would not have been able to obtain the information and documents it sought, as the auditor would have been protected by paragraph 24. There was no reason why HMRC should be entitled to disclosure of the information and documents it sought simply because the auditor was also the taxpayers' tax accountant.


The FTT recognised that information may be protected by disclosure even if it could otherwise be said to be reasonably required to check a person's tax position. HMRC is not entitled to excluded information and documents merely because the auditor also acts as a taxpayer's agent for the purposes of preparing and submitting its tax returns.

A copy of the decision can be viewed here.

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