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Tribunal allows taxpayers' appeals against Schedule 36 information notices and directs HMRC to issue closure notices

20 February 2023. Published by Keziah Mastin, Associate

In Barry Davies and Others v HMRC [2022] TC 8619, the First-tier Tribunal (FTT) allowed the taxpayers' appeals against Schedule 36 information notices, finding that the information requested was not 'reasonably required' and directed HMRC to issue closure notices.


Barry Davies and Rupinder Mahil (the taxpayers) are husband and wife, operating a property investment business in partnership together, the Davies Mahil Partnership.

On 3 May 2019, HMRC opened enquiries into the taxpayers' returns for the 2017/18 tax year. A schedule attached to HMRC's letter included a request for 21 items of information and documents. 

HMRC's main concerns were:

the means of the taxpayers as it appeared to HMRC that the household income disclosed in the tax returns was insufficient to support their apparent lifestyle and expenditure; and 

the extent to which business funds had been diverted for personal use such that deductions for interest payments should be restricted.

Following extensive correspondence and meetings with the taxpayers, HMRC issued notices under paragraph 1, Schedule 36, Finance Act 2008, to Mr Davies and Ms Mahil on 6 February 2020 (the notices). The notices sought information relating to all tax years from 6 April 2014 'to date' ie the notices requested information from years other than those under enquiry.

The taxpayers complied with the notices in relation to the enquiry year but not in relation to earlier years. They argued that the information requested in relation to the earlier years was not reasonably required to resolve the issue of whether, in the enquiry year, business funds had been used for personal purposes and that to supply the requested information would be an onerous undertaking.

The taxpayers appealed against the notices to the FTT and applied to the FTT (under section 28A(4), TMA 1970)  for a direction requiring HMRC to issue closure notices in respect of its enquiries into their tax returns for the 2017/18 tax year.

FTT decision

The appeal was allowed and HMRC was directed to issue closure notices within 90 days.

The FTT considered the relevant provisions of Schedule 36. Paragraph 1(1), Schedule 36, provides that the HMRC officer must show that the information or documentation requested is reasonably required by the officer for the purpose of 'checking the taxpayer’s tax position'. 

Where a tax return has been submitted, as in the present case, one of four further conditions must be satisfied under paragraph 21, Schedule 36. The conditions relevant to this case are Conditions A and B. Condition A is that a notice of enquiry has been given in respect of the return. That was the case in relation to the tax year 2017/18. Condition B is that, as regards the person, an officer of HMRC has reason to suspect that an amount that ought to have been charged to tax may not have been assessed or that relief from tax, given for the chargeable period has become excessive. HMRC relied on Condition B in relation to the enquiry year and the earlier years.

In the view of the FTT, Condition A was satisfied and Condition B was also satisfied because:

income levels did not support the fast increase in size of the partnership property portfolio;

information provided by the taxpayers changed the nature of the suspicion as it highlighted that partnership capital, funded by mortgages, had been used personally; this could lead to a disallowance of interest if partnership capital accounts were overdrawn.

The FTT also considered the meaning of 'reasonably required'. The burden was on HMRC to show that the information and documents it had requested in the notices were, objectively, reasonably required for the purpose of checking the taxpayers' tax position.

The FTT concluded that although Conditions A and B were satisfied, the information and documents requested in the notices were not reasonably required to check the taxpayers' tax position. This was because collating all the information and documents requested would have been a very onerous task and compliance with the notices would not necessarily have produced the information HMRC actually needed to address the issue of interest deduction. In addition, HMRC's internal guidance suggested that it was not practical to review every entry in the borrowing account.


This case demonstrates that it is worthwhile taxpayers carefully scrutinising information notices issued by HMRC under paragraph 1, Schedule 36, Finance Act 2008, because whilst the information requested might be relevant to HMRC's enquiries, it might not be 'reasonably required', especially if the collation of the information requested would be an onerous task.

The decision can be viewed here.

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