Tribunal sets aside HMRC's Schedule 36 information notice

22 November 2013

The First-tier Tribunal (Tax Chamber) ('FTT') has allowed a taxpayer's appeal against an information notice issued by HMRC pursuant to paragraph 1, Schedule 36, Finance Act 2008.

In Kevin Betts v HMRC [2013] UKFTT 430 (TC), the FTT accepted that information and documents sought by HMRC were reasonably required to check Mr Betts' tax position but decided, Mr Betts having provided HMRC with his tax return, that HMRC did not have reason to suspect that an amount that ought to have been assessed may not have been assessed.


In his tax return for the year ended 5 April 2009, Mr Betts self-assessed his status for tax purposes as not resident and not ordinarily resident in the UK. Mr Betts stated that he had emigrated from the UK on 22 March 2008 and moved to Malaga for a short time, after which he had moved to Gibraltar. He had marketed his motor car and former home, but had rented out the latter because of the state of the property market. He had another UK property which was occupied by his daughter, who was above the age of majority. During the 2009 tax year he received an £808,000 dividend from his UK company. After HMRC purported to open an enquiry into his return, he provided some information requested by HMRC, but refused to furnish his bank, building society and credit statements. HMRC then issued the Schedule 36 notice, which covered the period from 22 March 2008 to 5 April 2009.

Relevant law

Under paragraph 1, Schedule 36, Finance Act 2008, an HMRC officer may issue a notice to a taxpayer requiring that taxpayer to provide information or produce a document that the officer reasonably requires to check the taxpayer's position. For the purposes of Schedule 36 "checking includes carrying out an investigation or enquiry" (paragraph 58) and "tax position, in relation to a person, means the person's position as regards any tax, including the person's position as regards … past, present and future liability to pay tax" (paragraph 64). If the taxpayer has made a tax return for the relevant period, HMRC may not issue a taxpayer notice unless any of Conditions A to D is satisfied (paragraph 21). Condition A is that there is an open enquiry. Condition B is that an HMRC officer has reason to suspect that an amount that ought to have been assessed may not have been assessed, that an assessment to tax may be or may have become insufficient or that relief given may be or may have become insufficient. Paragraph 29 gives a taxpayer a right of appeal against a taxpayer notice or any requirement in it, and paragraph 32(5) provides that a decision of the tribunal in any such appeal is final. Mr Betts appealed against the notice to the FTT.

The FTT's decision

HMRC abandoned its reliance on Condition A as it accepted that an enquiry had not been validly opened. HMRC contended that the bank records were needed in order to satisfy condition B, that is, in order to satisfy the condition that HMRC had reason to suspect that an amount that ought to have been assessed may not have been assessed.

The FTT initially issued a summary decision to the effect that:

(a)  what HMRC was seeking was not reasonably required to check Mr Betts' tax position; and

(b)  Condition B was not met.

The FTT later changed its mind in relation to (a) and, after inviting the parties to comment on the draft decision, decided that the information sought was reasonably required to check Mr Betts' tax position. The appeal was however allowed as the FTT had concluded that Condition B was not satisfied.


The FTT's decision in relation to paragraph 1, Schedule 36, is not surprising given the breadth of the wording of that paragraph. It is perhaps a little surprising that the FTT does not appear to have been referred to the definitions of "tax position" or "checking".

The FTT's decision in relation to Condition B is likely to have surprised and disappointed HMRC as much as it will have delighted Mr Betts. He has the advantage of knowing the decision is final, although he will no doubt be only too aware of HMRC's willingness to exercise their discovery powers. 

It is surprising that the decision does not contain a detailed consideration of the meaning of the words "an officer of Revenue and Customs has reason to suspect that …. an amount that ought to have been assessed to relevant tax for the chargeable period may not have been assessed". The FTT does not say whether this is a subjective, objective or mixed subjective and objective test. By contrast, the FTT stated that whether information or documents are reasonably required for the purpose of checking a taxpayer's tax position involves an objective test. Mr Bett's counsel sought to draw a distinction between being interested as opposed to suspecting. The FTT accepted this distinction without analysing in depth what is meant by "has reason to suspect".

Ultimately, as this case accordingly turns on its own particular facts and the way the parties' arguments were presented, it probably provides limited general guidance. Perhaps the main lesson to be drawn from it is the importance of preparing thoroughly for an appeal hearing.

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