HMRC Investigations and Dubai Residents: The Reach of Schedule 36 Powers

Introduction

For internationally mobile entrepreneurs, investors and former UK residents now based in Dubai, one of the most common assumptions is that relocation outside the United Kingdom necessarily places them beyond the practical reach of HMRC’s investigatory powers.

That assumption is frequently misplaced.

In recent years HMRC has increasingly investigated the affairs of internationally mobile taxpayers, particularly where issues arise concerning tax residence, offshore structures, remittances, overseas banking arrangements, corporate ownership, or substantial UK-source income and gains.

One of HMRC’s principal investigative tools is the Schedule 36 Information Notice under the Finance Act 2008. These powers enable HMRC to require the production of information and documents that are “reasonably required” to check a taxpayer’s tax position.

The scope of those powers — particularly where the taxpayer resides overseas — was considered in the important judicial review litigation in R (Jimenez) v First-tier Tribunal and HMRC.

The case remains one of the leading authorities concerning the territorial reach of HMRC’s Schedule 36 powers in relation to taxpayers resident abroad, including in Dubai and the wider UAE.

What Is A Schedule 36 Information Notice?

Schedule 36 to the Finance Act 2008 gives HMRC extensive powers to require:

• information,

• documents,

• explanations,

• and third-party material

where reasonably required to check a taxpayer’s tax position.

The powers are broad and are commonly used in:

• residency disputes,

• offshore matters,

• COP9 investigations,

• alleged avoidance arrangements,

• domicile disputes,

• VAT investigations,

• and high-value civil enquiries.

Notices may be issued:

• directly to taxpayers,

• or to third parties such as banks, advisers or professional firms.

In many cases HMRC will seek approval from the First-tier Tribunal before issuing the notice. This is an important feature of the statutory scheme because, where Tribunal approval is granted under Schedule 36, the ordinary statutory right of appeal against the notice is excluded. In practice, this can significantly narrow a taxpayer’s procedural options and may leave judicial review as the principal route of challenge. Early strategic engagement is therefore often critically important.

The Jimenez Litigation

The claimant in the Jimenez litigation was a UK national residing in Dubai whose tax affairs were under investigation by HMRC.

HMRC issued a Schedule 36 Information Notice seeking extensive information concerning:

• bank accounts,

• credit cards,

• and UK visits.

The claimant challenged the legality of the notice by way of judicial review, arguing in substance that:

• HMRC could not lawfully exercise such powers against a taxpayer resident abroad;

• the notice involved an impermissible extra-territorial exercise of jurisdiction;

• and that international law principles prevented HMRC from compelling production of material outside the UK.

The litigation proceeded ultimately to the Court of Appeal.

The Court rejected the taxpayer’s challenge and held that Schedule 36 permitted HMRC to issue taxpayer notices to individuals resident outside the jurisdiction, including Dubai.

The Court drew an important distinction between:

• legislative or prescriptive jurisdiction (the ability of Parliament to legislate concerning tax obligations), and

• enforcement jurisdiction (the physical enforcement of state powers within another sovereign territory).

That distinction was central to the outcome.

Can HMRC Exercise Powers Outside The United Kingdom?

The short answer is, yes, in many circumstances HMRC may issue information notices to taxpayers resident abroad.

The Court of Appeal held that the statutory scheme under Schedule 36 could apply to taxpayers outside the UK where HMRC was investigating their UK tax position.

Importantly, the Court rejected the suggestion that a taxpayer’s relocation abroad necessarily prevented HMRC from exercising investigatory powers.

The judgment also confirmed that:

• the statutory purpose of Schedule 36 is investigatory

• the powers form part of HMRC’s broader self-assessment compliance framework

• and Parliament intended HMRC to possess effective investigatory mechanisms in cross-border and internationally mobile cases.

The Court also recognised the practical realities of modern tax investigations, particularly where:

• offshore structures

• international movement

• or cross-border financial arrangements

may complicate HMRC’s enquiries.

Common Misunderstandings

“Leaving the UK ends HMRC jurisdiction”

This is incorrect.

A taxpayer may remain subject to UK tax obligations notwithstanding physical residence abroad. HMRC frequently investigates:

• historic UK tax liabilities,

• residence questions,

• source of funds,

• remittance issues,

• and ongoing UK connections.

“Dubai residence prevents HMRC enquiries”

Again, this is incorrect and can reflect a common misconception. 

Dubai residence may raise important jurisdictional and factual issues, but it does not of itself prevent HMRC from opening enquiries or issuing Schedule 36 notices.

“HMRC can simply enforce anything overseas”

The position is more nuanced.

The distinction between:

• issuing notices,

• investigatory powers,

• civil penalties,

• and practical overseas enforcement

can involve complex questions of domestic law, treaty arrangements and public international law.

Careful strategic analysis is often required.

Strategic Considerations For Taxpayers Based Overseas

Cross-border HMRC investigations require particularly careful handling.

Issues frequently arise concerning:

• tax residence,

• domicile,

• offshore structures,

• international banking,

• historic planning arrangements,

• corporate ownership,

• and reputational considerations.

In many cases, the most important decisions are made at the earliest stages of the investigation, including:

• how information requests are approached,

• whether representations should be made before Tribunal approval,

• the interaction between UK and overseas legal obligations,

• and broader litigation strategy.

The procedural framework surrounding Schedule 36 can also be highly technical, particularly where:

• Tribunal approval has been obtained,

• judicial review issues arise,

• or allegations of deliberate conduct are being explored by HMRC.

Conclusion

The Jimenez litigation remains one of the leading authorities concerning HMRC’s ability to issue Schedule 36 Information Notices to taxpayers resident abroad.

For internationally mobile individuals and businesses based in Dubai, the case demonstrates that overseas residence does not necessarily place a taxpayer beyond the reach of HMRC’s investigatory powers.

Equally, however, the legal and procedural issues arising in cross-border HMRC disputes are often complex and highly fact-sensitive.

Early strategic advice can be critical.

Michael Paulin is a specialist tax barrister advising on complex HMRC disputes, investigations, Schedule 36 Information Notices, judicial review proceedings and cross-border tax litigation involving internationally mobile taxpayers and offshore issues. (Contact michael.paulin@1cor.com )