HMRC Schedule 36 Information Notices: Appeals, Challenges and Judicial Review
Schedule 36 to the Finance Act 2008 gives HMRC extensive statutory powers to require taxpayers and, in certain circumstances, third parties to provide information and documents for the purpose of checking a person's tax position.
Those powers are significant, but they are not unlimited.
An HMRC information notice may raise questions about whether the information sought is reasonably required, whether the notice falls within HMRC's statutory powers, whether particular documents are protected from disclosure, whether the notice can be appealed and, in some cases, whether HMRC's exercise of its powers may be challenged by judicial review.
I am a barrister specialising in tax litigation and public law. My practice includes HMRC investigations, information powers, tax appeals, discovery assessments, penalties, COP9 investigations and judicial review.
I have acted successfully in litigation concerning HMRC's use of Schedule 36.
In R D Utilities Ltd v HMRC [2014] UKFTT 303 (TC), I acted for the taxpayer in a successful appeal concerning a Schedule 36 information notice arising from HMRC's investigation of a substantial contribution to a remuneration trust. The First-tier Tribunal set aside the disputed information requirements. The Tribunal held, in particular, that information which it was impossible for the taxpayer to supply could not be “reasonably required” by HMRC and emphasised the need for information notices to be expressed clearly.
Schedule 36 Enquiries
I accept instructions from solicitors and professional advisers and, where appropriate, directly from taxpayers under the Public Access Scheme. Contact Michael.paulin@1cor.com for further information.
Received a Schedule 36 information notice from HMRC?
A Schedule 36 notice should not be ignored. Equally, a taxpayer should not necessarily assume that every request contained in a formal HMRC notice must be accepted without examination.
Where a notice is extensive, relates to substantial potential liabilities, concerns alleged deliberate conduct or fraud, arises during a COP9 investigation, or has been approved in advance by the First-tier Tribunal, obtaining advice at an early stage can be particularly important.
Advice can be provided on the scope and validity of the notice, whether information is reasonably required, statutory appeal rights, negotiations with HMRC, First-tier Tribunal proceedings and, where appropriate, potential public law remedies.
My Approach
HMRC may use Schedule 36 to require information or documents that are reasonably required for the purpose of checking a person's tax position.
The legislation contains important safeguards and limitations.
A taxpayer will ordinarily have a right to appeal against a taxpayer information notice or individual requirements within it, although important exceptions apply.
The normal time limit for appealing is 30 days from the date of the information notice.
There is generally no ordinary Schedule 36 right of appeal against a requirement to produce the taxpayer's statutory records.
There is also no ordinary Schedule 36 appeal where the First-tier Tribunal has approved the giving of the notice in advance.
In an appropriate case where the statutory appeal route is unavailable, it may be necessary to consider whether HMRC's decision is susceptible to judicial review.
1. What is an HMRC Schedule 36 information notice?
Schedule 36 to the Finance Act 2008 gives HMRC statutory powers to require information and documents for the purpose of checking a person's tax position.
A notice issued directly to the taxpayer is generally described as a taxpayer notice.
HMRC can also use Schedule 36 powers to obtain information from third parties concerning another person's tax affairs, subject to the particular statutory conditions and safeguards governing third-party notices.
The power is broad, but it is not unrestricted.
For a taxpayer notice, the information or documents requested must be reasonably required for the purpose of checking the taxpayer's tax position.
A Schedule 36 notice therefore needs to be considered by reference to both what HMRC is investigating and precisely what HMRC has required the recipient to provide.
The fact that HMRC has issued a formal statutory notice does not, by itself, establish that every requirement contained in that notice is lawful or incapable of challenge.
2. Do I have to comply with a Schedule 36 notice?
A valid Schedule 36 information notice carries legal consequences and should not be ignored.
Failure to comply can result in penalties and, in some circumstances, increasingly serious consequences if non-compliance continues.
That does not mean that the proper response to every Schedule 36 notice is simply to send HMRC everything requested without first considering the notice.
Questions which may need to be examined include:
whether HMRC has the statutory power to request the particular information or documents;
whether the information is reasonably required for checking the relevant tax position;
whether the notice is sufficiently clear to permit the taxpayer to understand what is required;
whether a statutory restriction applies;
whether HMRC is seeking legally privileged or otherwise protected material;
whether the notice seeks historic documents to which additional statutory safeguards apply;
whether the material actually exists or is capable of being supplied; and
whether the taxpayer has a right of appeal.
Where there is a statutory right of appeal, the ordinary time limit is 30 days beginning with the date on which the information notice is given.
A taxpayer faced with a substantial or contentious notice should therefore consider obtaining advice before either producing extensive material or adopting a position of non-compliance.
3. What information can HMRC require under Schedule 36?
The central statutory test is whether the information or documents are reasonably required for checking the relevant tax position.
Depending upon the investigation, HMRC may therefore seek material such as:
accounts and accounting records;
bank records;
contracts and agreements;
invoices;
correspondence;
transaction documents;
records relating to payments;
documents concerning companies, trusts or other entities; and
explanations of relevant factual matters.
But Schedule 36 does not provide HMRC with an unrestricted right to require anything it wishes merely because a tax investigation is taking place.
The legislation contains restrictions protecting particular types of material, and some categories of information are subject to special statutory treatment.
Legally privileged communications are, for example, subject to specific protection.
Questions may also arise concerning old documents, personal records, tax advisers' documents and the taxpayer's statutory records.
The proper approach is therefore to examine the individual requirements against the statutory purpose for which the Schedule 36 power is being exercised.
4. What does “reasonably required” mean?
The requirement that information be “reasonably required” is an important statutory limitation upon HMRC's Schedule 36 powers.
HMRC does not have an unlimited power of investigation.
There must be a proper relationship between the information or documents being demanded and the tax position HMRC is entitled to check.
Whether information is reasonably required is highly fact-sensitive.
Relevant considerations can include the nature of HMRC's enquiry, the tax periods under investigation, the issues HMRC has identified, the information already supplied and the connection between the particular request and the tax position being checked.
A request may justify closer examination where it:
covers exceptionally broad categories of material;
extends to matters which appear unrelated to the identified tax issue;
is based upon assumptions which the taxpayer disputes;
seeks information which does not exist or cannot be supplied;
requires opinion or speculation rather than factual information;
duplicates material already provided;
extends substantially beyond the period apparently under investigation; or
does not make sufficiently clear what the taxpayer is actually required to provide.
This issue arose directly in R D Utilities Ltd v HMRC [2014] UKFTT 303 (TC).
The Tribunal emphasised that information notices should be framed clearly so that both HMRC and the taxpayer can identify whether the notice has been complied with. The disputed requests depended upon assumptions which were themselves contested.
The Tribunal ultimately concluded that information which was impossible to supply could not be reasonably required and set aside the relevant requirements.
The concept of reasonable requirement can therefore be central both to negotiations with HMRC and to an appeal before the First-tier Tribunal.
5. Can I appeal an HMRC Schedule 36 information notice?
In many cases, yes.
A taxpayer who receives a taxpayer notice will ordinarily be able to appeal against the notice as a whole or against individual requirements contained within it.
The appeal is initially made to HMRC.
It must ordinarily:
be made in writing;
reach HMRC within 30 days of the date of the notice;
be sent to the HMRC officer who issued the notice; and
identify the grounds of appeal.
If the dispute cannot be resolved with HMRC, it may ultimately be notified to the First-tier Tribunal for determination.
The Tribunal has power to:
confirm the information notice or requirement;
vary it; or
set it aside.
There are, however, important exceptions to the ordinary right of appeal.
In particular, there is generally no appeal against a requirement to provide information or documents forming part of the taxpayer's statutory records.
There is also no ordinary Schedule 36 appeal where the First-tier Tribunal has approved the giving of the relevant notice in advance.
It is therefore important to establish at an early stage precisely what notice HMRC has issued and what rights of challenge remain available.
Make an enquiry about a Schedule 36 notice
6. What happens if the First-tier Tribunal has approved the notice?
HMRC can, in appropriate circumstances, ask the First-tier Tribunal to approve the issue of a Schedule 36 information notice before the notice is given to the taxpayer.
HMRC's published guidance indicates that prior approval may be sought where, for example, substantial tax is at risk, relevant assessment time limits are approaching, there has been a history of failing to provide information, or there is disagreement concerning the nature of the records being sought.
Prior Tribunal approval has an important consequence for the taxpayer.
Where the First-tier Tribunal has approved the giving of the notice, the taxpayer does not have the ordinary statutory Schedule 36 right of appeal against the approved notice.
The position is therefore fundamentally different from an ordinary taxpayer notice.
The absence of a statutory appeal does not necessarily mean that HMRC's exercise of its powers is beyond challenge.
Where there is a serious question about the legality of the notice or the process by which the statutory power was exercised, it may be necessary to consider whether there are grounds for judicial review.
Judicial review is not simply an alternative appeal because the taxpayer disagrees with HMRC. It is concerned with the lawfulness of the exercise of public power.
Where a Tribunal-approved notice is involved, legal advice should therefore be obtained promptly because both the nature of the available remedy and the applicable time limits may be materially different from an ordinary Schedule 36 appeal.
7. Can a Schedule 36 notice be challenged by judicial review?
Potentially.
Judicial review can be particularly important where there is no ordinary statutory right of appeal, including where the First-tier Tribunal has approved the issue of the information notice.
HMRC is a public authority exercising statutory powers.
Those powers must therefore be exercised within the limits imposed by Parliament and in accordance with established principles of public law.
Depending upon the circumstances, issues potentially capable of arising may include whether:
HMRC acted within the scope of the power conferred by Schedule 36;
the statutory preconditions for exercising the power were satisfied;
the notice was issued for a lawful statutory purpose;
the information sought was capable of being reasonably required;
HMRC complied with relevant statutory restrictions;
relevant considerations were properly addressed;
irrelevant matters influenced the decision;
the process was procedurally fair;
HMRC acted for an improper purpose; or
the decision was otherwise unlawful according to public law principles.
Judicial review does not ordinarily permit the Administrative Court to substitute its own assessment of the merits simply because it might have reached a different conclusion from HMRC.
The court's role is supervisory: it determines whether the public power was exercised lawfully.
A further important distinction is that judicial review claims are subject to demanding procedural requirements and must be brought promptly.
Where judicial review may be necessary, delay can therefore be significant.
My practice combines tax litigation and public law, enabling Schedule 36 cases to be considered both from the perspective of the underlying tax investigation and, where necessary, the legality of HMRC's exercise of its statutory powers.
Make an enquiry about a Schedule 36 notice
8. Can HMRC ask for documents going back many years?
Yes, but special rules apply to old documents.
As a general rule, Schedule 36 restricts HMRC from requiring production of a document where the whole of that document originated more than six years before the date of the information notice unless the relevant statutory authorisation requirements are met.
The fact that documents are old does not necessarily make them irrelevant.
Historic records may, for example, remain relevant because HMRC considers that:
an earlier transaction affects a later tax period;
an asset or liability has continuing tax consequences;
there has been careless or deliberate conduct;
extended assessment time limits may apply; or
earlier arrangements are relevant to understanding later returns.
However, where HMRC seeks extensive historical records it can be important to examine both the substantive reason for the request and whether Schedule 36's particular requirements relating to old documents have been satisfied.
This may also overlap with a wider dispute about HMRC's entitlement to make assessments for historic periods.
The fact that HMRC is investigating old tax years does not itself remove the statutory safeguards governing its information powers.
9. Can HMRC demand bank statements, personal information or documents held by third parties?
Schedule 36 can extend to financial information and, in appropriate circumstances, information held by third parties.
Bank statements may be reasonably required where they have a sufficient connection with the tax position HMRC is checking.
The fact that an account is described as “personal” does not necessarily prevent information about it being relevant to a business or tax investigation, particularly where business and personal transactions have become mixed.
HMRC also possesses powers under Schedule 36 to obtain information directly from third parties, although the statutory framework governing third-party notices is different from the ordinary taxpayer-notice regime and contains its own safeguards and approval requirements.
Financial institutions are also subject to specific statutory provisions.
Particular care may be required where an HMRC request reaches into private, confidential or professionally privileged material.
Schedule 36 contains specific restrictions affecting certain categories of documents and information.
Legally privileged communications, in particular, are subject to statutory protection.
It is therefore important to identify exactly which Schedule 36 power HMRC is exercising, the material being requested, the person from whom it is being requested and the reason HMRC says it requires that material.
10. Can HMRC use Schedule 36 during a COP9 investigation?
Yes.
Schedule 36 information powers can form an important part of serious HMRC investigations, including investigations conducted under Code of Practice 9 (COP9).
COP9 is used in cases where HMRC suspects tax fraud.
Those investigations can involve detailed examination of a taxpayer's affairs across multiple taxes, entities, transactions and accounting periods.
HMRC may therefore use formal information powers to obtain documents and factual information which it considers necessary to test the taxpayer's disclosures and establish the correct tax position.
The existence of a fraud investigation does not, however, give HMRC unlimited information-gathering powers.
The statutory requirements and safeguards contained within Schedule 36 continue to apply.
In a COP9 investigation, a Schedule 36 notice should also rarely be considered in isolation.
The manner in which a taxpayer responds may potentially affect:
HMRC's understanding of the underlying transactions;
the developing factual case;
questions of deliberate conduct;
the taxpayer's disclosure position;
the level of any penalties;
negotiations with HMRC; and
the wider strategy for resolving the investigation.
Advice on the Schedule 36 notice should therefore be integrated with the strategy for the COP9 investigation as a whole.
11. What are the penalties for failing to comply with a Schedule 36 notice?
Failure to comply with a valid Schedule 36 information notice can give rise to financial penalties.
The legislation provides for an initial penalty of £300 for failure to comply.
Where non-compliance continues after an initial penalty has been imposed, daily penalties of up to £60 per day may potentially follow.
Schedule 36 also contains provisions capable of producing substantially more serious consequences in particular circumstances, including further penalties connected with continuing failures and provisions dealing with inaccurate information and the concealment, destruction or disposal of documents.
A person will not necessarily be liable where there is a legally sufficient reasonable excuse for the relevant failure.
The important practical point is that a taxpayer who considers a notice unlawful, excessive or impossible to comply with should not simply ignore it.
The appropriate response may instead be:
compliance with those requirements which are unobjectionable;
correspondence or negotiation with HMRC;
clarification of ambiguous requirements;
a statutory appeal against the notice or particular requirements;
an application concerning penalties; or
in an appropriate case where ordinary appeal rights are unavailable, consideration of another legal remedy.
The correct strategy depends upon the particular notice and the wider investigation in which it has been issued.
12. When should I obtain legal advice about a Schedule 36 notice?
It will often be preferable to obtain advice before making a substantive response to HMRC rather than after extensive information and documents have already been supplied.
Legal advice may be particularly important where:
HMRC alleges deliberate conduct or fraud;
the notice forms part of a COP9 investigation;
significant tax liabilities are potentially at stake;
HMRC is investigating a remuneration trust, loan arrangement or other complex structure;
the notice covers numerous tax years;
a very large quantity of documentation is requested;
the relevance of particular information is unclear;
the notice appears to be based upon factual assumptions which are disputed;
HMRC seeks private, confidential or privileged material;
third-party information is involved;
HMRC seeks documents which are many years old;
the notice has been approved by the First-tier Tribunal;
HMRC has imposed or threatened penalties;
the taxpayer wishes to appeal;
the 30-day appeal period is approaching; or
judicial review may need to be considered.
Early advice can identify the proper scope of the notice, preserve applicable appeal rights and allow inappropriate requirements to be challenged or discussed with HMRC before the taxpayer has committed to a substantive position.
It can also ensure that the response to the information notice is consistent with the taxpayer's wider strategy in the underlying HMRC investigation.
Make an enquiry about a Schedule 36 notice
When is information “reasonably required” by HMRC?
The phrase “reasonably required” lies at the heart of Schedule 36.
It is not enough that HMRC would find information interesting or convenient.
The information or documents must be reasonably required for the statutory purpose for which HMRC is entitled to exercise the information power.
Three issues can be particularly important.
Relevance
There must be a proper relationship between the information requested and the tax position HMRC is checking.
The breadth of HMRC's enquiries will depend upon the circumstances, but Schedule 36 is not a general power to require disclosure without connection to a legitimate tax-checking purpose.
Scope
A notice containing numerous requests should not necessarily be viewed as a single indivisible demand.
Individual requirements may need to be examined separately.
Some information may plainly be relevant while other requirements may be excessively broad, insufficiently clear or unrelated to the identified issue.
The First-tier Tribunal has power on an appeal to confirm, vary or set aside the notice or individual requirements contained in it.
Clarity
A taxpayer needs to know what HMRC is requiring.
This was an important feature of R D Utilities Ltd v HMRC.
An information notice should be sufficiently clear that both sides can determine whether it has been complied with.
A requirement founded upon disputed assumptions, or requiring information which cannot in fact be supplied, may raise a fundamental question about whether the statutory test has been met.
Experience challenging Schedule 36 information notices
R D Utilities Ltd v HMRC [2014] UKFTT 303 (TC)
I acted for the taxpayer in R D Utilities Ltd v HMRC, a First-tier Tribunal appeal concerning HMRC's exercise of its Schedule 36 information powers.
HMRC had opened an enquiry into the company's corporation tax return following a substantial contribution, approximately £700,000, to a remuneration trust.
After correspondence between HMRC and the taxpayer, HMRC issued an information notice under paragraph 1 of Schedule 36.
By the time of the Tribunal hearing, the dispute concerned particular requirements for information rather than documents which had already been supplied.
The taxpayer challenged the notice on the basis that the disputed requirements were founded upon assumptions which were themselves contested and, in substance, required material which could not properly be supplied in the form demanded.
The First-tier Tribunal allowed the challenge to the relevant requirements.
The Tribunal emphasised the importance of information notices being expressed in clear terms so that both taxpayer and HMRC can identify whether the statutory requirement has been satisfied.
It concluded that the assumptions built into the disputed requests made it impossible to determine compliance and that information which it was impossible to supply could not be “reasonably required” by HMRC.
The relevant requirements were therefore set aside.
The case illustrates an important principle in the operation of Schedule 36.
The fact that HMRC has issued a formal statutory information notice does not determine the legality of every requirement contained within it. The notice must still operate within the statutory conditions Parliament has imposed upon HMRC's information powers.
R D Utilities has subsequently continued to be referred to in discussion of the requirement that information notices be clear and sufficiently precise.
Tribunal-approved Schedule 36 information notices
HMRC will not require First-tier Tribunal approval before issuing every taxpayer notice.
In appropriate cases, however, HMRC may ask the Tribunal to approve a notice before it is served.
HMRC's published guidance identifies circumstances in which prior approval may be considered, including where substantial tax is at risk, assessment time limits are approaching, the taxpayer has a history of refusing to provide information, or a dispute has arisen about whether particular material comprises statutory records.
Tribunal approval fundamentally changes the available appeal route.
An ordinary taxpayer notice can normally be challenged under the statutory Schedule 36 appeal machinery, subject to the statutory exceptions.
A notice approved in advance by the First-tier Tribunal cannot ordinarily be appealed under that procedure.
That does not give HMRC an unrestricted power simply because approval has been obtained.
If a serious issue arises about the lawfulness of the notice or the statutory decision-making process, the potential remedy may instead lie in public law.
This is one reason why the distinction between tax appeal jurisdiction and judicial review can become particularly important in sophisticated Schedule 36 disputes.
Schedule 36 information notices and judicial review
Schedule 36 sits at the intersection of tax law and administrative law.
HMRC is exercising powers given to it by Parliament.
The legality of those powers therefore depends not simply upon tax legislation in isolation but upon the wider principles governing the exercise of statutory power by public authorities.
Judicial review may become relevant where no adequate statutory appeal is available and there is an arguable public-law error.
Potential issues can include:
whether HMRC had jurisdiction to exercise the power;
whether statutory conditions were satisfied;
whether the power was used for the purpose Parliament intended;
whether relevant statutory safeguards were followed;
whether HMRC acted procedurally fairly;
whether the decision was based upon an error concerning the scope of the statutory power; and
whether HMRC's decision was otherwise unlawful according to established public law principles.
The availability of judicial review is highly fact-sensitive.
It should not be regarded simply as an additional opportunity to argue the merits of an information request after the statutory appeal route has been exhausted or excluded.
Where judicial review is genuinely in issue, however, specialist public-law analysis may be necessary alongside the underlying tax advice.
My practice encompasses both tax disputes and judicial review, including challenges concerning HMRC's exercise of statutory powers.
Schedule 36 notices in COP9 and serious HMRC investigations
A Schedule 36 notice can sometimes appear to be simply a request for documents.
In a serious investigation, that can underestimate its significance.
HMRC's choice of information, the periods it is investigating and the questions embedded in its requests can provide important indications of the direction in which the investigation is developing.
This is particularly relevant in COP9 investigations and cases involving allegations of deliberate conduct.
The taxpayer's response therefore needs to be considered alongside:
previous correspondence with HMRC;
disclosures already made;
the relevant tax returns;
the factual explanation for disputed transactions;
the potential assessment time limits;
the penalty position;
any allegation of deliberate conduct or concealment;
the possibility of settlement; and
the wider litigation strategy.
A legally permissible request is not necessarily best answered without considering those wider consequences.
Equally, aggressive resistance to legitimate information requests can be counterproductive.
The objective should be to identify what HMRC is lawfully entitled to receive, protect the taxpayer's legal position and respond consistently with the overall strategy for the investigation.
Tax litigation and public law experience
My practice focuses upon disputes involving HMRC and the exercise of public powers.
It includes:
Schedule 36 information notices
Challenges to HMRC's statutory information-gathering powers and questions about whether information is reasonably required.
HMRC investigations and COP9
Advice in serious investigations involving alleged fraud, deliberate conduct and substantial tax liabilities.
Discovery assessments
Challenges concerning HMRC's entitlement to make assessments outside the ordinary self-assessment framework and the applicable statutory time limits.
Tax penalties
Appeals concerning deliberate and careless conduct, reasonable excuse and related penalty issues.
First-tier Tribunal tax appeals
Advice and representation in substantive tax litigation.
Judicial review of HMRC
Public-law challenges concerning the legality of HMRC decision-making and the exercise of statutory powers.
This combination can be particularly important where an HMRC dispute moves beyond the calculation of tax and raises questions about the lawful limits of HMRC's investigatory powers.
How Michael Paulin can assist with a Schedule 36 information notice
I can advise and represent taxpayers in relation to Schedule 36 matters including:
reviewing an information notice and the surrounding HMRC investigation;
advising whether information or documents are reasonably required;
identifying requirements which may exceed the statutory power;
considering whether requests are insufficiently clear or excessively broad;
advising on statutory records and other restrictions contained within Schedule 36;
advising on legally privileged and other protected material;
advising on notices seeking historic documents;
drafting statutory appeals against Schedule 36 notices;
advising upon late appeals where the ordinary 30-day period has expired;
representing taxpayers before the First-tier Tribunal;
advising in relation to tribunal-approved information notices;
considering whether judicial review may be available;
advising on Schedule 36 notices issued during COP9 investigations;
advising on information notices connected with discovery assessments and allegations of deliberate conduct;
advising on information notices concerning remuneration trusts and other complex arrangements;
responding to threatened or actual Schedule 36 penalties; and
engaging with HMRC about the scope and practical implementation of information requests.
In appropriate cases, focused advice can be provided at an early stage before a full response to HMRC is prepared.
Instructing Michael Paulin
I accept instructions from solicitors, accountants and other professional advisers.
I am also authorised to accept instructions directly from members of the public under the Public Access Scheme where the case is suitable for direct instruction.
Where deadlines apply, the date on which the notice was issued and any stated date for compliance should be identified at the outset.
Related HMRC disputes
Clients facing a Schedule 36 information notice may also require advice concerning:
COP9 and HMRC fraud investigations
HMRC discovery assessments
deliberate-conduct and other tax penalties
First-tier Tribunal tax appeals
judicial review of HMRC decisions
remuneration trusts and Loan Charge disputes
international and offshore HMRC investigations
VAT and HMRC investigations
These issues frequently overlap. A Schedule 36 dispute should therefore be considered in the context of the tax investigation as a whole rather than solely as an isolated request for information.
Received an HMRC Schedule 36 information notice?
The response to an information notice can have consequences extending beyond the immediate documents or information requested.
Where the notice is extensive, contentious, linked to substantial tax liabilities, connected with COP9 or allegations of deliberate conduct, or has received prior Tribunal approval, early advice may be particularly important.
I can advise on the legality and scope of the notice, the appropriate response, any available appeal and the implications for the wider HMRC investigation. Contact Michael.paulin@1cor.com
Make an enquiry about a Schedule 36 notice
Use the form below or email michael.paulin@1cor.com for a confidential initial discussion