The question of burden of proof in the context of schedule 36 information notices has been the subject of debate for some time.
Mr Baig was instructed by Mr Scott Gilbert of Gilbert Tax to represent the Appellants in Thomas Perring and Michael Perring v The Commissioners for Her Majesty’s Revenue and Customs [2021] UKFTT 110 (TC). Mr Baig was successful in establishing before the FtT that in the case of the taxpayer information notice, where the FtT is requested to approve the said notice, it is for HMRC to establish that the information they seek is reasonably required.
This decision is in contrast with earlier decisions in cases such as Hargreaves v HMRC [2021] UKFTT 80 (TC) where the FtT confirmed that, in relation to the burden of proof, there are inconsistent decisions of the FtT.
Critics, advisers and taxpayers have all welcomed the decision as it attempts to provide clarity in the treatment of taxpayer information notices.
In terms of historical perspective, in Joshy Mathew v HMRC [2015] UKFTT 139 (TC) which referred to Simler J in R (oao) Derrin Brother Properties Limited v HMRC [2014] EWHC 1152 (Admin), both of which dealt with third party notices rather than taxpayer notices), the FtT at ¶82 stated that:
“the weight of authority is that the burden of proof in relation to the reasonably required” test in schedule 36 notices rests on the Appellant, and not on HMRC.”
However, the FtT at ¶85 acknowledged that:
“the differences between Derrin and Coombs on the one hand, and Mr Mathew’s position on the other, means that it remains arguable that the burden is on HMRC.”
As there is no appeal from the determination by the FtT of an appeal under Para 29 against the issue of a taxpayer information notice, there is no authority of the Upper Tribunal directly on this point. As seen above, the Upper-Tier and Court of Appeal authorities relate to judicial review of third-party notices where the third-party notice had been issued with the prior approval of the Tribunal and so those decisions are not entirely on point.
Having heard Mr Baig’s submissions, Judge Heather Gething in Perring promulgated at ¶15 that the burden lay with HMRC for the following reasons:
(1) “The rules of statutory construction require that the meaning of any provision is dependent of the context and the context can be an Act or series of Acts or a part of an Act. In this case, the provisions under consideration are within Schedule 36 FA 2008 and the context in this case includes the provisions of Schedule 36.
(2) The rules of statutory construction require that the meaning of any provision is dependent of the context and the context can be an Act or series of Acts or a part of an Act. In this case, the provisions under consideration are within Schedule 36 FA 2008 and the context in this case includes the provisions of Schedule 36.
(3) Para 1 of Schedule 36 allows an information notice to be issued by an Officer of HMRC to a taxpayer (”a taxpayer notice”) without reference to the Tribunal provided the document or information requested “is reasonably required for the purposes of checking the taxpayer’s position”. Para 29 allows a taxpayer to appeal to the Tribunal against such a notice or some of the content of the notice, once an information notice has been issued.
(4) Para 2 provides that an Officer may issue an information notice to a third party requiring the production of information or documents that are “reasonably required for the purpose of checking” a named taxpayer’s tax position (“third-party notice”).
(5) Para 3(1) allows an Officer of HMRC to issue a third-party notice with the taxpayer’s consent or, in the absence of that consent, with the prior approval of the Tribunal.
(6) Para 3(2) allows an Officer to seek the prior approval of the Tribunal before a taxpayer notice is issued.
(7) Para 3(3) requires that the Tribunal may not approve a notice unless an application for approval is made by or with the approval of an authorised officer of HMRC and the Tribunal, “ is satisfied that, in the circumstances, the officer giving the notice is justified in doing so” and the Tribunal has been given a summary of the third party’s representations.”
(8) It is clear in a case where prior approval of the Tribunal is required before a notice is issued, that the Officer of HMRC wishing to issue the notice has the burden of satisfying the Tribunal that the Officer giving the notice is justified in doing so and, in satisfying itself, the Tribunal must take into account the representation of the taxpayer.
(9) A notice which has been issued with the prior approval of the Tribunal may not be appealed (see Para 29(3)), although a taxpayer may seek judicial review of such a decision.
(10) There is no indication in Para 29, which allows an appeal against a taxpayer notice that has been issued without prior approval of the Tribunal, that Parliament relieved the Officer of HMRC of the burden of satisfying the Tribunal that the information notice issued satisfies the statutory criteria and the officer was justified, in all the circumstances, in issuing the notice. All that is different in an appeal to the Tribunal against a taxpayer notice issued by an Officer, is that the proceedings before the Tribunal are not ‘ex parte’, and the taxpayer is able to make its own representations rather than rely on HMRC to inform the Tribunal of those representations. The Officer must therefore satisfy the Tribunal that:
(a) the information or document is reasonably required by the Officer to check the taxpayer’s tax position in a year in question - this requires that the Officer explains her position and that objectively the information requested is required to check the tax position of the taxpayer in that year.
(b) where a notice requests documents that originate more than 6 years before the date of the notice, that an authorised officer has agreed to the issue of the notice.
(c) where a return has been made by the taxpayer and no enquiry has been made into the return before the expiry of the statutory window to do so, that the officer has reasonable ground to suspect that either
(i) an amount that ought to have been assessed to tax in a tax has not been assessed,
(ii) an assessment to tax for the tax year has become insufficient, or
(iii) a claim for relief from tax in a year has become excessive.
16. The burden of proof therefore lies with HMRC to satisfy the Tribunal. There is no question of HMRC providing prima facie evidence only and it being for the taxpayer to demolish that prima facie case. The taxpayer’s role is to inform the Tribunal of the circumstances. HMRC role is to satisfy the Tribunal that the relevant provisions of Schedule 36 are satisfied.”
Therefore, the requirement that an Officer has reasonable grounds to suspect that an assessment has become deficient requires not only that the Officer to have formed that view but in addition that it must also be objectively reasonable to hold that view and that means that there must be some evidence to indicate a deficiency in relation to each year in respect of which the notice has been issued.
Another key addressed by the decision was whether the notices were valid when requesting information which was created more than six (6) years ago.
Mr Baig made the submission that he considers that the senior officer could only approve of the issue of a notice requesting documents which originate more than 6 years before the date of the information notice if there was evidence of wrongdoing. Officer Hill’s reasons for approving the issue of the notices were set out in Form Part 2.1b. The form simply records that there had been a discussion with Officer Hammond and Officer Hill concluded that, “in view of the potential high value, high risk prima facie offence of evasion that seems apparent the request is both reasonable and proportionate.” The FtT agreed with Mr Baig that the Senior Officer’s note is effectively saying that there was evidence of wrongdoing.
At ¶34 and ¶35 this was held to be inconsistent with Officer Hammond’s view that there was no evidence of deliberate conduct or wrongdoing. The notices do not comply with Paragraph 20 Schedule 36 and no notice can now be issued requiring documents which originated before 2012/13.
“35. We consider that the conditions for the issue of a notice requesting documents which originate in a period more than 6 years before the date of the notice are not satisfied and were not satisfied when the notice was issued. Officer Hammond did not and still does not suspect dishonest conduct. We note that this requirement is consistent with the need for the Officer to be able to raise an assessment.”
The decision culminated in setting aside various requests by HMRC and upholding some elements. The appeal against the penalty amount was
HAMMAD BAIG © 2023
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NOTICE: This article is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted.
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