Taxpayers must play by the rules. HM Revenue and Customs (HMRC) enforces its vast powers to ensure this is so. Thankfully, those powers invariably also give taxpayers some degree of protection.
For example, HMRC may require information and documents ‘reasonably required’ to check a taxpayer’s tax position. HMRC may impose penalties if the taxpayer fails to comply. However, HMRC must stick to the rules for doing so.
It’s a penalty…
The initial penalty for failing to comply with an information notice is £300. If the failure continues, HMRC can charge daily penalties of up to £60 for each day that the failure continues.
If someone becomes liable to a fixed (or daily) penalty for failing to comply with an information notice, HMRC may assess the penalty (and if they do, HMRC must notify that person). The assessment must be made within 12 months after the latest of certain dates (FA 2008, Sch 36, para 46):
- the end of the period during which the person can appeal (where there is a right of appeal against the information notice);
- the date on which the appeal is finally decided or the person withdraws it (where a person has appealed against the information notice); or
- the date on which the person became liable to the penalty in any other case.
If HMRC misses the boat in failing to issue a penalty notice within this timeframe, the tribunal decision in Ahmed v Revenue and Customs  UKFTT 337 (TC) indicates that HMRC cannot have a ‘second bite of the cherry’ by issuing another information notice requesting the same information, to reset the penalty clock.
…or is it?
In Ahmed, HMRC issued the appellant with a notice (under FA 2008, Sch 36) (‘Notice 1’) on 11 October 2017, requiring him to produce various information and documents. On 30 July 2018, HMRC sent a second information notice (‘Notice 2’) to the taxpayer, which comprised further requests for information. On 23 January 2019, HMRC sent the appellant another information notice (‘Notice 3’), which combined the text of the two previous notices, word for word. On 19 March 2019, HMRC issued the appellant with a £300 penalty for failure to comply with Notice 3. The appellant appealed.
The First-tier Tribunal (FTT) noted that a penalty could only be issued within twelve months after a person became liable to the penalty. The penalty was issued more than twelve months after Notice 1. HMRC could not refresh the twelve-month time limit simply by reissuing the notice and repeating the information requirements. To the extent that the penalty related to a failure to comply with the same requirements as in Notice 1, it was invalid.
Furthermore, to the extent that the penalty related to information requests which were previously in Notice 2, it was issued within the twelve-month time limit. However, the FTT held that HMRC failed to meet the burden of proving that the statutory requirements for issuing the information notice were met. The taxpayer’s appeal was allowed.
Check information notices carefully. HMRC’s information powers are considerable, but they are subject to specific restrictions and procedures. There is a general right of appeal, not only against information notices, but also against penalties imposed by HMRC for alleged non-compliance.
The above article was first published by Business Tax Insider (March 2021) (www.taxinsider.co.uk).