HMRC can gather information (and/or documentation) in a number of ways and from numerous sources. HMRC can ask for the information directly from the taxpayer (the first party) or from say a bank (a third party).
The assumption is that we are talking about seeking information on a civil matter as opposed to a criminal matter (where proper legal input should be sought).
Formal information request vs informal information request
If HMRC seeks information from (say) a bank, this will always be a third-party request and in writing. Whereas, in a meeting, HMRC could ask a taxpayer a question (verbally) as a first party.
Another consideration is whether the request is made formally or informally.
When HMRC makes a formal request, HMRC will do so in writing and after quoting the relevant legislation. The relevant legislation quoted is often Scheule 36 Finances Act 2008. The overriding criterial is that the information has to be “reasonably required”.
Does your client have to give a response?
- To an informal request, no.
- To a formal request, yes if they want to avoid any financial penalties for non-compliance. Non-compliance includes giving a misleading
What are the penalties for non-compliance?
An initial penalty of up to £300 followed by daily penalties of up to £60 per day which increases up to £1,000 per day after 30 days.
A penalty of up to £3,000 can be applied where the information or documentation is inaccurate.
Are there any other considerations to be borne on mind?
HMRC may interpret the absence of a response to an informal request for information as a lack of cooperation. In turn, if a loss of tax is identified, then a lack of cooperation may impact upon the level of any penalty that HMRC may seek to levy.
HMRC will always ask questions. Taxpayers are advised to seek advice from an experienced specialist in these areas before being put into such a situation.
Taxpayers may feel confident to answer any questions posed by HMRC and therefore seek to attend a meeting with HMRC alone in order to save cost. It is at such meetings that HMRC may ask for information or documentation. The taxpayer (not having been briefed beforehand and unaware of the powers of HMRC) may be asked in the meeting for information or documentation and therefore give it to HMRC. Once provided to HMRC, it is difficult for that information or documentation to be withdrawn.
This may widen or extend the investigation unnecessarily.
In summary
Seek specialist advice from somebody experienced in dealing with HMRC on tax investigations & disputes in advance. Don’t be caught out.