What to do when an information notice is unreasonable
Since the new approach to IR35 over a year ago now, HMRC are more quick to issue a Schedule 36 notice in an attempt to coax the contractor into responding within the Revenue's time frame. This can, of course, be a very persuasive weapon with penalties for failing to comply starting at £300 and then increasing to £60 per day where such failure continues.
HMRC will normally have no hesitation in issuing an information notice if their original request has not been responded to by the deadline stipulated in their previous correspondence, although there are still one or two officers who are happy to take a more relaxed attitude and agree an extended deadline for providing information by less informal methods, such as a quick telephone conversation.
What can be done when you and/or your client needs more time to comply with a Schedule 36 notice and HMRC won't relent? Is the client doomed to the penalty box? Not necessarily, as there is a right of appeal against information notices which is exactly what Mr Deegan did and was the subject of a recent First Tier Tax Tribunal hearing.
In November 2011, HMRC opened an enquiry into the taxpayer's 2010 Self Assessment Tax Return. Documents and information were provided, some in response to Schedule 36 notices. At least one meeting took place between the two parties and correspondence between HMRC and Mr Deegan's accountants was exchanged.
On 5th December 2012, HMRC wrote posing various questions and seeking various documents and saying:
“Please let me have a reply to this letter by 18 January 2013. I am concerned at the length of time taken to progress this enquiry. If for any reason you are unable to reply within the proposed timescale then please contact me accordingly.”
The accountants replied on 10th January 2013 explaining that they would not be able to respond until early February due to the pressures of Self Assessment deadlines.
HMRC wasted no time in issuing a formal information notice on 25th January requesting details concerning various motorcycle sales, which was one of the matters contained in their letter of 5th December. The deadline for complying was 30 days after the receipt of the Notice.
On 14th February the accountants, Parkers Accountancy & Taxation, appealed the Notice and argued the following points at Tribunal:
HMRC's response was:
As Mr Deegan accepted that contents of the Notice were relevant to the enquiry there were no grounds for varying its terms. The only variation that the Tribunal could make was to extend the deadline, which they duly did to 19th July 2013.
The full transcript of this case can be found by visiting http://www.bailii.org/uk/cases/UKFTT/TC/2013/TC02741.html
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