Information requested by HMRC not reasonably required

In David Hackmey v HMRC [2022] TC8487, the First Tier Tribunal (FTT) partially allowed an appeal against a Schedule 36 information notice. The information requested was not reasonably required to satisfy HMRC’s remaining suspicions of fraud.

Mr Hackney moved to the UK in 2007 remaining UK resident but Non-UK domiciled up to the present date, claiming the Remittance Basis of taxation.

• Throughout the periods in question (2006-2016) Mr Hackmey owned two UK property companies, one of which was profitable, which managed the family’s real estate interests.
• For the tax years 2006-07 to 2012-13, he declared bank interest as his only source of income paying the Remittance Basis Charge. From 2013-14 to 2015-16, he declared no income at all under Self Assessment. He did not declare any earnings or dividends from his UK companies as he did not receive any such payments.
• In contrast between 2008 and 2012 he paid over £1.1m in rent and in 2013, he purchased a home for £9.7m paying (Stamp Duty Land Tax (SDLT)of £679,000.
• Due to Mr Hackmey’s lifestyle being inconsistent with his declared income, in July 2017 HMRC advised him that he was suspected of tax fraud and invited him to make a contractual disclosure under COP9.
• In September in 2018 HMRC issued a Schedule 36 information notice. This was later amended following a Statutory Review.
• Mr Hackmey Appealed the information notice. The appeal was stayed and some information was provided to HMRC including:
  • Redacted UK and Swiss bank statements.
  • Details of funds brought to the UK.
  • Confirmation that Mr Hackmey was not settlor or trustee of any trust but was a beneficiary of a trust from which he had received an offshore distribution in 2015.
• In  2020 HMRC opened an enquiry into his 2017-18 tax return advising that they intended to apply for an information notice and a Third-party notice.
• Mr Hackmey’s father wrote to HMRC advising that he had given his son £9.1m between 2013 and 2018 (this was corroborated by a letter from his Israeli accountants) and had acted as guarantor for a £5.7m mortgage.
• HMRC raised protective assessments for 2013-14 to 2015-16. As the stayed appeal had expired they sought to move Mr Hackmey’s appeal to a tribunal hearing. HMRC ascertained that Mr Hackmey may have access to funds from other trusts which held shareholdings in valuable offshore companies via his children, as well as funds from his UK companies.

The FTT partially allowed the appeal:

• Despite initial suspicions of fraud, HMRC had accepted that Mr Hackmey had been funded by cash from his father who, it was publicly known, was extraordinarily wealthy.
• Whilst HMRC had concerns over ‘taxability’ issues including whether any of the gifts from his father were actually remuneration for his work managing the family real estate interests, and whether the transfer of assets abroad rules might apply, none of the information requested addressed these issues.
• Whilst HMRC may have had reasonable grounds to suspect that Mr Hackmey had not declared all of his UK taxable income they had failed to link the documents and information requested to those reasonable suspicions. They had asked for documents because it was ‘usual practice’ which was not a reasonable basis in itself for seeking such documents here.
• As a result, the following documents were not reasonably required by HMRC:
  • Unredacted UK bank statements.
  • Unredacted credit card statements (UK and overseas).
• However, details of trusts which may be involved in UK real estate projects were reasonably required and of which Mr Hackmey may have been a beneficiary. 

The judge concurred with an earlier tribunal decision that a mere desire for background information is not enough to justify a Schedule 36 notice as that would amount to 'fishing'. The decision here shows that the tribunal will not countenance such behaviour and that, just because HMRC ask for certain information and documents, that does not mean that they are legally entitled to receive them.

Useful guides on this topic

Sch 36 Information Notices
What is a Schedule 36 Information Notice? When can HMRC issue one? What rights does the taxpayer have when an information notice is issued?

Sch 36 third party notices
When can HMRC require a third party to provide information or produce a document in relation to a taxpayer? Who can appeal a notice? What rights does the taxpayer have?

How to appeal an HMRC decision
Disagree with an HMRC decision? How to appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?

External link

David Hackmey v HMRC [2022] TC8487