Schedule 36 request not reasonably required

In Barry Davies, Rupinder Mahil and the Davies Mahil Partnership v HMRC [2022] TC 8619, the First Tier Tribunal (FTT) allowed appeals against Schedule 36 information notices. The information requested was not reasonably required and HMRC was directed to issue a closure notice.

Barry Davies and Rupinder Mahil (the appellants) were husband and wife and operated a property investment partnership, the Davies Mahil Partnership.

• HMRC opened an enquiry into their 2017-18 tax returns.
• The enquiry was notified by letter, raised in time, and requested a series of 21 items.
• Schedule 36 Information Notices followed.
• These notices requested information from years other than that under enquiry.
• The Appellants Appealed against the information notices.

The FTT found that:

• An officer had a reason to suspect that an amount ought to have been assessed, an assessment was insufficient, or excess relief had been given as:
  • Income levels did not support the fast increase in size of the partnership property portfolio.
  • Information provided by the taxpayer changed the nature of the suspicion as it highlighted that partnership capital, funded by mortgages, had been used personally. This could lead to a disallowance of interest if partnership capital accounts were overdrawn.
  • The change in suspicion did not invalidate the information notices.
• The information requested was not reasonably required as:
  • It would have been very onerous to provide.
  • It would not necessarily provide HMRC with the details they would need to calculate any tax shortfall.
  • HMRC guidance to their staff indicates it is impractical to look at every entry in an account and to use a reasonable basis for an approximation.

• The FTT directed HMRC to issue a Closure notice within 90 days.

The appeal against the information notices was allowed.

Comment

This case is a welcome reminder that while information requested by HMRC can be relevant to an enquiry, it is not necessarily reasonably required. Schedule 36 information requests can be challenged.

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 Information Notices: At a glance (Freeview)
What is a Schedule 36 Information Notice? When can HMRC issue one? What rights does the taxpayer have when an information notice is issued?

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 links

Barry Davies, Rupinder Mahil and the Davies Mahil Partnership v HMRC [2022] TC 8619