“Fishing Expedition” Tax Enquiries Are Allowed

The independent Tax Tribunal has ruled that HMRC can use its Information Powers in the course of a Tax Enquiry to launch so-called “fishing expeditions”: that is wide-ranging snooping exercises looking into areas – even where the taxman currently has no actual suspicions of tax irregularities.
In the case of Rankin v HMRC (2016: TC/2016/02557) the First Tier Tribunal Judge Jennifer Dean noted that HM Revenue and Customs had issued an Enquiry Notice within normal time limit (the so-called “enquiry window”).  So, in considering the limits to HMRC’s formal powers to obtain information (Finance Act 2008, Schedule 36), the stricter rules relating to discoveries (s29 Taxes Management Act 1970) did not apply. Whereas in a Discovery Enquiry (i.e. a tax investigation opened outside the normal time limits) HMRC need to have reasonable grounds to believe tax has been underpaid (or over-repaid), a normal time limit Tax Enquiry can be made simply for the purpose of “checking” a person’s tax position.

Judge Dean quoted with approval Judge Mosedale’s comments in the Spring Capital Ltd case:

“There is nothing in this section that requires HMRC to suspect that the return is incorrect before issuing an information notice. HMRC are entitled to check a taxpayer’s tax position and they are entitled to any documents or information reasonably required for the purpose of doing so. In other words, HMRC are entitled to undertake ‘fishing expeditions’ when checking returns: they do not need suspicion in order to check a tax return.”

One remaining limit on the use of the Information Powers by the taxman is that the material must be “reasonably required”, for the purpose of carrying out the wide-ranging check. However, in practice that will probably only exclude items which could never be relevant to someone’s tax position.

What does this mean to me?
If you are being investigated by HMRC they are likely to use their Information Powers at some point.  There are restrictions on the items they can ask for.  Our experience is that where taxpayers provide extra material, this usually leads to the tax investigation being dragged out and additional professional costs being incurred: particularly in cases where there is no additional tax to pay on those issues. You can therefore safeguard your position by limiting what you supply.  However, as this tax case demonstrates, care has to be taken when challenging the extent of HMRC’s powers: which can be (as here) very wide-ranging.  The extent of an Information Notice can be formally challenged at the Tax Tribunal.  And more frequently HMRC can be persuaded to restrict the items they are asking for. However, simply ignoring all or part of an Information Notice can lead to swingeing penalties.

How Can Lynam Tax Enquiry Experts Help Me?
Our tax investigation specialists have enormous experience in dealing with HMRC Enquiries and Information Notices. We can frequently persuade the taxman to reduce the scope of their information requests before they issue a formal Notice.  We can advise if an information request is valid and/or can be challenged. We have also had years of success in challenging the scope and extent of information requests both informally and also through the appeal channels of Statutory Review and the Tax Tribunal.

Call today for a free initial consultation:

Paul Lynam: 0845 643 9997

Andrew Nutbrown: 0771 877 8710