In The Barty Party Company Limited v HMRC  UKFTT 697, the First-tier Tribunal (FTT) allowed the taxpayer's appeal against an information notice which HMRC had issued pursuant to Schedule 36, Finance Act 2008, on the basis that the information notice was invalid.
The Barty Party Company Limited (the taxpayer) runs a public house business in Bath.
In May 2016, HMRC selected the taxpayer for a VAT check and made arrangements to visit the taxpayer's premises. After two postponements, the visit eventually took place on 12 July 2016. During the visit the taxpayer was unable to produce the specific information requested by HMRC including a current drinks price list and set of purchase invoices for the 04/16 VAT period.
An information notice was first issued to the taxpayer, pursuant to paragraph 1, Schedule 36, Finance Act 2008, on 21 July 2016. This notice was withdrawn on 9 November 2016, due to what HMRC described as an administrative error; no schedule setting out the information required had been attached to the information notice.
A replacement notice, including the missing schedule, was issued to the taxpayer on 10 November 2016 (the Information Notice). In this notice, HMRC requested statutory records for the period 1 February 2012 to 30 April 2016. The taxpayer appealed against the Information Notice on the basis that: the information requested was not reasonably required by HMRC (paragraph 1(1), Schedule 36, Finance Act 2008); the VAT periods covered by the Information Notice went beyond the four year enquiry window (section 77, Value Added Tax Act 1994) and the requirement to provide non–statutory information, i.e. the drinks price list.
As at the date of the hearing, none of the information requested by HMRC had been provided by the taxpayer.
The appeal was allowed and the Information Notice was treated as invalidly issued.
The FTT noted that in normal circumstances HMRC can only go back four years to issue an assessment therefore the only information which could reasonably have been requested, as at 10 November 2016, was information relating to VAT periods starting after 1 November 2012. However, as the Information Notice requested records for a period commencing on 1 February 2012, the FTT said that HMRC needed a specific reason to justify requesting information relating to this earlier period.
HMRC was unable to provide an explanation as to why information was required beyond the normal four year period. In the circumstances, the FTT said that it would expect HMRC to allege careless or deliberate conduct on the part of the taxpayer in order to justify seeking information beyond the four year time period. However, no such suggestion was made in this case. In fact, the taxpayer had already been subject to a VAT check for earlier periods (up to April 2012) which HMRC failed to take account of in issuing the Information Notice for a period commencing with VAT period 1 February 2012.
In the FTT's view, requesting information for periods outside the normal four year assessment period and for which a VAT check had already been made without providing a specific reason why information was required for those periods, was a sufficiently fundamental flaw to render the Information Notice invalid in its entirety.
HMRC's ever increasing use of its information powers has resulted in a number of recent appeals to the FTT and this latest decision is a timely reminder that there are limitations on HMRC's information powers.
HMRC can only go back four years when raising a VAT assessment unless there is an allegation that a loss of tax has been brought about due to careless or deliberate conduct on the part of the taxpayer, in which case it can go back six years or 20 years, respectively. If HMRC request information to "check the taxpayer's VAT position" for more than the normal four year period, it will need to provide a specific explanation as to why the information is required, or risk rendering the whole information notice invalid.
Taxpayers should carefully review any information notices they receive and where appropriate challenge their validity.
A copy of the decision can be found here.