This case saw the First-tier Tribunal (Tax Chamber) (FTT) uphold the appeal of the taxpayer against penalties imposed by HMRC for non-compliance with an information notice issued by HMRC pursuant to paragraph 1, Schedule 36, Finance Act 2008 (the Information Notice). The FTT found that the information notice was too vague.
The taxpayer was interviewed by police officers under caution in January and March 2008. In the course of those interviews he admitted to earning circa £80,000 per annum, and to not paying any tax or national insurance contributions on those earnings.
On 21 January 2010, the taxpayer was sentenced to five years' imprisonment for his part in various benefit and mortgage frauds. On 28 February 2013, HMRC wrote to the taxpayer regarding his self-assessment tax returns for 2009/10 and 2011/12, which had not been filed. HMRC wished to discuss this with the taxpayer, and whether he should be registered for VAT.
The taxpayer refused to meet with HMRC and instead replied by correspondence to the effect that he had not traded as a financial adviser since January 2010. HMRC stated that they had information indicating that the taxpayer had traded as a financial advisor prior to January 2010 and sought information from him.
In the absence of a reply, the Information Notice was issued to the taxpayer demanding:
"Full details of your income as a Financial Advisor from the date you commenced to 31 December 2009.
Details of payments made to workers from the date you commenced as a Financial Advisor to 31 December 2009.
The names and addresses of any workers you engaged from when you commenced in business to 31 December 2009."
In July 2013, having received no response from the taxpayer to the Information Notice, HMRC imposed a penalty on the taxpayer of £300, pursuant to paragraph 39, Schedule 36, Finance Act 2008. The taxpayer appealed this penalty to HMRC on the basis that he did not receive a tax return at the correct time and did not believe any tax to be payable, or capable of being paid. HMRC replied that this was not a valid ground of appeal.
Nothing further being heard from the taxpayer, daily penalties were awarded, totalling £600, pursuant to paragraph 40, Schedule 36, Finance Act 2008. These were again appealed by the taxpayer, and HMRC again rejected his appeal.
On 15 February 2014, the taxpayer appealed to the FTT on the grounds that (broadly) he had never traded as a financial adviser. At the hearing of his appeal it became clear that the source of HMRC's information was the interviews under caution which had taken place in 2008. The taxpayer said – for the first time – that the reason he had not responded to the Information Notice was that all of his papers were with the police, making compliance impossible.
The taxpayer claimed a reasonable excuse for not complying with the Information Notice.
Although the FTT could find no fault in the procedure adopted by HMRC, it was of the view that the terms of the Information Notice were so vague and unlimited in point of time that this would very likely constitute a reasonable excuse for non-compliance with the Information Notice, independently of the taxpayer's claim that his papers were with the police.
The FTT therefore allowed the appeal, but left the door open to HMRC to issue a further information notice, which would "need to be more precise, at least as to its time coverage".
All too often HMRC issue information notices which are vague and imprecise. In such circumstances, taxpayers should be prepared to challenge the scope of the information notice and as this case demonstrates, the FTT will not uphold penalties imposed by HMRC for non-compliance with defective information notices.
It is disappointing that HMRC will be able to issue a further information notice (appropriately drafted) as this provides little incentive to HMRC to ensure that their information notices are properly drafted in the first place.