FTT Upholds Information Notice But Varies It

Under Schedule 36 of the Finance Act 2008, HM Revenue and Customs (HMRC) may require a taxpayer to provide information or documents that are reasonably required for the purpose of checking the taxpayer's tax position. Recently, a taxpayer's appeal against an information notice issued under Schedule 36 resulted in the FTT varying it.

HMRC believed that the taxpayer's employer was involved in a tax avoidance scheme by which payments to employees were split into a salary and what was described as a commission, the latter being paid without deductions of PAYE and NICs. HMRC issued the taxpayer with an information notice under Schedule 36. The taxpayer appealed to the FTT on the basis that the notice was too speculative and was therefore invalid. He also argued that his earnings were a personal matter and HMRC should have sought the relevant information from his employer.

The FTT noted that HMRC did not know whether the taxpayer was one of the employees who had allegedly been paid in a way that meant earnings were not taxed. However, the level of his known earnings was consistent with the possibility that there were further earnings on which tax had not been deducted. His earnings were something that HMRC were entitled to check. The FTT accepted that, if more tax should have been accounted for, it appeared to be the employer who would be liable to pay it. However, the matter still related to the taxpayer's tax affairs.

While upholding HMRC's right to ask the taxpayer questions about his earnings from the employer, the FTT considered it appropriate to amend the notice. A request for an explanation of what he had been told about the pay arrangements, and by whom, was removed as it was not reasonably required: what was important was how much he had received. For the same reason, a request for information about his clients and where he had worked was also removed. He was also permitted to redact copies of bank statements he supplied to HMRC so as not to show payments from his accounts.