This case involves appeals by three individuals – Ismail Miah, Ala Uddin and Abdul Zilal – against notices issued to them by HMRC under Schedule 36 of the Finance Act 2008.

The background is that in January 2016, HMRC opened an enquiry under Code of Practice 9 (COP9) into the affairs of the three appellants on suspicion of tax fraud. As part of this, the appellants were offered the opportunity to make voluntary disclosures under the Contractual Disclosure Facility (CDF), but they did not respond. HMRC then issued notices under Schedule 36 requiring them to provide various documents and information relevant to their tax affairs.

The appellants appealed against the Schedule 36 notices on various grounds, which can be summarised as follows:

• The notices were unreasonable and unjustified, as there was no evidence of tax fraud.
• The COP9 enquiries were invalid as they needed to specify which tax years were under enquiry.
• The requested information related to periods outside the normal enquiry window, for which enquiry powers were unavailable.
• The Tribunal had no jurisdiction to consider the validity of the COP9 enquiries.
• The appellants had already been subject to a prolonged enquiry which resulted in a small settlement, suggesting the current enquiries were disproportionate.

The Tribunal dismissed the appeals and confirmed the notices, finding that the information requested was reasonably required to check the appellants’ tax position. Key points were:

• The Tribunal had no jurisdiction to close or supervise the COP9 enquiries, which could only be challenged by judicial review.
• The test under Schedule 36 is whether the information “could affect” the taxpayer’s position regarding tax, not whether it definitely would.
• Background suspicions of fraud meant wide-ranging enquiries were justified.
• Schedule 36 contains no time limit and applies regardless of whether a tax return is open to routine enquiry.

Analysis

This case provides useful guidance on the scope and limits of HMRC’s powers under Schedule 36 Finance Act 2008 to require taxpayer documents and information. Some key points arising are:

Reasonably required test

The Tribunal confirmed that the test is whether the information “could affect” the taxpayer’s tax position, not whether it necessarily would. This is an objective test based on the facts known to HMRC at the time rather than the ultimate relevance of the information. The request is likely reasonable as long as HMRC genuinely believes that the information could shed light on the taxpayer’s tax position.

This case’s background suspicion of fraud was clearly material, justifying wide-ranging enquiries. However, even without fraud, HMRC has broad powers to request information that could plausibly impact the taxpayer’s past, present or future tax liability.

No time limit

Schedule 36 states that the tax position includes past, present and future liabilities. The notices are not constrained by the normal time limits for enquiring into self-assessment returns. HMRC can effectively go on a “fishing expedition” if it has genuine reasons to believe the taxpayer may have understated their tax liabilities, regardless of how long the relevant accounting period was.

Burden of proof

The burden lies on the taxpayer to show that the information is not reasonably required, not on HMRC to prove it is. This reflects that the taxpayer holds the relevant information about their tax affairs. A mere assertion that HMRC is acting disproportionately or unreasonably will not discharge this burden.

No review of the COP9 process

The Tribunal firmly shut down any attempt to scrutinise or impugn the validity of the COP9 enquiry itself. Procedural impropriety can only be challenged by judicial review in the High Court. The Tribunal is concerned solely with the Schedule 36 notices themselves.

This means that opening a COP9 enquiry gives HMRC a strong basis to pursue wide-ranging information requests, which are not subject to appeal or review on the merits of the underlying suspicion of fraud.

Overall, while Schedule 36 provides some safeguards against completely unreasonable notices, this case shows HMRC has extensive powers to pursue extensive information from taxpayers once some grounds for suspicion are present. Subject to judicial review principles, it can only resist notices if the information clearly could not impact the tax position.

This may be concerning from the taxpayer’s perspective, but it reflects the policy imperative to tackle tax avoidance and evasion through broad investigation powers. There must be a balance between privacy, compliance burden, and revenue protection. The wider the investigatory powers, the more risk of excessive intrusion into taxpayers’ affairs. But equally, infractions may go undetected if HMRC’s powers are too constrained.

The Tribunal adopted a relatively generous approach to HMRC’s powers, indicating that the balance is tipped in favour of revenue protection over privacy. But the precise boundaries will continue to be tested in future cases.

Opinion: While HMRC requires strong powers of investigation, there is a danger that this case sets too low a bar and risks excessive intrusion into taxpayers’ affairs. Some points I would highlight are:

• The “could affect” test risks are too nebulous, giving HMRC excessive leeway. There is an argument that the threshold should be higher, i.e. HMRC must have reasonable grounds to believe the information would have a material impact on the tax position.
• Similarly, the burden of proof may be overly favourable to HMRC. There is merit in placing an initial evidential burden on HMRC to show a credible basis for believing the taxpayer may have understated their liabilities, or the information could shed light on an uncertain tax position.
• The inability to review the merits of a COP9 enquiry is also concerning. The risk of fishing expeditions would be curbed if HMRC had to demonstrate objectively reasonable grounds for suspicion before using this as a gateway to wide-ranging information notices.
• More consideration could be given to principles of privacy and proportionality to ensure intrusion into taxpayers’ affairs is no greater than reasonably necessary.

Overall the powers are framed in a fiscally conservative way, providing little safeguard against disproportionate use beyond judicial review. While information exchange is critical to effective tax collection, this case indicates the balance may have swung too far in favour of intrusive investigation with insufficient protection of taxpayers’ rights. If higher thresholds or safeguards were introduced to address privacy concerns, this need not dramatically undermine tax enforcement. But it would help ensure powers which can represent quite a serious intrusion into citizens’ affairs are deployed judiciously and appropriately.

Critical view of HMRC’s approach

Looking at HMRC’s approach in this case, some particular points of critique would be:

• Lack of clarity around reasons for suspicion – despite being given the opportunity, HMRC failed to provide details of the evidence or information leading to suspicions of fraud. This denies taxpayers a meaningful chance to respond.
• Apparent “fishing expedition” – schedule 36 used to make very wide-ranging requests over many years without a clear basis to suspect understatement in those specific years—an element of speculation rather than reasonable belief.
• Disproportionate reaction – previous extensive enquiry resulted in a very small settlement, suggesting a heavy-handed approach to reopen issues with stringent new powers.
• Failure to use graduated approach – schedule 36 was used as a first resort despite little evidence of prior non-cooperation, against the policy of using informal requests first.
• No attempt to narrow requests by engaging cooperatively once a dispute arose. The adversarial stance is taken.
• Time period – requesting documents predating relevant returns by over a year is unnecessary and excessive.
• Little attention to individual merits – blanket approach rather than tailoring requests to each taxpayer’s circumstances.

Overall, HMRC’s rapid resort to schedule 36 powers on a broad front suggests a blunt, uncompromising approach inconsistent with principles of proportionality and gradual escalation. The circumstances did not warrant such an aggressive stance, maximising the use of stringent powers.

More focus on open dialogue, narrower requests, and exploring alternative avenues for cooperation would have been preferable. The responsive, conciliatory approach expected of a modern tax authority needs to be revised. This risks undermining the legitimacy and trust in the system.

Accordingly, HMRC should review its operational guidelines to ensure transparent communication with taxpayers, use of powers only when necessary, and flexibility to narrow down requests wherever viable. A blanket “scattergun” approach risks undermining confidence in the tax authority and may prove counterproductive.

For COP9 Tax Investigations, tax resolution or compliance, please contact Tax Accountant at 0800 135 7323 or email info@taxaccountant.co.uk for expert advice.