Third party information notices: some clarity

HMRC has wide investigatory powers. They include the power under Schedule 36 to serve “third party” notices which require a person to produce documents or information which HMRC says it needs to investigate the tax affairs of another. A third party notice can be issued only if the First-tier Tribunal (“FTT”) gives consent (unless the taxpayer himself gives consent – the circumstances in which he might be advised to do so are interesting but a diversion from the point of this note). The third party has no right to be present when the application for consent is made: instead, he is entitled to make representations on the matter to HMRC, who are obliged to present a summary of the representations to the FTT. The arrangement has been described as one of “judicial monitoring” rather than “inter partes adversarial litigation”.

The recent case of HMRC v Ariel [2016] EWHC 1674 (Ch) is the first in which the position of a trustee in bankruptcy has been considered. But the things that the court said may have wider application.

Mr Ariel, a potential recipient of a third party notice, had submitted to the FTT that his position as a trustee in bankruptcy raised special issues. In particular he was under the Insolvency Act 1986 an officer of the court subject to the statutory regime imposed by the Act and the Insolvency Rules; and certain of the documents in which HMRC had expressed an interest were ones he had acquired either under compulsion, exercising his powers under the Act, or subject to undertakings as to their use. He persuaded the FTT to defer issuing any notice pending his seeking advice from the Bankruptcy Court as to his obligations under the Insolvency Act. The Bankruptcy Court duly opined, in terms that severely restricted Mr Ariel’s obligations under Schedule 36. Thus the question before the High Court was essentially a jurisdictional one: did the FTT have sole power (subject only to judicial review) to determine whether a third party notice should be issued and what it should say? Or did the Bankruptcy Court have a say where a trustee in bankruptcy was involved?

The answer, very firmly, was that jurisdiction was with the FTT alone.

But that was not the end of the story.  The High Court agreed that to some extent the position of a trustee in bankruptcy did raise special issues (some of which might also arise in other cases), and that those special issues had to be addressed in determining the scope and terms of any third party notice.  But they had to be addressed not by the Bankruptcy Court but by the FTT itself.  Those issues potentially included questions of confidentiality and of cost.

The fact that documents held by the recipient of a third party notice have emanated from another person, and particularly where they were obtained under compulsion, and even more particularly where undertakings have been given to a foreign court or other body, is something to which those deciding on further disclosure must be sensitive. It does not follow that the information should not be further disclosed, but the point needs addressing with proper consideration given to the interests of those who disclosed the information to the trustees in the first place.”

Similarly, the High Court thought that the fact that the costs of complying with a notice may exceed the assets available in the bankruptcy (so that the costs would have to be borne by the trustee himself) could not be shrugged off in the way that HMRC suggested.  And even if there were funds available it would not necessarily be right for them to be used to meet the costs of complying with a notice, for this would effectively impose the costs on the creditors.  It seems to us that this is an important principle of wide application: if it is not right that a trustee in bankruptcy or creditors of a bankrupt should automatically bear the costs of a third party notice, it is arguably not right that any other “innocent” third party should bear such costs.

The High Court expressly stated that it was not determining these points, but making clear that these were material factors which had to be taken into account by the FTT in making its decision.  Further, although Schedule 36 did not give the third party the right to be heard as part of the application process, there was nothing to prevent the FTT from allowing a trustee in bankruptcy (or, by implication, any third party) to make direct representations and that “in the more complex (though not necessarily in all) cases the FTT would be much assisted” thereby.

In summary, therefore, this is a case which HMRC “won” in the sense that, as they asserted, control lay with the FTT and nowhere else: but the “victory” is tempered by the reminder of the careful consideration that the FTT must give to all relevant factors before sanctioning the issue of a third party notice including, perhaps, direct representations of the third party and considerations as to where the costs of compliance should fall.

For more on Revenue powers including third party notices or advice in particular cases please get in touch with your usual contact partner or use our enquiry form.



Sam Inkersole

In 2022, Sam won the Taxation’s Rising Star award at the Taxation Awards in and was named in the Accountancy Age 35 Under 35.

Jon Wedge

While Jon’s client work focuses on the financial services sector, he also oversees the firm’s assurance service, as well as supporting the trainees following in his footsteps.


Elana joined us in 2017 as an ACA trainee, after graduating from Durham University where she had studied languages. She is now a manager in our assurance team.


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