David Whiscombe considers appeal rights in respect of information notices.
The Court of Appeal decision in PML Accounting Ltd [2018] EWCA Civ 2231 raises a number of interesting matters, some more arcane than others. However, the one that jumped out at us as being of potentially wide interest was about penalties for failure to comply with an “information notice” (that is, a notice issued under HMRC’s formal powers contained in Schedule 36 to Finance Act 2008).
HMRC have wide powers to require you to provide information or documents relevant to your own or someone else’s tax affairs. In most cases you can appeal against the notice (the exceptions are if the notice requires you to produce information or documentation that forms part of your statutory records or if HMRC issued the notice with the advance approval of (usually) the First-tier Tax Tribunal). Importantly, the burden of proof lies with you: the notice is valid unless you persuade the appeal body that it isn’t. And the appeal body’s decision is final – you cannot, in contrast to most appeals, pursue your case to the High Court and beyond.
If you don’t comply with an information notice, you become liable to a penalty. Again, you have the right to appeal against the penalty. This time, the burden of proof, as with all penalties, lies with HMRC: it’s for HMRC to show that you have incurred a penalty, not for you to show that you haven’t. And the normal appeal channels apply: in principle, at least, if you are unsuccessful before the appeal body you can take it further.
What, then, is the interaction between the two appeals? In particular, can you appeal against a penalty on the grounds that the notice wasn’t valid in the first place?
The minority view in the Court of Appeal, which seems to us to have much to commend it, was that the two appeals operate independently: the limited appeal rights and the burden of proof in the case of an appeal against the issue of the notice are consistent with the idea that “Parliament did not wish the collection of information by HMRC from taxpayers to be unduly delayed”. However, an appeal against a penalty “engages different considerations because the proceedings are of a penal character and involve the extraction of money by the State from the taxpayer”. The minority view was that it would be “extraordinary” if the taxpayer did not have a right to appeal against a penalty for non-compliance with a notice on the grounds that the notice was not a valid one.
Extraordinary though that proposition may be, that was precisely the decision of the majority of the Court of Appeal, which held that if you are going to challenge the validity of the notice, you must appeal against the notice itself (assuming that you have the right to do so at all). You can, of course, appeal against any subsequent penalty imposed for non-compliance, but in any such appeal the validity of the notice is taken as read. Thus, you may appeal only on the grounds, essentially, either that you have in fact complied with the information notice or that you have a reasonable excuse for your failure.
This makes it all the more important that the terms of any information notice are carefully examined when it is issued, and any challenge made at that time. Ignoring it and engaging with HMRC only when the inevitable penalty notice turns up may seriously compromise your position.
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This article has also been published by Tax Journal and is available on the Tax Journal website.
