There is general principle that taxpayers and the exchequer should have some certainty as the amount of tax that is due and payable. Therefore, where self-assessment income and capital gains tax returns are filed on time there is only a 12-month window for HMRC to open an enquiry into that return. HMRC can make discovery assessments, but these discovery assessments are again limited in time, generally 4 years from the end of the relevant tax year where there have been no careless or deliberate errors. Careless errors extend the time limit to 6 years and deliberate errors and other issues can extend the time limit to 20 years.
HMRC opened an informal investigation into a taxpayer’s returns. This wasn’t a formal enquiry into the tax return but a simple letter to the taxpayer requesting information to support the figures disclosed into his tax return. Eventually a meeting was held between HMRC and the taxpayer and his advisers and further information was requested. HMRC then went on to request information from businesses that the taxpayer was involved with along with information from overseas tax authorities.
The taxpayer sought to limit HMRC’s informal investigation by way of judicial review. The High Court (HC) ruled that it couldn’t interfere with HMRC’s informal investigation and could only interfere in exceptional cases where the legal merits of a particular case required the court to interfere. The taxpayer appealed the HC’s decision to the Court of Appeal (CoA).
The CoA held the decisions of the HC to be correct and it agreed with its findings. The CoA found that the informal investigation was not outside of the powers of HMRC, that only a truly exceptional case would require the courts to interfere with HMRC’s investigations and found that considering the case its circumstances were not exceptional.
The appeal was dismissed and no judicial review into HMRC’s informal investigation will take place. HMRC can continue to informally investigate the taxpayer. The taxpayer doesn’t have to cooperate with this investigation but then HMRC can resort to compulsion by way of information notices where voluntary compliance doesn’t provide the information reasonably required of HMRC.
The decision can be found at: JJ Management Consulting LLP & Ors v Revenue And Customs Respondents – Find case law (nationalarchives.gov.uk)
Please let us know if you have received any correspondence from HMRC that are you are uncertain with. We can held decide what information should or should not be provided to HMRC.
