A group of taxpayers have lost their case at the Court of Appeal (CoA) concerning the issue of third-party information notices.  The case had been similarly dismissed at the lower tribunals.

When HMRC want information, they typically ask the taxpayer to voluntarily provide it.  Where the information is not voluntarily provided by the taxpayer, they can compel the taxpayer to provide the information by way of an information notice.  A taxpayer can appeal this information notice.  If the taxpayer agrees HMRC can issue an information notice to a third party that will compel the third-party to provide information to HMRC.  Like the taxpayer, the third-party can appeal the information notice.  In cases where the taxpayer refuses to provide authorisation for HMRC to issue an information notice to a third-party HMRC can obtain permission from the First-tier Tribunal (FTT) to issue a third-party notice.

In the present case, HMRC had informed the taxpayer that it was going to seek approval from the FTT to issue a third-party information notice.  These legal proceedings are normally held in private and are ex parte, being between the judge and HMRC alone.  The taxpayers contended that the hearing should be held in public and be inter partes, that they have a chance to represent themselves and receive all information in advance of any hearing.

The FTT held that it did have the power to hold an inter partes hearing in relation to third-party information requests as the legislation didn’t provide for it.  It also ruled that it didn’t have the power to hold the hearing in public.  The taxpayers appealed this decision.

The Upper Tribunal (UT) heard the case and concluded that the FTT was correct that the hearings relating to third-party information notices could only be held on an ex parte basis but that the FTT did have the power to consider whether those hearings could be held in public.  The UT didn’t think hearings would ever be held in public but there was no absolute bar on the FTT from holding public hearings.  Considering the confidential nature of the information that would be discussed, such as taxpayers’ financial affairs, it seemed unlikely that there would ever be a public interest reason to hold a public hearing.

The taxpayers appealed the UT’s decisions.  The CoA rejected the appeal finding that the UT was correct.  The statutory scheme of third-party information notices meant that the review by the FTT was a judicial monitoring process and not an adversarial process that the taxpayers expected.  The third-party could appeal the information notice on receipt and the taxpayers could appeal the closure notice that HMRC would eventually issue.  The CoA also confirmed that the rules of the tribunals, as they were created by statue, allowed this approach as the other side in these hearings were the third-parties and not the taxpayers.

The decision can be found at: Kandore Ltd & Ors v Commissioners for Her Majesty’s Revenue and Customs [2021] EWCA Civ 1082 (16 July 2021) (bailii.org)

As the Finance Act 2021 has now received royal assent HMRC have a new information power at their disposal, being the Financial Institution Information Notice.  HMRC can now issue information notices to financial institutions to obtain information about a taxpayer to help with checking the taxpayer’s tax affairs or to collect a debt.  HMRC must let the taxpayer know but can seek permission from the FTT to disapply the requirement to let the taxpayer know.  HMRC no longer must obtain FTT approval from the FTT to obtain information from a financial institution.

Please contact us if you have received notice that HMRC have issued a third-party notice to someone about your tax affairs or if you are a recipient of a third-party information notice.  We can help draft appropriate responses to HMRC and can advise on strategies.