Mark McLaughlin looks at whether a taxpayer can find out if an HMRC enquiry has been opened as the result of an accusation made by a third party.
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When HM Revenue and Customs (HMRC) opens a tax return enquiry, the natural reaction of most taxpayers is to speculate about the reason why their tax return has been selected. In fact, HMRC does not need an excuse to open a tax return enquiry; a small proportion of tax returns are simply selected at random.
Random or targeted?
However, HMRC normally opens an enquiry due to information that there is something wrong with the return. For example, HMRC’s ‘Connect’ computer system collates information from a multitude of sources (e.g., council tax, DVLA) to assist in identifying undisclosed or fraudulent activity. In addition, HMRC sometimes receives ‘tip-offs’ from third parties (e.g., disgruntled ex-employees, dissatisfied customers, jealous competitors and malicious gossips). The taxpayer might consider it in their best interests to source the informant and the information or allegations. Does HMRC have an obligation or discretion to disclose ‘tip-offs’ to taxpayers?
The Freedom of Information Act 2000 (FOIA 2000) (and equivalent Act in Scotland) provides a public ‘right of access’ to information held by public authorities. Members of the public are entitled to request information without needing to explain the reason. However, information requests can be refused in certain circumstances (e.g., if they would be too costly or time-consuming), and are subject to various exemptions allowing information to be withheld (e.g., on prejudice or public interest grounds).
Furthermore, the Commissioners for Revenue and Customs Act 2005 (CRCA 2005) imposes on HMRC a general duty of confidentiality. This includes an exemption from disclosure under FOIA 2000 of any information relating to identifiable HMRC ‘customers’ (CRCA 2005, s 23).
Tax tribunal to the rescue?
In First-tier Tribunal (FTT) cases, the FTT may make a direction requiring the provision of information to the tribunal or a party to the hearing. However, it does not necessarily follow that the FTT will require HMRC to tip off the taxpayer.
For example, In Hayes v Revenue and Customs [2024] UKFTT 118 (TC), HMRC opened an enquiry into the taxpayer’s tax return for 2019/20. The taxpayer applied to the FTT for a direction that HMRC should issue a closure notice, on several grounds. These included that HMRC should disclose why they picked her return for an enquiry, due to concern that the taxpayer had been selected for enquiry because of an approach by a third party who had been subjecting her to online harassment and made complaints against her to various bodies.
The FTT noted that HMRC had a general duty of confidentiality (under CRCA 2005, s 18), but this could be overridden by a disclosure order. However, the FTT decided not to order disclosure, for the following reasons: (a) Knowledge of whether a third-party tip-off to HMRC was the source of the enquiry did not further the hearing, but concerned the taxpayer’s wider issues relating to harassment; (b) HMRC had a legitimate public interest in defending its right to confidentiality of this nature of information, which enabled HMRC to meet its obligations of collecting the right amount of tax from all taxpayers. The taxpayer’s appeal was dismissed.
Practical tip
If someone wants to see information that a public authority holds about them, they should consider making a data protection subject access request under the Data Protection Act 2018.
