Mark McLaughlin outlines the type of information and documentation a taxpayer is obliged to hand over if HMRC issues them with an information notice.
Taxpayers generally prefer not to be contacted by HM Revenue and Customs (HMRC); after all, it is seldom good news when this happens!
Information notices
It is not uncommon for HMRC to issue a notice requiring a taxpayer to provide information or produce documents which HMRC considers are ‘reasonably required’ to check the return (FA 2008, Sch 36, para 1).
Taxpayers have a general right of appeal against HMRC’s information notices. However, there is no right of appeal if the information or document forms part of the taxpayer’s statutory records.
So, what are ‘statutory records’?
No hiding place?
Information or documents are part of the taxpayer’s ‘statutory records’ broadly if the tax legislation requires the taxpayer to keep them (FA 2008, Sch 36, para 62).
For example, there is a general obligation for an individual who files tax returns to keep all such records as may be requisite for the purpose of enabling them to make and deliver a correct and complete return for the year or period. This is not particularly informative. However, for self-employed taxpayers, at present, the business records to be kept include records of the following: (TMA 1970, s 12B(3)):
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All receipts and expenditure in the course of the trade, etc., “…and the matters in respect of which the receipts and expenditure take place; and
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All sales and purchases of goods made in the course of the trade”.
Some commentators have expressed the view that bank statements do not constitute statutory records for information notice purposes. However, HMRC can be expected to challenge such an assertion, particularly in the case of business bank statements, and it has done so successfully before the tax tribunal in the past.
Rental properties
Some residential property landlords use their personal bank account to receive rents and pay property expenses. This is not to be recommended.
For example, in Smith v Revenue and Customs [2015] UKFTT 200 (TC), the taxpayer received rental income but did not operate separate business and private bank (and credit card) accounts. The First-tier Tribunal (FTT) found that the information was reasonably required and decided that the taxpayer must provide the bank and credit card statements, but omitting any personal information.
In Perring v Revenue and Customs [2021] UKFTT 110 (TC), the FTT held that the following formed part of the taxpayer’s statutory records of a property rental business:
(i) Details of rent and expenditure relating to a property, including its address.
(ii) The dates of acquisition and disposal can be part of a statutory record for a rental business where the acquisition or disposal occurs in a year in respect of which the rental business was carried on.
However, the FTT in Perring also stated: “The source of funding is not relevant to the computation of the rental business profits. It can only form part of the statutory records of the rental business in a year if the cost of finance would be a deductible item in that year.”
Practical tip
Even if bank statements do not form part of a taxpayer’s statutory records, that does not necessarily preclude HMRC from seeking access to them, if those bank statements are ‘reasonably required’ by HMRC for checking the taxpayer’s tax position (or collecting tax debt). Expert professional advice in these areas is strongly recommended.
