Schedule 36 Finance Act

Schedule 36 of the Finance Act 2008 grants broad information powers to HM Revenue & Customs (HMRC) in the UK. These powers enable HMRC to request information from taxpayers and, in certain circumstances, from third parties, to check a taxpayer’s tax position. Understanding the scope and limitations of Schedule 36 is crucial for both taxpayers and advisors.

Scope of the Powers:

The core purpose of Schedule 36 is to allow HMRC to obtain information relevant to a taxpayer’s tax liability. This information can include documents, records, and explanations. HMRC can issue two primary types of notices under Schedule 36:

• Taxpayer Information Notice (TIN): This compels a taxpayer to provide specified information or documents within a set timeframe.
• Third Party Information Notice (TPIN): This requires a third party, such as a bank, accountant, or solicitor, to provide information about a taxpayer. TPINs are subject to stricter safeguards than TINs.

HMRC can use these powers to check past, present, or future tax positions. They can also use them to establish if a person should be within the charge to tax.

Safeguards and Restrictions:

While Schedule 36 grants HMRC significant authority, it also includes vital safeguards to protect taxpayer rights. These safeguards include:

• Reasonable Grounds: HMRC must have reasonable grounds to suspect that tax is, has been, or may be unpaid before issuing a notice.
• Specificity: Notices must be reasonably specific about the information required. “Fishing expeditions” are not permitted.
• Review by Tribunal: A TPIN generally requires the approval of the First-tier Tribunal (Tax) unless the taxpayer consents to its issuance. This is a crucial safeguard designed to prevent abuse of power and protect confidentiality.
• Legal Professional Privilege: Information protected by legal professional privilege is exempt from Schedule 36. This means that confidential communications between a lawyer and their client relating to legal advice cannot be compelled.
• Time Limits: There are time limits within which HMRC can issue notices, generally related to the statutory time limits for assessing tax.
• Appeal Rights: Taxpayers have the right to appeal against a Schedule 36 notice.

Penalties for Non-Compliance:

Failure to comply with a Schedule 36 notice can result in significant penalties. These penalties can be substantial and are designed to encourage compliance. If a taxpayer refuses to comply or provides inaccurate information, HMRC can apply to the Tribunal for further penalties.

Importance of Professional Advice:

Given the complexity of Schedule 36 and the potential consequences of non-compliance, it is crucial for taxpayers who receive a notice to seek professional advice from a qualified tax advisor or solicitor. A professional can help assess the validity of the notice, ensure compliance, and protect the taxpayer’s rights. They can also represent the taxpayer in any appeals or Tribunal proceedings.

In Conclusion:

Schedule 36 is a powerful tool for HMRC in its efforts to ensure tax compliance. While it provides broad information gathering powers, it is subject to important safeguards and restrictions. Taxpayers who receive a Schedule 36 notice should understand their rights and responsibilities and seek professional advice to navigate the complexities of the legislation.