Judgment summary
This appeal concerned an information notice (the IN) issued by HMRC to The Recruitment Crowd (Yorkshire) Ltd (RCYL) under paragraph 1 of Schedule 36 to the Finance Act 2008, on 8 April 2025 (paragraph 3). The IN required documents and information relating to RCYL's business to be provided by 12 May 2025 (paragraph 3).
RCYL appealed against the IN to the Tribunal under paragraph 29(1) of Schedule 36 (paragraph 12). The Tribunal heard oral evidence from HMRC officer Ms Chahal, who had issued the IN, and submissions from counsel for both parties (paragraph 1, 13).
The Tribunal considered whether parts of the IN concerned statutory records (paragraph 29(2)), whether the IN was invalid for uncertainty (Ground 2), and whether the IN satisfied the requirements of paragraph 1 and paragraph 21 of Schedule 36 (Ground 1). The Tribunal rejected HMRC's submission that certain requests (D1 to D4) related to statutory records, finding HMRC had not provided a sufficiently precise explanation (paragraphs 32 to 34). The Tribunal rejected Ground 2 on uncertainty (paragraph 35). On Ground 1, the Tribunal found that the IN was in substance directed at checking the tax position of third parties, not RCYL's own tax position, and therefore fell outside paragraph 1 and Condition B and C of paragraph 21 (paragraphs 46, 51). The Tribunal set the IN aside (paragraph 51).
Background
RCYL is a recruitment company that places candidates with end user customers who need staff (paragraph 4). HMRC sent an "opening letter" dated 19 March 2025 seeking documents and information, referring to concerns about "payroll company fraud" involving labour providers, payroll providers, or outsourcing of a workforce via TUPE to a third party (paragraphs 5, 7). RCYL denied receiving that letter, though the Tribunal found nothing turned on that question (paragraph 6).
The opening letter referred to a table of RCYL's RTI (real time information) return values for June 2024 to March 2025, noting a "variance" in the January 2025 figure of approximately £75,991.03, compared with figures in the £11,000 to £28,000 range for other months (paragraphs 8, 9).
HMRC subsequently issued the IN on 8 April 2025 under paragraph 1 of Schedule 36, containing document requests D1 to D6 and information requests I1 to I6, materially identical to the requests in the opening letter (paragraphs 10, 11). RCYL initially obtained an extension of time to respond in order to take advice, then appealed to the Tribunal (paragraph 12).
Core dispute
The dispute concerned whether the IN was validly issued under paragraph 1 of Schedule 36 to the Finance Act 2008, given that a taxpayer notice may only be given for the purpose of checking the tax position of the taxpayer to whom it is addressed (paragraphs 16 to 21).
Because RCYL had made relevant tax returns, paragraph 21 also applied, meaning HMRC needed to satisfy Condition B (reasonable suspicion of an under-declaration by RCYL) or Condition C (that the notice was also required to check a tax other than income tax, CGT or corporation tax) (paragraphs 22, 23, 37).
RCYL argued, under Ground 1, that HMRC's concerns as expressed in the opening letter and in Ms Chahal's evidence in fact related to the tax position of third parties in the labour supply chain, not RCYL's own tax position (paragraph 38). RCYL also argued, under Ground 2, that the IN was invalid for uncertainty because the period specified was "5 May 2024 to current" (paragraph 35), and, under Ground 3, that the whole IN should be set aside even in respect of requirements concerning statutory records, if the IN as a whole was invalid (paragraph 27).
HMRC maintained that requests D1 to D4 (VAT accounts, suppliers' invoices, evidence of payment, and bank statements) required the provision of statutory records, and were therefore not appealable under paragraph 29(2) of Schedule 36, while accepting that D5 and D6 were not statutory records (paragraph 31).
Court findings
The Tribunal rejected RCYL's Ground 3 submission that the Tribunal could set aside requirements relating to statutory records simply because the IN as a whole was invalid, holding that an appeal must be against the requirements in the notice, and that paragraph 29(2) means some requirements are simply not appealable to the Tribunal, with judicial review being the available remedy in such cases (paragraphs 28, 29).
The Tribunal held that HMRC bear the onus of proving that a request falls within paragraph 29(2) and paragraph 62, and must provide a clear explanation with relevant statutory citations; HMRC had not done so in relation to requests D1 to D4, and the Tribunal therefore proceeded on the basis that paragraph 29(2) did not apply to any requirement in the IN (paragraphs 33, 34).
The Tribunal rejected Ground 2 (uncertainty), finding that "to current" would reasonably be read as meaning "to the date of this IN" (paragraph 35).
On Ground 1, the Tribunal accepted RCYL's submission that HMRC's concerns, as set out in the opening letter and Ms Chahal's evidence, related to the tax position of third parties in the labour supply chain, not RCYL's own tax position, since RCYL does not itself use labour providers, outsource its workforce, or move workers (paragraphs 39 to 45). Ms Chahal accepted in cross-examination that RCYL was a "legitimate company" that was "paying its taxes" and that references to fraud in her witness statement concerned third parties (paragraph 15).
The Tribunal found no rational link between the concerns expressed and the extent to which the requests could be said to relate to RCYL's own tax position, including the RTI variance and VAT position (paragraphs 47 to 49). The Tribunal noted Ms Chahal accepted that request D5 was unreasonably wide and that comprehensive bank account and invoice requests went further than reasonable, and that the information requests I1 to I6 would have been unnecessary had the documents been provided (paragraphs 15, 50).
The Tribunal concluded the IN did not satisfy paragraph 1 or Condition B or C of paragraph 21, and was therefore invalid (paragraph 51). The Tribunal also stated, obiter, that even if the IN had been for the purpose of checking RCYL's tax position, there was no adequate reason for HMRC to suspect under-declaration for the purposes of Condition B of paragraph 21 (paragraph 52).
Outcome
The Tribunal set aside the information notice issued to RCYL on 8 April 2025 under paragraph 1 of Schedule 36 to the Finance Act 2008 (paragraph 51).
Major issues / areas of contention
- Whether an information notice under paragraph 1 of Schedule 36 to the Finance Act 2008 was validly issued where the underlying concern related to the tax position of third parties rather than the addressee taxpayer.
- Whether requests in the notice fell within the definition of statutory records under paragraph 62, engaging the bar on appeal in paragraph 29(2) of Schedule 36.
- Whether HMRC must provide a clear, precise explanation with statutory citations before the Tribunal to establish that a request concerns statutory records.
- Whether the notice was invalid for uncertainty due to the phrase 'to current' defining the relevant period.
- Whether Condition B or Condition C of paragraph 21 of Schedule 36 were satisfied so as to permit a post-return taxpayer notice.
- Whether the scope of certain requests (such as for any contract with any third party) was unreasonably wide.