In HMRC v X Ltd, Y Ltd and Z Ltd [2018] TC06846 the First Tier Tribunal (FTT) held that where a hearing was held to approve HMRC issuing third party notices, neither the taxpayer nor the third parties were entitled to attend. 

A Schedule 36 FA 2008 notice is a formal request by HMRC for information that is reasonably required to check a taxpayers tax position and may be issued to third parties, without the taxpayer’s knowledge:

  • Third party notices  must be approved by the FTT unless the taxpayer agrees, or there are certain special circumstances.
  • The third party has no right to attend the FTT hearing where HMRC applies for approval.
  • The third party is entitled to make representations to HMRC, who must provide a summary of these to the FTT.

HMRC opened enquiries into the corporation tax returns of three taxpayer third party companies: X Ltd, Y Ltd and Z Ltd.

  • HMRC was concerned about the robustness of the company financial records so issued informal information requests to the company directors and shareholders which were refused. HMRC applied to the Tribunal for approval of formal third-party notices addressed to a large number of individuals.
  • The individual third parties and companies’ representative asked to be notified about the timing of any FTT hearing of HMRC's application for the approval of the notices. They also asked that the hearing not be held in private, that the Companies and/or Individuals be given an advance summary of the representations that HMRC would make at the hearing, and that they be allowed to participate in the hearing. HMRC refused but gave the taxpayers a chance to make written representations.

The FTT Judge found:

  • The companies and/or Individuals had no right to be given notice of, to attend and make representations at, a hearing of HMRC’s Schedule 36 application.
  • If a taxpayer or a third party wishes to make representations for the consideration of the Tribunal, they are free to do so; HMRC are obliged to convey those representations to the Tribunal at the hearing. The Tribunal will consider representations from either a taxpayer or a third party before making its decision whether to approve a notice.
  • The request for an advance summary of the representations HMRC intended to make at the hearing was “parasitic”; the purpose of requesting such a summary is to enable the taxpayer and/or third party to focus their representations at the hearing. If they are not entitled to make such representations, then this is unnecessary. If the Tribunal were to allow it, this would turn “the streamlined “judicial monitoring” exercise intended by Parliament into a potentially lengthy adversarial process”.

Links to our guides:

Schedule 36 information notices
What are HMRC's powers to obtain information about taxpayers?

Schedule 36 Third Party information notices
When can HMRC ask a third party for information about a taxpayer? What are the taxpayer's rights?

External case link:

HMRC v X Ltd, Y Ltd and Z Ltd [2018] TC06846

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