Schedule 36 penalties approved by Upper Tribunal

In HMRC v Sukhdev Mattu [2021] UKUT 0245, the Upper Tribunal approved penalties for non-compliance with a Schedule 36 information notice. The tax at stake was high and the taxpayer had failed to cooperate with HMRC.

Mr Mattu had been issued with an information notice under Schedule 36 FA 2008 in August 2019. The notice had been approved by the First Tier Tribunal (FTT).

• HMRC contended that he was the settlor and sole beneficiary of an offshore trust and was liable to income and Capital Gains Tax (CGT) under the Transfer of Assets Abroad and Settlements provisions on income and gains generated by overseas companies owned by the trust.
• He did not provide any of the information requested by HMRC in the Schedule 36 notice.
• HMRC issued protective Discovery Assessments totalling £1,916,315.
• In October 2020 HMRC applied to the Upper Tribunal (UT) for a tax-related penalty to be imposed under paragraph 50 of Schedule 36.
• Mr Mattu withdrew from the proceedings, then made a late application for reinstatement. This was granted despite him not meeting certain conditions. The UT refused an application to postpone the hearing due to Mr Mattu being hospitalised.

The UT had to consider whether the five statutory conditions set out in paragraph 50 for a penalty to apply had been met. The burden of proof rested with HMRC.

The conditions are that:

1. The taxpayer is liable to a Penalty under para 39 schedule 36: failure to comply or obstructing HMRC.
2. The failure or obstruction continues after the penalty is imposed under para 39.
3. An officer of HMRC has reason to believe that as a result of the failure or obstruction the amount of tax that the person has paid or is likely to pay is significantly less than it would otherwise have been.
4. Before the end of a period of twelve months beginning with the relevant date an HMRC officer makes an application to the UT for an additional penalty to be imposed on the person.
5. The UT decides it is appropriate for an additional penalty to be imposed. In deciding the penalty they have must have regard to the amount of tax which has been or is not likely to be paid by the person.

The UT found that all five conditions were met and that this was a serious case of non-compliance where the tax at stake was significant.

• Mr Mattu had been uncooperative, he could have sought information from the trustee but had decided not to and had instead directed HMRC to ask the trustee directly. He left dealing with the information notice to his accountant despite knowing it was his personal obligation to comply.
• The penalties already issued of £9,480 had no effect on his behaviour.
• He had made no efforts to pursue his penalty appeal despite knowing it had been rejected.
• There may be additional tax at stake to that already assessed which could not be established without the information requested by HMRC.

The UT imposed a penalty of 50% which it calculated as £350,000. The 50% mitigation was due as HMRC did not allege dishonesty or outright obstruction, but rather a failure to comply and Mr Mattu had consented to a Third-party notice being issued under Schedule 36.

Useful guides on this topic

Schedule 36 Information Notices (subscriber guide)
What is a Schedule 36 Information Notice? When can HMRC issue one? What rights does the taxpayer have when an information notice is issued?

Penalties: Schedule 36 information notices
What penalties apply if you fail to comply with an Information Notice request by HMRC? What are your rights of appeal?

Sch 36 third party notices
When can HMRC require a third party to provide information or produce a document in relation to a taxpayer? Who can appeal a notice? What rights does the taxpayer have?

External link

HMRC v Sukhdev Mattu [2021] UKUT 0245