In Edward Lam Shang Leen v HMRC [2023] TC8812, the First Tier Tribunal (FTT) dismissed an appeal against a Schedule 36 information notice that required a doctor's Personal Service Company to provide it with details of consultancy income received via the company.

Mr Leen was a retired NHS consultant working in private practice through his company, GRI Research Laboratories Ltd (GRI).

  • HMRC opened an enquiry into Mr Leen’s 2017-18 Self Assessment return.
  • As part of the enquiry, HMRC requested details of:
    • Consultancy work that was undertaken for various named entities.
    • Documents to evidence if consultancy fees had been declared through another entity.
    • Bank statements for all accounts held by Mr Leen for that tax year.
  • When the information was not forthcoming HMRC issued a Schedule 36 notice requesting these items.
  • Mr Leen’s agent advised HMRC that the consultancy fees had actually been declared through GRI providing a breakdown and a copy of the company Self Assessment return.
  • From this information, HMRC identified discrepancies in respect of declared company turnover and amounts received into bank accounts held by Mr Leen, as well as reductions in shareholder funds without corresponding dividends or salaries. HMRC, therefore, wrote to the agent to ask about this and issued Mr Leen with a second Schedule 36 notice asking for information in respect of the company.
  • Mr Leen appealed the notice arguing that as the notice was addressed to him he should not be required to produce information about his company. He accepted the offer of a review which upheld the notice.

The FTT dismissed the appeal:

  • HMRC had accepted that the burden of proof was on them to prove that the information requested was reasonably required but beyond that, it was up to the appellant to show the contrary.
  • HMRC had proved that the information was reasonably required as they had sufficient grounds to show that they had reason to suspect that:
    • There was an amount that should have been assessed to tax in respect of the consultancy fees received by Mr Leen in his bank account but not included in GRI’s turnover.
    • As a result, Mr Leen’s 2017-18 tax return may have been inaccurate.
  • Mr Leen had not shown that the documents and information requested by HMRC were not reasonably required:
    • They were relevant to his personal tax position despite being concerned with his role as director/shareholder of GRI.
    • He appeared to be using what was to all intents and purposes his Personal Service Company, as a ‘smokescreen’ to detract from his personal tax affairs.

The judge did make some amendments to the Schedule 36 notice however these were simply to provide clarification and further information regarding the information requested by HMRC and did not limit the scope of the notice in any way.

Comment

HMRC's recent 'Tax Administration Framework review – information and data', explores options to introduce new powers to allow HMRC to co-join data information requests from both companies and their owners. If such powers are given to HMRC we can expect to see a fall in the numbers of this kind of appeal, as a personal tax enquiries can then be automatically linked to a review of the affairs of any companies controlled by a taxpayer.

Useful guides on this topic

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

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?

How to appeal an HMRC decision
Disagree with an HMRC decision? How to appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?

External link

Edward Lam Shang Leen v HMRC [2023] TC8812  


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