Make Sure HMRC Notices are Valid! – Technicalities and Human Rights Law

Recent cases have emphasised the importance of that European Human rights laws have on the UK tax system; however the cases and our own recent experiences suggest that HMRC do not take these implications seriously.

The recent Tribunal case of PML Accounting Ltd v HMRC [2015] considered a number of issues, including one relating to Human Rights.  The case involved an HMRC Notice requiring information from PML Accounting and the firm’s appeal against a penalty for failing to provide the information on time.

The Tribunal found that the information notice had not been complied with and that the taxpayer did not have a reasonable excuse for the failure.  However, they also determined that the Notice was invalid as it had been issued under the wrong piece of legislation.

The notice was issued under FA 2008 Sch 36, para 1 as part of a review of the company’s position under the Managed Service Company Legislation.

The Tribunal determined that there had been suggestion that any investigation under the MSC legislation would lead to a charge on PML.  As a result, the information notice should have been issued under paragraph 2 (third-party notices) instead of paragraph 1.

The Tribunal also concluded that the Notice breached the human rights of PML’s clients as it had been issued under the wrong paragraph.  A paragraph 2 notice relating to third-parties provides a level of protection for the taxpayers involved as they may not be issued without either the taxpayer’s prior consent or the tribunal’s approval.

There have also been a number of other cases highlighting the inadequacy of HMRC’s approach to human rights law.  For example, in Bluu Solutions Ltd v RCC [2015], the Tribunal confirmed that a tax penalty, which is meant to be punitive and to deter, is “criminal” for the purposes of Article 6 of the Convention for the Protection of Human Rights and Fundamental Freedoms.  This provides taxpayers subject to HMRC penalties with additional protection stating that taxpayers have the right to a fair trial and requires that the taxpayer is presumed innocent, with the burden of proof on HMRC.  Also proceedings have to be brought within a reasonable time, and the taxpayer must have enough resources and time to defend against the penalty.

Further protection is provided by Article 7 which requires that any penalty should have a clear basis in law and therefore where there is genuine uncertainty as to the underlying tax law, it could potentially be a breach of Article 7 to impose penalties based on non-payment.

These points all provide extra protection that advisors should bear in mind when assisting clients faced with HMRC investigations.  If you have any concerns over HMRC’s approach then please contact us and we will be delighted to assist.