The First-tier Tribunal case of Metropolitan International Schools Ltd [2021] UKFTT 438 (TC) was to do with the issue by HMRC of statutory notices seeking information to facilitate an enquiry into the company’s affairs. The decision contains some interesting observations of general application; though some do seem to be mutually contradictory.
Take the burden of proof, for example. Except (possibly) in the case of ‘statutory records’, to which we return below, a notice may require production of information and documents that are ‘reasonably required by the officer for the purpose of checking the taxpayer’s tax position’. The Tribunal expresses the view (surely correctly) that it is for HMRC to demonstrate that the conditions for issuing the notice are satisfied; and that the test is an objective, not a subjective one. In other words the burden lies upon HMRC to show that the information is ‘reasonably required’. So far, so good.
Yet the Tribunal then goes on to say that ‘once HMRC has explained to the Tribunal why the information and documents are required it is for the taxpayer to indicate why any particular information request or document or category of document is not reasonably required’ – which looks rather like shifting the burden of proof back onto the taxpayer.
Even more interesting is the treatment of statutory records. Happily, that is a defined term, though the precise definition need not detain us here: ‘accounting records’ is close enough for our purposes.
As we have said, a notice may be issued only if the information or documents are ‘reasonably required’ etc. In Metropolitan International Schools the Tribunal plainly implies that that requirement applies as much to statutory records as to any other category of document or information:
‘It seems to us that the legislation is clear, HMRC may only obtain documents requested in a taxpayer notice if the notice satisfies the requirements of Para 1 and they are reasonably required. To be reasonably required the Statutory Records requested must be relevant to the issues that have prompted the enquiry and be capable of enabling the officer to check the tax position.’
In fact, however, the legislation expressly excludes any right of appeal against a notice requiring production of any information or document that forms part of the taxpayer’s statutory records. In particular, there is no power to object to such a notice on the grounds that the production of the statutory records is not ‘reasonably required’ etc; to the extent that the decision in Metropolitan International Schools implies the contrary, it is wrong. There is, in effect, a presumption that it will always be reasonable for HMRC to demand production of a taxpayer’s statutory records: if, exceptionally, a taxpayer considers that the demand is unreasonable, the only recourse will be to seek judicial review.
All that is not to say, of course, that a taxpayer may not appeal against a notice on the grounds that the information or documents sought do not fall within the definition of statutory records (and are not ‘reasonably required’ etc either). But (unless you are lucky in your choice of Tribunal!) it will be a waste of everyone’s time to seek to deny access to documents that are unequivocally part of your statutory records.
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