The Finance Act 2008, Sch. 36, para. 1 (1) gives HMRC the power to obtain information and documents that are reasonably required for checking a person’s tax position.
When considering whether HMRC’s request for information is reasonable, the first consideration is whether the information has a direct bearing on the person’s liability to tax. That is past, present and future.
If the information has no bearing whatsoever on the person’s tax position, it cannot be reasonably requested. This includes the situation when a year has gone out of date for the assessment. It would not be reasonable to use the information powers if the person’s tax position cannot be corrected.
It must be borne in mind however that HRMC do not need to have doubts about the accuracy of a Return before using the information powers.
The information needs only to be required to check a person’s tax position and not show that it was wrong. It will be remembered that these powers can be used for random compliance checks.
Even if the information has a direct bearing on the person’s tax position, the use of information powers must also be proportionate.
That is, the burden of providing the information must be proportionate to its importance in establishing the person’s correct tax position.
One must always be particularly alert to the possibility of a request for information which is far more expensive than can be justified and arises out of the officer’s fear of “missing something”.
HMRC encourages its officers to try at the outset to anticipate all the information they might require and so avoid a succession of requests for additional information.
This can lead to a burdensome request for a great deal of information, much of which appears to be of little or no bearing on the matter being checked.
One should consider whether it would be better to encourage the officer to limit the initial request for information to the matter being checked and then make further requests if and when the investigation demonstrates some additional matter or matters need further checking.