The Barty Party Company Ltd v. Revenue and Customs: Limits on HMRC Information Requests

Introduction

In the case of The Barty Party Company Ltd v. Revenue and Customs ([2017] UKFTT 697 (TC)), the First-tier Tribunal (Tax Chamber) addressed significant issues regarding the validity of HM Revenue and Customs' (HMRC) Information Notices under Schedule 36 of the Finance Act 2008. The appellant, The Barty Party Company Limited, a public house business operating in Bath, challenged the issuance of an Information Notice by HMRC that requested extensive financial records spanning a period exceeding four years. This case delves into the boundaries of HMRC’s authority to request information and the procedural fairness required in such administrative actions.

Summary of the Judgment

The Tribunal held that the Information Notice issued by HMRC on 10 November 2016 was invalid. The core reason for this decision was HMRC's request for information covering periods beyond the standard four-year window without providing a specific, justified reason for this extended timeframe. Additionally, the requirement for the Appellant to provide non-statutory information, specifically a drinks price list, was deemed unreasonable in the context of the case. Consequently, the appeal by The Barty Party Company Limited was allowed, and the Information Notice was annulled.

Analysis

Precedents Cited

The Tribunal referenced several key cases to shape its decision:

• Concrete Flooring Limited v Revenue & Customs [2015] UKFTT 135 (TC)
• Drinks Stop Cash and Carry [2016] UKFTT 730 (TC)
• Stephens & Anor [1993] BVC 998

These precedents were instrumental in defining what constitutes 'statutory records' and the limits of HMRC's information requests. Notably, the Tribunal interpreted statutory records in alignment with Concrete Flooring and Drinks Stop Cash and Carry, reinforcing the notion that statutory records are distinct from non-statutory information, which requires separate justification for requests.

Legal Reasoning

The Tribunal's legal reasoning centered on interpreting Schedule 36 of the Finance Act 2008, specifically Section 29, which delineates the taxpayer's right to appeal against Information Notices. The crucial points in the Tribunal's reasoning included:

• HMRC's limitation to requesting information that is "reasonably required" to assess the taxpayer's position.
• The standard four-year period for VAT assessments, with an extension to six years only under specific circumstances.
• The necessity for HMRC to provide concrete reasons when requesting information beyond the standard period.
• The differentiation between statutory records and non-statutory information, emphasizing that non-statutory requests must be justified independently.

The Tribunal found that HMRC failed to justify the extended period requested, as there was no indication of deliberate error or negligence by the Appellant that would warrant such an extended inquiry. Furthermore, the request for a drinks price list, deemed non-statutory, lacked sufficient justification, rendering the entire Information Notice invalid.

Impact

This Judgment sets a clear precedent for future interactions between HMRC and taxpayers regarding the scope of information requests. It underscores the necessity for HMRC to adhere strictly to statutory timeframes unless exceptional circumstances are present. Moreover, it highlights the importance of distinguishing between statutory and non-statutory information, mandating that non-statutory requests must be substantively justified. This decision potentially limits HMRC's ability to impose arduous information requirements indiscriminately and upholds taxpayers' rights against overreaching administrative actions.

Complex Concepts Simplified

1. Schedule 36 of the Finance Act 2008

Schedule 36 provides HMRC with the authority to issue Information Notices to taxpayers, requesting documentation necessary to verify tax positions. It outlines the taxpayer's rights to appeal such notices and specifies the limits on the timeframe and types of information that can be requested.

2. Statutory vs. Non-Statutory Information

Statutory Records: These are documents that a taxpayer is legally obligated to maintain, such as VAT accounts, sales daybooks, and purchase invoices.
Non-Statutory Information: These are additional documents not legally required to be kept, like a products price list, which may be requested by HMRC for supplemental verification purposes.

3. Reasonableness Test

This is a legal standard used to assess whether the information requested by HMRC is necessary and appropriate for verifying a taxpayer's submissions. If HMRC's request is deemed unreasonable, it can be challenged and potentially invalidated.

Conclusion