HMRC information requests

Public bodies are increasingly experiencing expansive information requests from HMRC as part of VAT and tax reviews. While cooperation with HMRC is usually the right and sensible approach, there is a growing concern that some HMRC requests are going beyond what the law permits. This can place unnecessary burdens on public bodies and expose them to avoidable risk.

Informal and formal HMRC requests

HMRC can request information in two distinct ways.

First, HMRC may make an informal request. These requests are not legally binding, and a public body is not required to comply. In practice, many public bodies assume that they must agree to any request from HMRC, but this is not always the case.

Secondly, HMRC may issue a formal notice under Schedule 36 of the Finance Act 2008. Even then, the public body is only required to provide information that is reasonably required to check a specific VAT or tax position. (There are even stricter rules governing disclosure of legal advice.)

While we normally advise public bodies to cooperate with informal requests, particular care should be taken when HMRC requests copies of external advice, such as legal, VAT, or tax advice received by the body, or for broad categories of internal questions and correspondence. Sweeping requests are generally “fishing expeditions”.

Case law has defined fishing expeditions as speculative or unfocused information requests that lack specific, identified tax issues or reasonable grounds for suspicion. It is a broad search, in the hope that some useful or incriminating information might be found, rather than a targeted inquiry based on concrete evidence or a known risk.

The problem with fishing expeditions

HMRC is not permitted to conduct fishing expeditions, whether informally or through a formal Schedule 36 Notice. Information must be genuinely necessary to check a defined VAT or tax position.

Blanket requests, such as asking for all questions submitted to external advisors or all VAT queries raised over a period of time, are unlikely to meet this legal test. These types of requests may include:

• Hypothetical or exploratory questions
• Abandoned or non-implemented projects
• General policy discussions
• Matters unrelated to submitted VAT or tax returns

In many cases, the purpose of these requests appears to be identifying perceived risk areas rather than resolving a live compliance issue. For example, where advisory questions relate to catering or property transactions, HMRC may treat these as indicators of risk and target those areas in future reviews, even where no error has occurred.

The resource consequences for public bodies

Responding to wide-ranging information requests can require a significant amount of officer time and effort. Where compliance is not legally required, unnecessary, or disproportionate, public bodies should carefully consider whether it is appropriate to comply with such requirements.

Transparency remains essential, but it must be balanced with HMRC acting reasonably and within its statutory powers.

This applies even when HMRC is conducting a full compliance review of a public body. We always recommend public bodies cooperate and provide relevant information, but where the requests are unreasonable or a fishing expedition, public bodies should think carefully before agreeing.

What if HMRC issues a Schedule 36 Notice?

Even where HMRC issues a formal notice under Schedule 36, the legal test still applies. The information requested must be reasonably required to check the public body’s VAT or tax position.

A blanket request for all advisory questions or correspondence is unlikely to satisfy this requirement. Public bodies are entitled to challenge such notices and refuse to provide information that exceeds the permitted scope of the legislation.

Taking a confident and lawful approach

It is ultimately for each public body to decide how to respond to HMRC information requests. However, public bodies should feel confident in:

• Questioning the scope of informal requests
• Refusing to comply with unreasonable or speculative demands
• Requiring HMRC to justify requests by reference to their statutory powers

Where a public body decides not to comply, a clear and professional response explaining the legal position can be provided.

Join our free breakfast briefing and pop-up training session

In response to the growing number of public bodies facing these issues, we will cover this subject in our Breakfast Briefing on Friday 16 January at 8:30 a.m.

The Briefing will provide a high-level outline covering:

• What HMRC can and cannot ask for
• The difference between informal requests and Schedule 36 Notices
• When public bodies are entitled to refuse disclosure
• Practical approaches to responding to overreach or unlawful requests

Following the Breakfast Briefing, we will also be running a more in-depth pop-up training session for those who would like to explore these issues in greater detail. This session will provide practical guidance, worked examples, and the opportunity to discuss real-life scenarios faced by public bodies.

Further details and registration information for both sessions will be shared shortly.

Contact the team