HMRC Powers: A Complete UK Guide

HMRC has extensive statutory powers to obtain information, inspect premises, and search for evidence of tax non-compliance. These powers are set out primarily in Schedule 36 to the Finance Act 2008, as well as in other legislation covering specific taxes and situations. While HMRC's powers are broad, taxpayers also have important rights and safeguards that limit what HMRC can demand.

Information Notices (Schedule 36)

Schedule 36 gives HMRC the power to issue an information notice requiring a taxpayer to provide documents or information that are reasonably required for checking the taxpayer's tax position. There are three types of notice:

• Taxpayer notice: issued to the taxpayer whose affairs are being checked
• Third-party notice: issued to a person other than the taxpayer, such as a bank, accountant, or business partner
• Unrestricted notice: a notice that requires information that is not subject to the normal restrictions (requires tribunal approval)

A taxpayer notice can be issued without tribunal approval. A third-party notice generally requires the agreement of the taxpayer or the approval of the tribunal. If the taxpayer does not agree, HMRC must apply to the tribunal for approval, showing that the information is reasonably required and that the taxpayer has been notified.

What HMRC Can Request

HMRC can request documents and information that are reasonably required to check your tax position. This includes bank statements, investment records, loan agreements, contracts, invoices, receipts, emails, and board minutes. The information must be in HMRC's possession or power, and the request must be specific and not a fishing expedition.

HMRC cannot request documents that are subject to legal professional privilege (advice from a qualified lawyer), or documents that would disclose information protected by the Data Protection Act 2018 in a way that is disproportionate. Journalistic material and certain medical records are also protected.

Inspection Powers

HMRC has the power to enter and inspect business premises to check your tax position. This includes premises used for carrying on a trade, profession, or business, as well as premises used for storing business assets or records. HMRC can inspect the premises, the business assets, and the business documents on the premises.

HMRC must give at least 7 days' notice of an inspection, unless there are reasonable grounds to suspect that records may be destroyed or removed. The inspection can be carried out by any HMRC officer, and you are entitled to have your adviser present during the inspection. HMRC cannot use force to enter premises under Schedule 36 — it needs a warrant for that.

Search Warrants and Entry by Force

Where HMRC has reasonable grounds to suspect that an offence involving serious tax fraud has been committed, it can apply to a magistrate or a circuit judge for a search warrant. A warrant authorises HMRC officers to enter premises by force if necessary, search the premises, and seize documents and computer equipment.

Search warrants are typically used in criminal investigations involving suspected tax evasion, money laundering, or organised crime. The application must be made on oath and must set out the specific grounds for suspicion. HMRC's Criminal Investigation Service carries out searches under warrant, often with the assistance of the police.

Required Records

In addition to the Schedule 36 powers, HMRC has the power to require certain records to be kept and produced. This includes VAT records, PAYE records, and construction industry scheme records. Failure to keep required records can result in penalties of up to £3,000 per year, as described in our record keeping guide.

The required records provisions are separate from Schedule 36 and carry their own penalty regime. HMRC can also require you to produce documents that are required to be kept by law, such as company statutory records and tax invoices.

Third-Party Notices

HMRC can issue information notices to third parties such as banks, accountants, solicitors, and business counterparties. A third-party notice requires the approval of the tribunal unless the taxpayer agrees. If the taxpayer agrees, HMRC can issue the notice directly. Banks and financial institutions are common targets for third-party notices, particularly where HMRC is investigating offshore assets or undisclosed income.

If you receive a third-party notice about a client or customer, you must comply unless the information is privileged. You have the right to object to the notice, but you must do so within the time specified in the notice.

Penalties for Non-Compliance

Failure to comply with an information notice can result in penalties. The initial penalty is £300 for the first failure, plus daily penalties of up to £60 for continued non-compliance. If HMRC applies to the tribunal, the tribunal can impose more substantial penalties.

In serious cases, where the failure to comply is deliberate and without reasonable excuse, HMRC can apply to the tribunal for a restriction on your tax affairs or for a penalty calculated by reference to the tax liability. Criminal prosecution is also possible where the non-compliance amounts to an obstruction of HMRC's officers in the execution of their duty.

Taxpayer Safeguards

Taxpayers have important safeguards against the misuse of HMRC's powers. You have the right to be told why information is being requested, the right to appeal against a notice to the tribunal within 30 days, and the right to legal professional privilege. HMRC must act proportionately and cannot request information that is not reasonably required.

The tribunal can cancel or vary a notice if it is not justified. The HMRC Charter sets out the standards of service and behaviour you can expect from HMRC, and you can complain to the Adjudicator's Office if you believe HMRC has acted improperly.

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