Kotton v First Tier Tribunal (Tax Chamber) & Anor

Under Schedule 36 to the Finance Act 2008, the relevant question is whether information or documents are reasonably required for checking a taxpayer’s tax position. The decision-maker need not determine the merits, lawfulness or likely outcome of the underlying tax investigation. It is sufficient that there is a genuine and legitimate investigation, conducted neither irrationally nor in bad faith, and a rational connection between the information sought and that investigation. Existing evidence supporting a tax authority’s view does not prevent further evidence from being reasonably required. The statutory scheme provides judicial monitoring at an investigatory stage, not an adversarial merits appeal.

The claimant sought judicial review of a third-party information notice issued by HMRC to American Express Services Europe Ltd under paragraph 2 of Schedule 36 to the Finance Act 2008. The notice sought information concerning the claimant’s use of an American Express card, following a request for assistance from the Swedish Tax Agency in investigating his Swedish tax residence and liability.

The First-tier Tribunal approved the notice on 7 November 2018. The claimant argued that the information was not reasonably required, that the underlying Swedish investigation was inadequately founded, and that HMRC had relied on irrelevant or inaccurate matters. The central issue was whether it was open to the HMRC officer, properly advised on the law, to conclude that the requested information was reasonably required for checking the claimant’s tax position.

1. Application dismissed. The information notice stood and could be enforced.
2. The presumption of regularity has a limited function where all material before the decision-maker is available to the court. The HMRC officer is presumed to have acted honestly and in good faith as a specialist officer, but the claimant may displace that presumption with evidence.
3. The statutory question under paragraph 2(1) of Schedule 36 is whether the information or documents are reasonably required for the purpose of checking the taxpayer’s tax position. “Checking” is broad and includes an investigation or enquiry of any kind. The court does not decide the merits, lawfulness or justification of the underlying foreign tax investigation.
4. The FTT’s task is correspondingly limited. It must decide whether, in all the circumstances, the officer was justified in concluding that the information or documents were reasonably required. The necessary connection is a rational connection between the requested material and the investigation.
5. There need be no demonstrated or probable tax liability, nor any certainty that the investigation will produce a tax charge. Further evidence may reasonably be required even where existing evidence already points towards a particular conclusion. Here, American Express records could illuminate the claimant’s presence in Sweden and might either support or undermine the Swedish investigation.
6. The evidence did not show that the investigation was a sham, irrational or conducted in bad faith. Errors or omissions in the Swedish authority’s material did not make HMRC’s conclusion irrational. The claimant’s proposed additional grounds were also unarguable: the recipient had already been given the required opportunity to make representations, the former wife’s solicitors’ letter was not material to the statutory decision, and the officer’s observations about the claimant’s opposition were, at most, additional considerations supporting an otherwise lawful conclusion.

The judgment records no appeal from this decision. The claim was a first-instance judicial review of the First-tier Tribunal’s approval of the third-party notice.