Appeals, disputes and investigations
January 2024
Company wins appeal on information notice
An information notice was varied to allow a company to send to HMRC only those emails that were relevant to the matter, not those caught by a wider email search but irrelevant.
The company underwent refinancing in 2014 and claimed interest on the new debt. HMRC considered refusing this on unallowable purpose grounds. The bond had been transferred to a different company in 2017. As part of its investigation, HMRC issued an information notice. This, rather than requiring specific documents, listed a number of terms that the company should carry out email searches for, including “avoidance” and required it to provide copies of all the emails that matched the search terms.
This identified more than 11,000 emails. The company’s adviser reviewed these and sent HMRC the 1,695 emails that it considered relevant to the refinancing and transfer of the bond. HMRC argued that all the emails should be provided.
The taxpayer appealed, arguing that the notice was invalid as it did not specify nor describe the documents it asked for, that the emails not sent were not reasonably required for the purposes of the investigation, as they were irrelevant, and that the notice should be varied to limit the dates for documents requested, and exclude documents HMRC had agreed were not required or were privileged.
The First-tier Tribunal (FTT) found that the notice was not invalid just because it asked for email searches rather than documents, but that the requirements were too wide. For example, any email with the phrase “avoidance of doubt” was caught, and some emails caught related to personnel matters such as maternity leave. The FTT stated that had the taxpayer appealed before it sent any of the emails it would have allowed the appeal on the basis that it was too broad. As the position had changed by the time of the hearing with some documents sent, it simply varied the notice to exclude the emails deemed irrelevant by the adviser.
Parker Hannifan (GB) Limited v HMRC [2023] UKFTT 971 (TC)
From Tax Update December 2023, published by Evelyn Partners LLP
Penalties
January 2024
AI did not help CGT case
The taxpayer’s appeal to the First-tier Tribunal (FTT) against failure to notify penalties was based on cases that had been generated by an AI system. The AI system had not cited real tax cases, but made them up. Regardless of this issue, she did not have a reasonable excuse for failure to notify.
The taxpayer sold a rental property without informing HMRC. She had also not declared the rental income. When this was discovered, she paid the capital gains tax (CGT) of more than £16,000, but appealed against the failure to notify penalty. She had not taken professional advice nor researched whether or not to declare the sale, but claimed that she thought she would hear from HMRC after the sale was registered on the Land Registry.
In her submission for the appeal, she cited nine previous FTT cases that demonstrated taxpayers winning on reasonable excuse grounds of ignorance of the law or mental ill health. The judge was unable to trace official records or the full text of these and found that they had been made up by the AI system that was used to write the submission.
This point was not determinative, but the FTT found that she did not have a reasonable excuse for failure to notify, so was subject to the penalty. A reasonable person would have contacted HMRC or an adviser, rather than putting some money aside as she had done. Her mental health problems had not prevented her from arranging the sale of the property and dealing with tenants, so did not prevent her from looking into CGT liabilities.
While generative AI presents many exciting opportunities, this case highlights its current limitations and the risks around using AI tools to gather and analyse complex tax information without seeking appropriate professional tax advice.
Harber v HMRC [2023] UKFTT 1007 (TC)
From Tax Update December 2023, published by Evelyn Partners LLP
Practical Points
Every month, the Tax Faculty publishes short, practical pieces of guidance to help agents and practitioners in their day-to-day work.
