Tax Tribunal Overturns HMRC Information Notice: When Can HMRC Demand Your Documents?

Neutral Citation: [2026] UKFTT 00975 (TC) Case Number: TC 09930 FIRST-TIER TRIBUNAL TAX CHAMBER By remote video hearing Appeal reference: TC/2025/03253 Keywords Heard on: 6 May 2026 Judgment date: 30 June 2026 Before TRIBUNAL JUDGE GEORGE PERETZ KC HANNAH DEIGHTON Between THE RECRUITMENT CROWD (YORKSHIRE) LTD Appellant and THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMS Respondents Representation: For the Appellant: Mr Howard Watkinson, Barrister, instructed by ASW Solicitors For the Respondents: Mr Redpath, litigator of HM Revenue and Customs’ Solicitor’s Office DECISION Introduction 1. With the consent of the parties, the form of the hearing was V (video), by Microsoft Teams. For the Appellant (“RCYL”), Mr Watkinson attended remotely with his instructing solicitors. Mr Redpath attended remotely for the Respondents (“HMRC”), as did Ms Chahal, the HMRC officer who issued the information notice that was the subject of the appeal, and who provided a witness statement and gave oral evidence on behalf of HMRC. A face to face hearing was not held, as it was fair and more cost-effective to hold a video hearing. The documents to which we were referred are (i) the hearing bundle running to 232 pages, (ii) a separate authorities bundle containing further authorities on which the Appellant wished to rely, (iii) HMRC’s statement of reasons, (iv) a skeleton argument for RCYL, and (v) a clip of correspondence relating to disclosure.

2. Prior notice of the hearing had been published on the gov.uk website, with information about how representatives of the media or members of the public could apply to join the hearing remotely in order to observe the proceedings. As such, the hearing was held in public. The Information Notice 3. This appeal concerns an information notice issued to RCYL under paragraph 1 of Schedule 36 (“Schedule 36”) to the Finance Act 2008 (“FA08”) on 8 April 2025 (‘the IN”). The IN required documents and information to be provided by RCYL to HMRC by 12 May 2025.

4. RCYL is a recruitment company: it places candidates with end user customers who need staff.

5. The IN followed an “opening letter” dated 19 March 2025 in which HMRC sought equivalent documents and information. That letter did not involve the exercise of any statutory powers by HMRC, and was no more than a request for documents and information (though any recipient of that letter, if properly advised, would have appreciated that in the absence of a response to that letter HMRC would be likely to exercise their statutory powers).

6. RCYL denied, and continued to deny before us, having received that opening letter. HMRC referred to evidence that it had been sent to RCYL. Nothing in our view turns on that question, and we need not resolve it. The terms of the opening letter, whether or not it was received by RCYL, are, nonetheless, relevant to understanding HMRC’s thinking as to the basis for the IN.

7. The first paragraph of the opening letter stated that: - We have identified increasing problems with fraud and unpaid taxes through using labour providers, payroll providers or the outsourcing of a workforce via TUPE to a third party (payroll company fraud).

8. The opening letter then went on to state that RCYL’s recent “RTI” or “real time information” returns “indicate a variance in the value of returns submitted thus”, referring to the following table. Month Ending/Year RTI Return Value 05-June -24 £11,448.36 05-July-24 £15,796.96 05-Aug-24 £15,849.61 05-Sept-24 £18,384.06 05-Oct-2024 £24,092.36 05-Nov-2024 £22,096.06 05-Dec-2024 £27,281.67 05-Jan-2025 £75,991.03 05-Feb-2025 £23,286.29 05-Mar-2025 £18,757.35 9. Although the opening letter did not elaborate on what the “variance” consisted of, it is evident that the 5 January figure (of some £76,000) was in the order of three to seven times the figures in all the other months, which all fell within the £11,000-28,000 range. In their oral submissions, HMRC told us that it was, indeed, the 5 January figure that was identified as the “variance”.

10. The requests made in the opening letter were materially identical to the requests made in the IN itself, to which we now turn.

11. The IN consisted of (i) a covering letter explaining that it was made under paragraph 1 of Schedule 36, setting a date for a response, and setting out matters such as the recipient’s right to appeal and the methods by which information and documents should be provided; and (ii) a schedule which, after making further provision for the format of the requested reply, set out what was being sought under HMRC’s statutory powers. In the following, for ease of reference, we have given the numbers D1 to D6 to the document requests, and the numbers I1 to I6 to the information requests: - Statutory records or information that we need Statutory records are the records that tax law says a person must keep. We need for the period from 5 May 2024 to current: [D1] VAT accounts [D2] Suppliers’ invoices [D3] Evidence of payment of those invoices [D4] Bank statements [D5] Contracts between yourself and the third party [D6] Copies of any due diligence checks undertaken (to include dates checks made) Information and documents that we need. In this context ‘document’ means anything used to record any type of information. This includes any records held on computer, magnetic tape, optical disk (CD-ROM/DVD), hard disk, memory stick, flash drive, floppy disk or other recording media. We need for the period from 5 May 2024 to current a response to each point below: [I1] Since 5 May 2024, have you outsourced your payroll and/or workforce to a third party? (if not, please explain the reason for the drop off) [I2] Does that third party supply the workforce back to you directly, or is the supply made via an Intermediary (and if so, who are they?) [I3] Did you retain direct employment of the workforce or were the workforce transferred under TUPE (the Transfer of Undertakings (Protection of Employment) regulations to a third party (and if so, to whom?) (i.e. with whom do the individual workers have their contracts of employment - if this continued to be you, please provide a sample of 3 typical contracts) [I4] Did you conduct any due diligence checks on the supply chain either prior to commencement of trade or at any interval thereafter? [I5] Do you source workers from any other third parties or engage the services of individually self-employed workers. [I6] Additionally, please explain the reason for the variance in the value of your RTI Returns within the period (e.g. staff increase/decrease, bonus payments - this list is not exhaustive).

12. After it received the IN, RCYL initially sought (and obtained) an extension of time to reply on the basis that it needed to take advice. It then brought an appeal against the IN to this Tribunal under paragraph 29(1) of Schedule 36. The Witness Evidence 13. As noted above, Ms Chahal, the responsible HMRC officer, provided a witness statement and gave oral evidence.

14. In her witness statement, she confirmed that the reason for the opening letter, and for the subsequent IN, was that “HMRC had identified increasing problems with fraud and unpaid taxes through using labour providers, payroll providers or the outsourcing of a workforce via TUPE to a third party (payroll company fraud)” and that they had “identified increasing problems in the Recruitment Sector with the movement of workers and/or payroll responsibilities from legitimate businesses to fraudulent supply chains that either do not declare or pay all the relevant taxes to HMRC.” 15. In cross-examination, Ms Chahal told us that she had had no involvement in RCYL’s tax affairs before March 2025, when the opening letter was written. She said that HMRC’s concerns were with “high risk umbrella companies” that were “at the bottom of the supply chain”. She agreed that RCYL was a “legitimate company” that was “paying its taxes” and that references to “fraud” and underpayment of tax in her witness statement and in the IN were to the conduct of third parties not that of RCYL. She further accepted that there was no reference to VAT return variations and that the RTI variance issue was not connected to VAT. As to the RTI variance, she had not looked at other years, and had not considered whether the variance might be attributable to increased demand for RCYL’s service by its customers over the Christmas period: it was put to her that those customers included large delivery customers, which she was not aware of. She also accepted that request D5 was unreasonable in asking for any contract between RCYL and any third party, as that would include (for example) an employment contract between RCYL and its own employee, or a contract for the purchase of stationery by RCYL, and that was unreasonable not to ask for samples of contracts and bank statements. She also accepted that the information requests were not necessary if the documents sought were provided. Schedule 36 Paragraph 1 16. Paragraph 1 of Schedule 36 provides that: - 1(1) An officer of [HMRC] may by notice in writing require a person (“the taxpayer”)– (a) to provide information, or (b) to produce a document, if the information or document is reasonably required by the officer for the purpose of checking the taxpayer's tax position or for the purpose of collecting a tax debt of the taxpayer. 1(2) In this Schedule, “taxpayer notice” means a notice under this paragraph.

17. The following points arise from that provision.

18. First, exercise of the power does not require, at this stage, any threshold of “reasonable suspicion”. As far is this paragraph is concerned, HMRC may properly issue an IN merely in order to check the tax position of a taxpayer, and may do so even when they have no basis for suspecting that the taxpayer has made any error in its tax returns (it may, for example, be a “routine check”).

19. The position is explained in detail in Malek v HMRC [2021] UKFTT 339 (TC) , where Judge Redstone summarised the authorities as follows: - 54. In Derrin Brothers Properties v HMRC [2016] EWCA Civ 15 (“Derrin”), the Chancellor, Sir Terence Etherton, gave the only judgment with which Davis and Vos LJJ both agreed. He said at [68] that: “The purpose of the statutory scheme is to assist HMRC at the investigatory stage to obtain documents and information without providing an opportunity for those involved in potentially fraudulent or otherwise unlawful arrangements to delay or frustrate the investigation by lengthy or complex adversarial proceedings or otherwise.” 55. It is clear from the reference to “the statutory scheme” that the Chancellor is here referring to Sch 36 as a whole, and not simply to the third party notices with which the case was directly concerned.

56. In Kotton v HMRC [2019] EWHC 1327 (Admin) (“Kotton”), Simler J (as she then was) in the context of an appeal against Notices issued to a third party under paras 2 and 3 of Sch 36, said at [60]: “the question for the HMRC officer (and therefore the FTT judge) is an expressly limited one: the officer must be satisfied that the information or documents to be sought by a third party notice are ‘reasonably required’ for the purpose of ‘checking’ the tax position of the taxpayer.” 57. This limited role was, she said, “unsurprising” given that Sch 36 is “directed at an early investigatory stage and in any investigation some lines of enquiry may prove more fruitful than others”. After citing Derrin, she then said (in the same paragraph): “provided there is a genuine and legitimate investigation or enquiry of any kind into the tax position of a taxpayer that is neither irrational nor in bad faith, that is sufficient. The challenge is not to the lawfulness of the investigation, but is limited to the rationality of the conclusion that the information/documents are reasonably required for checking the taxpayer's tax.” 58. She continued: “[61] Nor is it necessary…as a precondition for giving a third party notice to show that a positive liability to tax will arise or that liability will arise in a particular way. A valid investigation may result in no tax charge at all. [62] …for the same reasons, the question for the FTT in relation to the information and documents sought by a third party notice is also expressly limited: the FTT must be satisfied that in all the circumstances, the officer giving the notice is justified in concluding that the information or documents are reasonably required for checking the tax position of the taxpayer. Again, that does not require any examination of the nature and extent of the underlying tax investigation, but rather a focus on whether there is a rational connection between the information and documents sought and the underlying investigation. The very purpose of the investigation is to establish the correct position by reference to all the evidence gathered and it is therefore unsurprising that the legislation does not make the approval of a notice conditional on the tax investigation itself being reasonably required.

59. At [67] Simler J also said that Sch 36 is “directed at an early investigatory stage and in any investigation some lines of enquiry may prove more fruitful than others”.

20. The question under paragraph 1 is therefore not whether the investigation (or, to use the language actually employed in paragraph 1, the check Para.58 provides that “checking” includes carrying out an investigation or enquiry of any kind. ) has any reasonable basis, but rather whether the information and documents sought are reasonably related to the check.

21. Second, however, under paragraph 1, the check must concern the tax position of the taxpayer to whom the IN is addressed: requests made where the check concerns the tax position of third parties are not covered by paragraph 1, but must be made under paragraph 2 of Schedule 36 (which is subject to the additional conditions in paragraph 3). In order to maintain that distinction between paragraphs 1 and 2 of Schedule 36, it is therefore important to establish exactly what it is that HMRC are wanting to check when they issue an IN: if the reality is that they are wanting to check the tax position of a third party, not that of the addressee of the IN, then they must use paragraph 2, and an IN purportedly issued under paragraph 1 will not be valid. Paragraph 21 22. It was common ground that because RCYL had made relevant tax returns in relation to the period in relation to which the IN related, paragraph 21 applied. That paragraph provides as follows (leaving out irrelevant sub-paragraphs: HMRC sought to rely only on conditions B and C): - 21(2) Where a person has made a tax return in respect of a chargeable period under paragraph 3 of Schedule 18 to FA 1998 (company tax returns), a taxpayer notice may not be given for the purpose of checking that person's corporation tax position in relation to the chargeable period. 21(3) Sub-paragraphs (1) and (2) do not apply where, or to the extent that, any of conditions A to E is met. … 21(6) Condition B is that, as regards the person, an officer of [HMRC] has reason to suspect that– (a) an amount that ought to have been assessed to relevant tax for the chargeable period may not have been assessed, (b) an assessment to relevant tax for the chargeable period may be or have become insufficient, or (c) relief from relevant tax given for the chargeable period may be or have become excessive. 21(7) Condition C is that the notice is given for the purpose of obtaining any information or document that is also required for the purpose of checking the person's position as regards any tax other than income tax, capital gains tax or corporation tax .

23. The effect of paragraph 21 is that an IN may be issued in relation to post-tax return checks into a taxpayer’s tax position only where (ignoring provisions irrelevant for present purposes) either (a) HMRC have reasonable suspicion that, as regards the taxpayer to whom the IN is issued, there is (in essence) an under-declaration of tax due or (b) the IN is also required to check the position of that taxpayer in relation to a tax that is not income tax, CGT, or corporation tax. Paragraph 29 24. Paragraph 29 of Schedule 36, read with paragraph 62, contains an important restriction on a taxpayer’s right to appeal to this Tribunal against an IN. It provides that: - 29(1) Where a taxpayer is given a taxpayer notice, the taxpayer may appeal against the notice or any requirement in the notice. 29(2) Sub-paragraph (1) does not apply to a requirement in a taxpayer notice to provide any information, or produce any document, that forms part of the taxpayer's statutory records.

25. Paragraph 62 explains what is meant by “statutory records”, namely: - 62(1) For the purposes of this Schedule, information or a document forms part of a person's statutory records if it is information or a document which the person is required to keep and preserve under or by virtue of– (a) the Taxes Acts, or (b) any other enactment relating to a tax, subject to the following provisions of this paragraph. Statutory records 26. Because it goes to the jurisdiction of this Tribunal, we deal first with the question of the extent to which the IN required the provision of statutory records: paragraph 29(2).

27. In his oral submissions, which developed RCYL’s Ground 3, Mr Watkinson, for RCYL, argued that even if some of the requirements in the notice did fall under paragraph 29(2), we were nonetheless entitled to set aside the IN as a whole, including those requirements, if we were satisfied that the IN as a whole was invalid.

28. We reject that submission, which is in our view based on an unsustainable distinction between the notice and the requirements in the notice. Since it is the “requirements” that impose (or purport to impose) obligations on the addressee of the IN, it seems to us that any appeal in relation to the IN must be against those requirements: the idea that there is an appeal against the IN itself as distinct from an appeal against the requirements that it contains seems to us to be incoherent. We accept that the language of paragraph 29 does refer to an appeal “against the notice” as opposed to an appeal against “any requirement in the notice”: but we read “an appeal against the notice” as meaning “an appeal against every requirement in the notice” (eg on a ground common to all the requirements in it): that language in paragraph 29(1), in our view, merely makes it clear that an appeal may be against (only) some of the requirements in an IN.

29. Mr Watkinson pointed out that the effect of our view is that an addressee of an IN has no right of appeal to this Tribunal against a requirement to provide statutory records even if it is absolutely obvious that that requirement is hopelessly flawed on public law grounds (for example, is expressly made for a wholly improper purpose). However, it is a necessary effect of paragraph 29(2) that some requirements in an IN are incapable of being appealed to this Tribunal. That does not, of course, leave the addressee with no remedy in such a case: rather the consequence is that the addressee would have to seek judicial review of such an IN in the Administrative Court or Court of Session. We do not, therefore, consider that this point assists RCYL.

30. However, we do accept a different argument advanced by Mr Watkinson.

31. In the original IN, as set out in paragraph 10 above, all of requests D1 to D6 were said to be for statutory records. However, HMRC subsequently resiled from that position (Officer Chahal, who drafted the IN, accepted in evidence that it was wrong). HMRC’s new position, maintained before us, was that D5 and D6, relating to contracts with “the third party” and to due diligence checks, did not require the provision of statutory records, but that D1 to D4 (VAT accounts, suppliers’ invoices, evidence of payment of those invoices, and bank statements) did require the provision of statutory records.

32. Mr Watkinson, however, correctly pointed out that HMRC had not, whether in correspondence, in Ms Chahal’s witness statement, or in their Statement of Reasons, provided any explanation of the basis on which it was said that D1 to D4 related to statutory records. Mr Redpath did refer in oral submissions to provisions of VAT legislation and in general terms to obligations to keep certain kinds of records: however, no precise reference was made to any such legislation (which was not before us in any event).

33. We agree with Mr Watkinson that, since HMRC bear the onus of proof that a request in an IN falls within paragraph 29(2), it is incumbent on HMRC, when they wish to rely on paragraph 29(2), to provide, in their case before the Tribunal, a clear explanation, with relevant statutory citations, as to why something said to be a statutory record falls within the precise meaning of paragraph 62: that is to say, HMRC must explain in their case before the Tribunal precisely what provisions of the Taxes Acts, or other enactment relating to a tax, are being relied on, and why those provisions require the record in question to be kept It would, of course, have been even better if HMRC had made it clear in the IN itself why they considered that the requirements that they were imposing fell under paragraph 29(2), but that may be a counsel of perfection. . It is not enough for HMRC to refer, at the hearing, in vague terms to provisions that are not before the Tribunal: neither the Tribunal nor, a fortiori , the appellant (even when, as was the case here, it is represented by specialist tax counsel), can be expected to be familiar with every possible such provision in the voluminous tax statute books. Nor would it be right for the Tribunal to seek to work out for itself what provisions might be relied upon in order to establish that paragraph 62, and hence paragraph 29(2), applied: even assuming that we were confident that such reasoning was correct, that would not be fair on the appellant, who would have had no opportunity to be heard on that reasoning.

34. In the absence of any sufficiently precise account by HMRC as to the basis on which they maintain their submission that requests D1 to D4 fall within paragraphs 29(2) and 62, we therefore reject that submission, and proceed on the basis that paragraph 29(2) does not apply to any of the requirements in the IN. Uncertainty 35. Ground 2 of the Appellant’s appeal was that the IN was invalid for uncertainty. The basis for that ground was that the period in respect of which the documents and information were sought was defined as “ 5 May 2024 to current ”. We agree that the phrase “ to current ” is poor drafting: but it seems to us that any reasonable reader of the IN would have read it as meaning “ to the date of this IN ” (which is what Ms Chahal told us in evidence that she did mean). We therefore do not accept Ground 2. Paragraphs 1 and 21 of Schedule 36 36. Ground 1 of RCYL’s appeal focused on the question of whether the IN fell within the provisions of paragraphs 1 and 21 of Schedule 36.

37. As explained above, the check for the purposes of which a paragraph 1 IN is issued must concern the tax position of the taxpayer to whom the IN is addressed. Further, as regards Condition B of paragraph 21 (on which HMRC relied, given that the IN was issued after filing of the relevant tax returns), the suspected under-declaration of tax due must be that of the taxpayer to whom the IN is issued: and Condition C, on which HMRC also relied, is also confined to the tax position of the addressee of the IN.

38. At the heart of the submission advanced by Mr Watkinson was his claim that, in fact, HMRC’s concerns all related to the tax position of, and potential under-declarations by, other taxpayers and not RCYL’s tax position or potential under-declarations.

39. On the basis of the opening letter, and of Ms Chahal’s evidence in her witness statement and to us, that claim seems to us to be well-founded, and we accept it.

40. As set out above, the opening letter explained that the “ problems ” that lay behind HMRC’s check were “ problems with fraud and unpaid taxes through using labour providers, payroll providers or the outsourcing of a workforce via TUPE to a third party (payroll company fraud) ”.

41. That paragraph certainly identifies a concern as to someone’s tax position. However, and rather significantly, it does not identify whose tax position is the subject of concern.

42. As we noted above, RCYL is a recruitment company: its business is finding staff for businesses that want to employ or engage them. It does not itself “ [use] labour providers, payroll providers or [carry out] the outsourcing of a workforce via TUPE ”. It is therefore hard to see how any of those factors could be the basis for a concern as to its tax position. The only coherent meaning that we can attribute to the expressed concern is that it relates to the tax position of RCYL’s clients (who may well include businesses that do those things).

43. That conclusion is supported by what Ms Chahal said in her witness statement. She told us there that HMRC’s concern was with “ the movement of workers and/or payroll responsibilities from legitimate businesses to fraudulent supply chains that either do not declare or pay all the relevant taxes to HMRC .” [§24] and that “ HMRC would ask if a company has outsourced its payroll or workforce to investigate potential tax noncompliance and fraud, particularly in labour supply chains. ” [§25]. However, none of that is, as explained above, relevant to RCYL’s tax position: it is not RCYL that moves or outsources workers, but its clients – as Ms Chahal accepted in cross-examination. Further, Ms Chahal’s statement [§28] that HMRC wanted to understand whether “ [RCYL] source workers from any other third parties or engage the services of individually self-employed workers ” is impossible to follow: it is not RCYL that “ sources workers ” or “ engages self-employed workers ”.

44. Similarly, Ms Chahal’s statement [§30] that “ The RTI returns submitted to HMRC by [RCYL] identified a variance in the value of returns. This can indicate the movement of workforce or the outsourcing of labour from a third-party supplier ” is hard to follow when it is understood what RCYL’s business is: RCYL does not itself move its workforce or outsource labour. (The obvious explanation of the “variance”, which we set out at paragraph 9 above, is that it arose as a result of Christmas demand for additional staff by RCYL’s customers: an explanation that Ms Chahal accepted in cross-examination that she did not consider – indeed, she did not look at whether a similar “variance” had arisen at the same time in other years.)

45. We also note Ms Chahal’s explanation in her witness statement of why copies of due diligence checks were asked for ([D6]). She said [§27, repeated at §35] that “ These checks are requested to confirm as to what due diligence have been carried out to confirm the credibility and legitimacy of their suppliers[ Since RCYL’s suppliers could be anything from an office cleaning company to a stationery or IT services supplier, it is entirely obscure how the concerns set out in the opening letter could apply to them ], customers and suppliers [sic] to mitigate potential risk related to fraud or non-compliance .” Again, it is evident that the concern is with the tax position of third parties, not that of RCYL itself: and, indeed, in cross-examination Ms Chahal accepted that that was the case.

46. We therefore conclude that the IN was given not for the purposes of checking RCYL’s tax position but for the purpose of checking other parties’ tax position: it therefore fell outside paragraph 1 (and, indeed, Condition B and C in paragraph 21). An IN for that purpose could potentially have been given under paragraphs 2 and 3, if the paragraph 3 conditions applied: but that is not what was done.

47. It is true that Ms Chahal did sa