Receiving an information notice letter from the HMRC compliance team can be an incredibly stressful experience. 

Investigative letters suggesting that HMRC is taking a closer look into your affairs can provoke even the most meticulous of business owners to wonder if they haven’t made a mistake somewhere.

This article will explore the compliance system and, particularly, the ‘Information Notice’ letters the Compliance team sends out.

What Triggers an Information Notice?

Almost all of HMRC’s primary risk assessment is now done by a supercomputer known as Connect.

Costing in excess of £100 million, this defence built supercomputer draws on an unparalleled diversity of government and corporate information sources to create a profile of each taxpayer’s total income.

In particular, it flags inconsistencies as worthy of further investigation and it is this which usually prompts the sending of an initial compliance check letter.

In 2017, for example, HMRC sent out over 10,000 letters to people who had submitted their 2014 to 15 tax return without fully declaring their savings interest. Using information gathered from banks and peer-to-peer lenders, the Connect system clearly has a processing power far superior to any human team.

We can conclude from this that compliance checks are never ‘fishing expeditions’ – but are based upon some kind of initial evidence that looks worthy of deeper scrutiny.

What is an HMRC Information Notice?

The first letter most people receive is known as an ‘information notice.’ As its name suggests, this letter is a demand for clarification on whatever the system has flagged.

The thrust of the letter will usually be crystal clear, as it will explain what they found, and request information specific to helping them verify their findings, and calculate your correct tax position.

HMRC has the right to specific not only what documentation they require, but also what form they would like it in, i.e. electronically.

HMRC’s investigative powers (stemming from the Finance Act 2008, Schedule 36, “information and inspection powers”) also give them the ability to search the computers in your premises. If this is their intention, the letter will make it clear.

What to do if You’ve Received an Information Notice

If you’re a director who has received an Information Notice, the best thing you can do is stay absolutely calm – despite the panic that these letters can provoke, HMRC is merely trying to balance its accounts accurately. Unless they find serious wrongdoing, the chances are that you will be able to clear things up and move on very quickly.

Bear in mind that these information notices will always contain unique reference numbers, as well as contact details for the relevant department.

Either you or your tax adviser would do well to check that the reference numbers are correct as, with the organisation as big as HMRC, errors do occur.

Appealing the Notice

Information Notices are one of three types:

  • a notice served on the taxpayer to ‘clarify’ their ‘tax position’
  • a notice served on a third party to clarify another’s tax position and
  • a notice served on a third party in respect of a person or persons whose identity is unknown

It is your right to appeal in all cases, except where the documents requested are part of the taxpayer’s statutory records (anything required to be kept under the Taxes Acts or Value Added Tax Act 1994.

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