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May 31, 2019

Extra-Territorial Reach of HMRC Information Notices

In the case of  The Queen on the Application of T M Jimenez v FTT (2019), the Court of Appeal overturned the High Court's decision and held that HMRC has the power to issue an information notice to non-UK residents, thereby strengthening its ability to tackle cross-border tax avoidance.


Mr Jimenez, a UK national with a Spanish passport, left the UK to live in Cyprus and then the UAE.

It was common ground that he had been a UK taxpayer for some of this time, however the precise period was in dispute and his tax position was under investigation by HMRC.

HMRC issued a notice under paragraph 1 of Schedule 36 Finance Act 2008 to Mr Jimenez's address in Dubai requesting information regarding his affairs, including details of bank and credit accounts and a schedule of his visits to the UK.

What is Schedule 36?

Sch 36 gives HMRC a number of powers to obtain information and to inspect premises for the purposes of checking an individual's tax position.

Paragraph 1 gives HMRC the power to give notice to the taxpayer, paragraph 2 authorises HMRC to give notice to third parties, and paragraph 10 includes the power for HMRC to enter a person's business premises and inspect them or any business assets or documents.

Failure to comply with an information notice may result in both civil and criminal penalties.

This case concerned a notice issued under paragraph 1 only - a notice provided to a taxpayer.

The Case

Mr Jimenez contended that HMRC's information powers do not have extra-territorial effect, and therefore a notice cannot be sent to a non-UK resident.

In T M Jimenez v FTT & HMRC (2017), the High Court originally ruled on judicial review that HMRC's power under Sch 36 did not extend outside the UK and subsequently quashed the notice. This was on the basis that the notice had territorial limits and could not be issued to a non-UK resident.

HMRC appealed this decision.

The Result

The Court of Appeal disagreed with the High Court and held that the Sch 36 notice was valid.

This is because the notice gives HMRC the power to obtain the information necessary to investigate the correctness of the taxpayer's self-assessment tax return. As a non-UK resident may be liable to income tax, capital gains tax, SDLT, and inheritance tax, it is unlikely that these investigatory powers would be limited to operating solely within the UK.

Sch 36 para 1 does not impose any geographical restrictions, therefore it is consistent with the types of tax which may be subject to an investigation that HMRC's territorial scope should extend beyond the UK. Furthermore, it was noted that other paragraphs in Sch 36 include various restrictions, suggesting that Parliament was able to limit the scope if that was its intention.

There is a strong policy objective of conferring effective investigatory powers to HMRC and the serving of the Sch 36 notice does not violate the principle of state sovereignty.

Concluding Thoughts

In light of an increased focus on cross-border tax evasion, this is an important win for HMRC. Going forward, taxpayers will be unable to use their residence status as an excuse for challenging an information notice under Sch 36.

That said, it will be interesting to see in the future whether this extended territorial scope will also apply to notices issued under Sch 36 to enable HMRC to enter a premises abroad or to request information from third parties.

Related Articles

MARD: How Tax Authorities Collect Cross-Border Debts (12 April 2019)

UPDATE - Time to Correct Offshore Tax Position (8 March 2018)

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