Tax Collection and Management (Wales) Act 2016 investigative powers: technical guidance

The WRA needs to be able to check that the correct amounts of tax have been paid at the right time in order to carry out its general function, which is the collection and management of the devolved taxes. To do this it may need to:

• issue information notices, gather information and examine documents, or
• inspect premises and any equipment and documents held on those premises

The WRA may use the following types of information notice to require a person to provide information or a document:

• Taxpayer notices
• Third party notices
• Unidentified third party notices
• Identification notices

The WRA may also issue debtor contact notices, which are subject to different requirements and procedures.

The WRA may issue an information notice where the information or document requested is required for the purposes of checking a person’s “tax position” and it is reasonable to require the person to provide the information or document.

The WRA may either specify or describe the information or documents being sought. This means that the WRA might require a specific document (e.g. a particular contract document), documents of a particular kind, or documents which contain a particular kind of information (e.g. any document containing information relating to a particular transaction, or to a particular time period).

The concept of a person’s “tax position” is wide and includes the person‘s past, present and future liability to pay any devolved tax or associated penalties, interest and any other related amounts that have been paid (or may be payable) by the person. It also includes related amounts that may be payable to the person by the WRA.

It follows therefore, that an information notice can be used in relation to an ongoing enquiry into a tax return or claim or to help the WRA in making a determination or an assessment. Checking a person’s potential future liability is likely to be a rare occurrence but it may be relevant, for example, in relation to certain types of land transaction which are staged over a long period and in relation to which a tax return might be made before all the liability to tax arises.

In some circumstances, an information notice may only be issued with the approval of the tribunal.

There are a number of restrictions preventing the WRA from providing certain information or certain documents in particular circumstances.

Where an information notice is issued, the recipient must comply with it.

The WRA may issue a taxpayer notice requiring the recipient of the notice (the taxpayer) to provide information or produce a document to the WRA. A taxpayer notice must be approved by the tribunal.

The WRA may issue a third party notice requiring the recipient to provide information or produce a document in relation to another person (the taxpayer). The WRA may not issue a third party notice without the approval of the tribunal or agreement of the taxpayer.

A third party notice must name the taxpayer and a copy of it must be issued to the taxpayer, although the tribunal may disapply one or both of these requirements if it is satisfied that the WRA has grounds for believing that naming the taxpayer or issuing the taxpayer with a copy of the notice might seriously prejudice the assessment or collection of the tax.

A number of additional requirements apply in relation to a third party notice issued in respect of a group of undertakings or a partnership.

Groups of undertakings

Where a third party notice is issued to a person for the purpose of checking the tax position of a parent undertaking or any of its subsidiaries:

• the notice must state its purpose (in addition to meeting the other requirements relating to third party notices), and
• the parent undertaking is considered as the “taxpayer” (for the purposes of agreeing to the notice and being sent a copy of it)

Partnerships

Where a third party notice is issued, for the purposes of checking the tax position of a partnership, to someone who is not one of the partners:

• the notice must state its purpose (in addition to meeting the other requirements relating to third party notices) and give the partnership’s registered name (or name by which it is known), and
• A copy of the notice must be issued to at least one of the partners

The tribunal may disapply any of these requirements if it is satisfied that the WRA has grounds for believing that complying with them might seriously prejudice the assessment of collection of the tax.

The WRA may not issue a taxpayer notice without the approval of the tribunal. The WRA may not issue a third party notice without the agreement of the taxpayer or the approval of the tribunal. The test that the tribunal must apply when deciding whether to approve a taxpayer notice or third party notice will depend on whether the recipient has been told that the WRA will be applying for approval.

If the recipient has not been told that the WRA will be applying for tribunal approval, the tribunal must be satisfied that the requirements for the issue of the notice have been met; and that giving notice of the application might prejudice the assessment or collection of devolved tax.

If the recipient has been told that the WRA will be applying for tribunal approval, the tribunal must be satisfied that: the requirements for the issue of the respective notice have been met; the recipient of the notice has been told about the information or documents required by the WRA; and the recipient has been given an opportunity to make representations about that request to the WRA. Where representations are made, the WRA must provide the tribunal with details of those representations. In the case of a third party notice, the tribunal must be satisfied that the taxpayer who is the subject of the notice, has been told by the WRA why the information or documents are required.

When a recipient has been told that the WRA is going to require the information or documents in a formal notice, it is a criminal offence under section 115 TCMA if a person conceals, destroys or otherwise disposes of the information or documents.

The tribunal may disapply some of the above requirements where giving notice of the application to the taxpayer or third party might prejudice the assessment or collection of devolved tax.

The tribunal may make such modifications of the notice as it thinks appropriate (for example the tribunal might think it is reasonable for the WRA to require some documents but not others and might restrict the scope of the information notice accordingly).

The WRA may, with the approval of the tribunal, issue an unidentified third party notice, requiring a person (the recipient) to provide information or produce a document relating to the tax position of a person whose identify it does not know or a class of persons whose individual identities it does not know.

In order to approve an unidentified third party notice, the tribunal must be satisfied that the WRA is not able to obtain the information or documents from another source. The tribunal must also be satisfied that there are reasonable grounds to believe that the person or persons who are the subject of the notice have failed (or may fail) to comply with the law related to a devolved tax and this has led (or will lead) to serious prejudice to the assessment or collection of devolved tax (for example, the WRA might have grounds to believe that the person involved in the land transaction is not going to come forward and make a tax return). The tribunal may make such modifications of the notice as it thinks appropriate.

The WRA may, with the tribunal’s approval, issue an identification notice to someone requiring them to provide limited information about a person (either a single person or class of persons), namely the person’s name, last known address and date of birth, in order to establish a taxpayer’s identity. The WRA can issue an identification notice where it has grounds for believing that the recipient will be able to ascertain the identity of the taxpayer (from information held by WRA) and that the recipient obtained relevant information about the taxpayer in the course of carrying on a business.

While an identification notice is similar to an unidentified third party notice, the information that may be required is much more limited and the WRA does not have to prove that there are grounds to believe that the unidentified person may have failed to comply with the law relating to devolved tax. In practice this procedure is likely to be used where the WRA knows that something has happened which attracts a tax liability (e.g. a land transaction) and wishes to contact the persons involved but does not know their identity. They may seek to use this power prior to the point where any failure to comply with the law occurs so that they are able to contact the taxpayer to give him or her the opportunity to get their tax affairs in order.

The WRA may issue a notice (debtor contact notice) requiring a person to provide contact details (a person’s address and any other contact information) for another person if it needs to contact a person who owes the WRA money but who the WRA has been unable to get hold of. This procedure can only be used if the contact details have been obtained by a person in the course of business, but cannot be used to ask for information from charities or persons providing services to charities free of charge.

Where the tribunal approves an information notice, the WRA must issue it within 3 months of that approval, or a shorter period if specified by the tribunal.

The recipient of an information notice must comply with it and provide the required information or documents within a time period, location (which cannot be a place solely used as a dwelling) and in the manner specified in the information notice. The duty to comply with the information notice is suspended where the recipient has requested a review of the notice or made an appeal against it. A person who does not comply with an information notice may be liable to a penalty.

Where an information notice requires the person to produce a document, the person may comply by producing a copy of the original document (unless the notice specifically requests the original, or within 6 months of the copy being produced the WRA subsequently requests it).

An information notice may not require a person to produce a document if the whole of it originates more than 6 years before the date of the notice, unless the notice is issued with the approval of the tribunal. An information notice issued to check the tax position of someone who has died cannot be given more than 4 years after the death. A person is only required to produce a document if it is in their possession or power.

An information notice may not require a person to provide information or a document (part or full) where it relates to an ongoing review or appeal in relation to any tax (whether or not the tax is a “devolved tax”). For example, if HMRC is conducting an enquiry into a person’s self-assessment income tax return, the WRA cannot require information in relation to the same person’s devolved tax position if the information also relates to HMRC’s enquiry.

The WRA cannot require a person to provide material created, acquired or otherwise in someone’s possession for the purposes of journalism. Nor may WRA require a person to provide personal records or personal information contained in records, such as medical records.

The WRA may not issue a taxpayer notice in relation to a transaction or an accounting period (to check the tax position for those) where a person has made a tax return in relation to that transaction or accounting period. If the WRA wishes to check the tax position in relation to the tax return it should open an enquiry into the return. However, a taxpayer notice could be given where a notice of enquiry had been given and the enquiry was not completed (in other words the notice is part of the conduct of the enquiry) or where the WRA suspected an issue with the assessed tax liability (including any reliefs) for the transaction or accounting period (in other words the notice is part of the work the WRA does in making a WRA determination or WRA assessment).

The WRA may not require a person to provide or produce information or documents that are legally privileged. This refers to information or documents that benefit from the confidentiality that arises between a professional legal adviser and a client. Where there is a dispute, it is for a tribunal to determine whether or not material is privileged. There are also restrictions on the information and documents that a tax adviser or auditor may be required to provide: generally, tax advisers are not required to provide communication between themselves and their client; and auditors are not required to provide information relating to their audit function.

The WRA may enter premises and carry out inspections of them and of business assets and documents on the premises, when they have grounds for believing that this is required for the purposes of checking a person’s tax position. The WRA has no power under these provisions to use force to gain access to premises, but if a person refuses to permit access to premises for an inspection, they may be liable to penalties. When exercising powers of inspection, the WRA official must produce evidence of their authority to do so, when asked to do so by the occupier or any other person who appears to be in charge of the premises. Failure to produce this evidence means that the inspection must stop.

The WRA can enter premises (or part of a premises) that it considers are being used to carry on a business and inspect those premises (including assets and documents on them). It may do so where it has grounds for believing that the inspection is required for the purposes of checking a person‘s tax position. Such an inspection can only be carried out with either the agreement of the occupier of the premises or with the approval of the tribunal.

The WRA may undertake an inspection at any time it has agreed with the occupier or at a reasonable time if the inspection has been approved by the tribunal. If the WRA has not obtained the occupier’s agreement, it must give the occupier notice of the inspection 7 days before it is due to take place, unless the tribunal is satisfied that giving such notice would seriously prejudice tax collection or assessment.

The WRA may not be permitted to enter or inspect any part of premises that are used solely as a dwelling.

In order to check a person’s tax position in relation to Landfill Disposals Tax, the WRA may enter the business premises of a third person if WRA has grounds for believing that person is or has been involved in any capacity with the disposal of material that may be subject to LDT (either at an authorised landfill site or elsewhere).

When carrying out an inspection, the WRA has a number of powers, including: taking any other person(s) with them onto the premises (including a police officer where it is believed that the inspection may be seriously obstructed); examining or investigating anything considered necessary in the circumstances of the inspection; directing that the premises (or any part of the premises) be left undisturbed for as long as is reasonably necessary for the purposes of any examination or investigation; the power to take samples of materials from the premises, including by experimental borings or other works or the installation and maintenance of monitoring or other apparatus on the premises; and marking assets to show that they have been inspected.

The WRA may not inspect any documents that it would not be able to require through an information notice (for example, a document containing legally privileged material).

The WRA may, with the agreement of the occupier, also take equipment or materials required for the inspection on to the business premises. The WRA may take such equipment or material without the occupier’s agreement, either on service of a notice on the occupier (7 days in advance) or, if serving such a notice would seriously prejudice the assessment or collection of tax, without giving notice.

The WRA may enter and inspect premises (including dwellings) and any property on the premises for the purpose of valuing, measuring or determining the character of the premises if it is required for the purposes of checking a person‘s tax position.

Such an inspection can only be carried out with either the agreement of the occupier (or a person who is in charge of the premises if the occupier cannot be identified), or the approval of the tribunal, (provided the occupier or person in charge has been given at least 7 days notice of the inspection). 

Where the occupier of the premises does not agree to allowing an inspection (or does not agree to the WRA exercising all of its powers during an inspection), the WRA can ask the tribunal to approve an inspection and exercise of the related powers.

The application to the tribunal can be made without notice and in such circumstances the tribunal must satisfy itself that the sending of a notice of the application might have prejudiced the assessment or collection of devolved tax.

In approving an inspection the tribunal must be satisfied that the inspection is required for the purposes of checking a person’s tax position.

In approving an inspection for valuation purposes, the tribunal has to be satisfied that the WRA gave both the person whose tax position is being checked and the occupier (if different and capable of being identified) a reasonable opportunity to make representations to the WRA and the WRA must give a summary of any representations to the tribunal.

The WRA has to carry out an inspection no later than 3 months after the tribunal’s approval or within any shorter period as specified by the tribunal.

When inspecting premises, the WRA may copy, make extracts from, remove and retain a document for a reasonable period of time. Where it does so, and the person who produced the document so requests, the WRA must (at no charge to the person) provide a copy of the document and a receipt for it and a copy of it.

The WRA may access information or documents stored in electronic form and may inspect and check the operation of any computer or associated apparatus or material relevant to the document or information.

Any person obstructing the WRA or an inspector exercising the powers in subsections (3) and (5) is liable to a penalty under section 146.

It is an offence to conceal, destroy or otherwise dispose of a document required by an information notice which has been approved by the tribunal (even if the person has appealed against the information notice or a requirement in it).

It is also an offence to conceal, destroy or otherwise dispose of a document where the WRA has told a person that it intends to seek the tribunal’s agreement, but has not yet done so.

It is a defence where a person demonstrates that there was a reasonable excuse. A person who commits an offence under either of the sections is liable on summary conviction to a fine or on conviction on indictment to imprisonment for up to 2 years or to a fine (or both). In each case the court has discretion as to the amount of the fine.