What are your rights during an HMRC investigation? Schedule 36 notices and your legal protections

One of the tools HM Revenue & Customs (HMRC) frequently uses during investigations is the Schedule 36 notice, which gives them the power to request information and documents about your tax affairs.

However, there are clear legal boundaries around what HMRC can ask for, and in recent years, tribunal decisions have played an important role in ensuring those boundaries are respected.

Understanding your rights and HMRC’s obligations can make a significant difference if your business faces a HMRC investigation.

What is a Schedule 36 notice?

Schedule 36 of the Finance Act 2008 gives HMRC the power to request information they believe is reasonably required to check your tax position.

They can ask for documents relating to past, present or even future tax liabilities.

Most investigations begin with an informal request for information.

If HMRC does not receive a satisfactory response, they may issue a formal Schedule 36 notice.

These carry statutory penalties if not complied with, so it is important you take them seriously.

However, HMRC’s powers are not unlimited.

Any request must meet strict legal tests and recent tribunal cases have confirmed that taxpayers can and should challenge notices that go too far.

Legal limits on HMRC’s information requests

Two key principles govern most Schedule 36 notices.

First, the information requested must be reasonably required for HMRC to check the taxpayer’s position.

They cannot simply ask for everything under the sun in the hope of finding something useful.

Second, the documents must be within the taxpayer’s possession or power.

That last point matters because it recognises practical limits.

If the documents are held by a third party, for instance, you may need to show that you have taken reasonable steps to obtain them, but HMRC cannot expect you to deliver something that is impossible for you to access.

Tribunals have repeatedly confirmed these boundaries.

In Metropolitan International Schools v HMRC, the tribunal cut back a notice that demanded far more information than was necessary, stressing that HMRC must justify why each request is proportionate.

In Jenner v HMRC, the tribunal went further, saying that intrusive requests about personal expenditure would not be upheld unless there was a clear and specific need.

These rulings send a strong message that HMRC’s powers, while extensive, are not unlimited.

Where an information notice is sent but there is no formal open enquiry (usually this is in relation to older periods), HMRC must show that it has ‘reason to suspect’ there is an insufficiency of tax. ‘Reason to suspect’ does not allow HMRC to go on ‘fishing expeditions’, although sometimes this test is misinterpreted that way by inspectors.

Privacy, human rights and proportionality

Another important safeguard is the principle of proportionality.

Under the Human Rights Act, HMRC must exercise its powers in a way that respects the right to privacy under Article 8.

That does not prevent them from investigating suspected tax irregularities, but it does mean the intrusion into personal, or business records must be justified and balanced against the taxpayer’s rights.

For businesses, this principle can be particularly important where HMRC investigations involve large volumes of sensitive data.

If a request feels excessive or poorly explained, it may be appropriate to challenge it – and tribunals have shown they are willing to rein in HMRC where the balance tips too far.

Can you challenge a Schedule 36 notice?

Not every Schedule 36 notice can be appealed.

If HMRC obtained prior approval from the tribunal before issuing it, then your only option may be judicial review – a more complex and costly process.

However, where no prior approval was sought, you normally have the right to appeal to the tribunal within thirty days.

The tribunal can confirm, amend or cancel the notice entirely, and it can also extend deadlines if the original timeframe was unrealistic.

Even before reaching that stage, it is often worth opening a dialogue with HMRC.

In many cases, they will narrow the scope of a notice or grant extra time if approached reasonably.

What are the penalties for non-compliance?

Ignoring a Schedule 36 notice is never wise.

Fixed penalties apply if you fail to comply, followed by daily penalties for continued delay.

However, tribunals have emphasised that penalties must be fair and proportionate.

In Baxendale-Walker v HMRC, for example, a proposed £14 million penalty was struck out because it was considered premature and unfair while the taxpayer’s appeal was still being heard.

Practical steps for businesses under HMRC investigation

If your business receives a Schedule 36 notice, the first step is to stay calm and seek advice.

Understanding whether the request is genuinely “reasonably required” can prevent you handing over unnecessary data or facing avoidable penalties.

Keep records of any efforts you make to obtain third-party documents, and do not hesitate to question the scope or timing of a notice if it feels disproportionate.

Above all, remember that HMRC investigations are a legal process with clear rules.

You have rights as well as obligations, and tribunals have shown they will protect businesses from unreasonable or overreaching demands.

If you require help with a HMRC investigation, please contact the experts at inTAX.

You can get in touch with our friendly and experienced team on: 0203 675 8122 or email joe.mcdermott@intaxltd.com.

inTAX is a specialist tax disputes firm. We deal with disclosures, investigations, and tax enquiries of all descriptions, including COP9, fraud investigations, VAT fraud, tax avoidance, let property disclosures and tribunal appeals. However, we don’t just deal with the serious end of tax investigations; we are also happy to handle smaller enquiries, disputes and problems that can be equally as worrying for our clients