Guidance on Tribunal Approval for Taxpayer and Third Party Notices

When the tribunal can approve a taxpayer notice or third party notice

Revenue Scotland can ask the tribunal to approve a notice requiring information or documents for tax checks. The tribunal must usually be satisfied that the notice is justified and that basic fairness steps have been followed, although some of those steps can be skipped if advance warning could harm tax assessment or collection.

• A taxpayer notice is sent to the taxpayer being checked, while a third party notice is sent to someone else holding relevant information.
• For approval, the tribunal must generally be satisfied the notice is justified, the person asked for information had a reasonable chance to comment, and any comments were put before the tribunal.
• For a third party notice, the taxpayer must usually also be given a summary of why the information is needed, unless a specific partnership or group company exception applies.
• Applications to the tribunal can be made without telling the affected people, so the main protection is the legal conditions the tribunal must review.
• The usual safeguards can be disapplied if warning people first might prejudice tax assessment or collection, for example by tipping someone off, enabling collusion, moving assets, or destroying evidence.
• Whether approval was proper will often depend on the facts, including what type of notice was used, whether representations were invited, and whether any claimed risk to tax collection was strong enough.

Scroll down for the full analysis.

When the tribunal can approve a taxpayer notice or third party notice

This page explains when Revenue Scotland can ask the tribunal to approve an information notice, and what safeguards normally have to be met first. The point matters because tribunal approval can allow Revenue Scotland to require information or documents even where the person receiving the notice does not agree.

What this rule is about

Under the Revenue Scotland and Tax Powers Act 2014, Revenue Scotland can issue formal notices requiring information or documents for tax-checking purposes. Two important types are:

• a taxpayer notice, sent to the taxpayer whose tax position is being checked, and
• a third party notice, sent to someone else who holds information or documents relevant to that taxpayer.

In some cases Revenue Scotland seeks the tribunal’s approval before giving the notice. The tribunal’s role is not to conduct a full dispute about the tax position. Its role is to decide whether the statutory conditions for approving the notice are met.

The source material also makes clear that the tribunal application itself can be made without notice. That means the people affected are usually not told that the application is being made and cannot attend the hearing. Their protection lies mainly in the statutory conditions the tribunal must consider.

What the official source says

The official guidance says the tribunal can generally approve a taxpayer notice only if conditions A to C are met. For a third party notice, conditions A to D must generally be met.

Those conditions are:

• Condition A: the tribunal must be satisfied that, in the circumstances, Revenue Scotland is justified in giving the notice.
• Condition B: the person concerned must have been told that the information or documents are required and given a reasonable opportunity to make representations to Revenue Scotland.
• Condition C: the tribunal must be given a summary of any representations made. If the representations were in writing, they should also be provided to the tribunal so it can assess their tone and content directly.
• Condition D: for a third party notice, the taxpayer must have been given a summary of the reasons why Revenue Scotland requires the information or documents.

The guidance sets out two exceptions to condition D. It does not apply where the third party notice is given:

• to a parent undertaking, to check the tax position of more than one subsidiary undertaking, or
• to a partner in a partnership, to check the tax position of one or more of the other partners.

In those situations, the person or persons whose tax position is being checked may not be given a summary of the reasons for the notice.

The source also explains that conditions B to D do not need to be met if the tribunal is satisfied that complying with them might prejudice the assessment or collection of tax.

In this context, prejudice means that taking those steps could create a risk, or serious risk, to effective tax assessment or collection. The guidance gives examples such as:

• tipping off a person suspected of a criminal offence,
• collusion with or intimidation of a third party,
• flight or disappearance,
• alienation of assets, and
• destruction of evidence.

What this means in practice

The practical starting point is that tribunal approval is meant to involve oversight, not merely a rubber stamp. Revenue Scotland must satisfy the tribunal that the notice is justified.

Normally, there is also a basic fairness process before approval:

• the person expected to provide the information should be told what is required,
• that person should have a reasonable chance to respond, and
• the tribunal should see a proper account of what they said.

For third party notices, there is an added protection for the taxpayer whose affairs are being checked: they should usually receive a summary of why the information is being sought.

But those protections can be disapplied where notifying people in advance could undermine the tax investigation or recovery process. So in sensitive cases, especially where there is a risk of concealment, interference, or dissipation of assets, the tribunal may approve the notice without those steps having been taken.

This means that whether notice is given in advance is not simply an administrative choice. It depends on whether the statutory conditions apply in full, or whether the tribunal accepts that giving advance warning could prejudice tax assessment or collection.

How to analyse it

If you are trying to understand whether tribunal approval was properly sought or could properly be given, the main questions are these:

• What type of notice is involved: a taxpayer notice or a third party notice?
• What information or documents are being required?
• Why does Revenue Scotland say the notice is justified in the circumstances?
• Was the recipient told in advance what was required and given a reasonable opportunity to make representations?
• If representations were made, were they fairly and accurately put before the tribunal?
• If it is a third party notice, was the taxpayer given a summary of the reasons for the notice?
• If not, does one of the specific statutory exceptions apply?
• If conditions B to D were not met, did Revenue Scotland rely on prejudice to assessment or collection of tax, and is that explanation capable of satisfying the tribunal?

For partnerships and corporate groups, it is also important to identify exactly who counts as the “taxpayer” for these purposes. The source material gives special definitions in some multi-party cases. For example, where a notice concerns more than one partner, “taxpayer” may mean at least one of the partners. In group cases involving a parent undertaking and subsidiaries, “taxpayer” may mean the parent undertaking.

The Companies Act definitions of parent undertaking, subsidiary undertaking and undertaking are relevant in those group situations.

Example

Illustration: Revenue Scotland is checking a company’s tax position and believes a bank holds relevant records. It wants to issue a third party notice to the bank and seeks tribunal approval.

In an ordinary case, the tribunal would usually expect:

• the bank to have been told what information is required and given a reasonable chance to comment,
• any comments from the bank to be summarised for the tribunal, and
• the taxpayer company to have been given a summary of why the records are needed.

But if Revenue Scotland can satisfy the tribunal that warning the company first could lead to destruction of evidence or movement of assets, the tribunal may approve the notice without requiring those prior steps.

Why this can be difficult in practice

The source material uses open-textured concepts rather than rigid tests. Several points are fact-sensitive.

First, whether Revenue Scotland is “justified” in giving the notice depends on the circumstances. The guidance does not lay down a complete checklist for that judgement.

Second, what counts as a “reasonable opportunity” to make representations will vary. The source does not set a fixed time period.

Third, the prejudice exception can be significant. It is not limited to cases where harm is certain. The guidance says a risk, or serious risk, may be enough. That leaves room for judgement about how concrete and serious the concern must be.

Fourth, in third party cases involving partnerships or groups, identifying who must be told what can be legally technical. The special rules on who counts as the taxpayer can alter the normal expectation that the person under investigation receives a summary of the reasons.

Finally, because tribunal applications can be made without notice, a person affected may not know what was said to the tribunal at the approval stage. In practice, that can make it harder to assess whether the conditions were met unless later disclosure or challenge procedures bring the position into view.

Key takeaways

• The tribunal may approve a taxpayer notice or third party notice only if the statutory conditions are met, unless the prejudice exception applies.
• Normally, the recipient should have a chance to make representations, and in third party cases the taxpayer should usually be told why the information is being sought.
• Those safeguards can be disapplied where advance notice could create a risk to effective tax assessment or collection, such as tipping off, collusion, asset dissipation, or destruction of evidence.

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Useful article? You may find it helpful to read the original guidance here: Guidance on Tribunal Approval for Taxpayer and Third Party Notices

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