In the recent case of R & C Commrs v Third Party [2023] TC 08706, the First-Tier Tribunal had to consider whether to approve the issue of a third party information notice to a firm of solicitors requiring it to disclose information relating to one its clients.
Under a "third party notice", HMRC can require a third party to provide it with information about a taxpayer. However, if the taxpayer has not agreed to the notice, HMRC is required to get Tribunal approval. This can only be given if several conditions met, including the Tribunal being satisfied that the notice is justified. A third party notice cannot require production of privileged information.
In Third Party, HMRC suspected that the taxpayer had not fully disclosed his worldwide assets or declared all of his income and gains, in particular, in relation to certain offshore trusts. HMRC had asked the taxpayer for the information but had not been provided with it. HMRC therefore proposed to issue a third party notice to a Northern Irish firm of solicitors that had provided conveyancing advice to the taxpayer.
The Tribunal considered that the notice would be justified, explaining that, on the facts, it was satisfied that the information was reasonably required for checking the taxpayer's tax position and the notice was a reasonable and proportionate use of HMRC's powers.
As part of its consideration of the (numerous) representations that the third party and the taxpayer had made to HMRC, the Tribunal found it unlikely that all the information held by the firm would be privileged. It observed that for transactional matters (like conveyancing) only legal advice benefits from privilege so, for example, any documents giving effect to the transaction and any client ledger entries will not be privileged.
The Tribunal held that the duty of confidentiality owed to clients is overridden by statutory obligations to provide information under third party notices, and dismissed all the other arguments raised by the third party and taxpayer, including that any of the Human Rights Act 1998, data protection legislation and the Official Secrets Acts would prevent the requested information from being provided.
As applications for third party notices are typically held in private, this decision (which the Tribunal thought was in the public interest to publish as it involved a firm of solicitors) provides an interesting insight into the judicial approach on such applications. It also serves as an important reminder of the boundaries of legal privilege in the case of transactional matters.
Although the third party has the statutory right to make representations to HMRC in relation to a proposed third party information notice for which Tribunal approval is sought, the taxpayer itself does not. It is therefore interesting that HMRC passed on the representations the taxpayer had made to it to the Tribunal, and that the Tribunal specifically considered them. This may encourage taxpayers in a similar position to do the same.
