HMRC permitted to disclose taxpayer information to another taxpayer, court finds

The confidentiality of taxpayer’s information is a fundamental principle of tax law. HMRC is prohibited, by section 18(1) of the Commissioners for Revenue and Customs Act 2005, from disclosing information that it holds in connection with its functions. However, this prohibition is subject to a number of caveats, which were explored in the Court of Appeal’s decision.

The underlying case concerned two individuals, Mark Mitchell and Paul Bell, who had received personal liability notices in respect of VAT unpaid by two companies with which they had been concerned. Both individuals denied their own responsibility for the VAT and instead claimed the other was liable.

The question before the Court of Appeal arose from an application from HMRC to the First-tier Tax Tribunal (FTT) for a direction permitting them to disclose to Bell information and documents. This disputed information had come to light in an interview with Mitchell. Mitchell strongly objected to the disclosure at all stages.

The FTT and then Upper Tribunal (UT) both considered the application and made decisions, which to a greater or lesser extent allowed HMRC to disclose the disputed information to Bell.

In the Court of Appeal, HMRC took a different tack. It argued that it did not need the permission of the tribunal to disclose the documents because it had statutory power to do so in furtherance of its functions. In effect, it argued that it had never needed to make the application to the FTT in the first place.

The Court of Appeal found that HMRC could use its statutory powers to disclose the documents, without any permission from the FTT. HMRC could do so by relying on two caveats from their general confidentiality obligation – their right to disclose firstly “for the purposes of a function of HMRC”; and secondly “for the purposes of civil proceedings”, the court held. Lady Justice Whipple stated that she “would readily accept that the disclosure of documents in HMRC’s possession, which HMRC considers to be required out of fairness in the context of ongoing tax litigation, is part of HMRC’s function of collection and management of the tax”.

The Court of Appeal also went on to consider the scope of the FTT’s jurisdiction in these matters. The three judges approached this in different ways but they all agreed that the FTT does not have jurisdiction over HMRC’s exercise of its powers under section 18(2). While the approach to the scope of the FTT’s case management powers differed between the judges, the majority concluded that the tribunal’s general case management powers under rule 5 of the tribunal procedure rules can “co-exist independently and provide alternative routes to disclosure in the context of an FTT appeal”. This meant that the FTT could issue a direction for disclosure to assist the parties in progressing the appeal.

Sam Wardleworth, tax expert at Pinsent Masons, said: “While it seems unlikely that this decision will open the floodgates for disclosure of taxpayer information, it does make it absolutely clear that HMRC can exercise its discretion to disclose taxpayer information in the context of tax litigation. The particular facts of this case, where two individuals in the same appeals are in direct conflict with each other, are not hugely common, but there are many disputes that involve multiple parties whose positions are not wholly aligned. It will be interesting to see if HMRC starts to provide greater disclosure in this context. If it does, we may well see further satellite litigation, challenging HMRC’s exercise of this discretion by way of judicial review.”