HMRC Third-Party Information Notices: Banks, Accountants & Advisers

HMRC does not have to come to you for information. Under Schedule 36 Finance Act 2008, HMRC can serve a formal notice on your bank, your accountant, your solicitor or virtually anyone who holds documents relevant to your tax affairs and in most cases, you will not be involved in the court hearing that authorises it. Understanding how third-party notices work is essential if you are under tax investigation.

What is a third-party notice?

A third-party notice is a Schedule 36 information notice issued to a person other than the taxpayer whose tax position is being checked. It is authorised by paragraph 2 of Schedule 36 to the Finance Act 2008. The notice is formally served on the third party and requires them to produce specified information or documents to HMRC within the compliance period stated in the notice.

The rationale for the third-party notice power is straightforward: information relevant to a taxpayer’s tax affairs is often held not by the taxpayer but by others, the bank that holds their account, the accountant who prepared their returns, the solicitor who handled a property transaction. Without a power to compel third parties, HMRC would be entirely dependent on the taxpayer’s own cooperation. Schedule 36 removes that dependency.

Third-party notices are distinct from taxpayer notices not just in their target, but in the additional procedural safeguards that govern them. Because a third party’s own documents and business interests are affected by a notice that is not “their” investigation, Parliament imposed stricter conditions on when HMRC can issue one.

Common third-party recipients

In practice, HMRC most commonly serves third-party notices on:

• Banks and building societies , to obtain full account history, transaction records, balance information and details of any connected accounts or signatories. This is the most frequently used third-party power.
• Accountants and tax advisers , to obtain client files, working papers, trial balances and communications relating to the preparation of tax returns or accounts.
• Solicitors , to obtain conveyancing files (property transactions), probate records (estate assets), company formation documents and contractual correspondence. Note: solicitors must withhold LPP material.
• Business partners and co-directors , where a taxpayer’s tax position is intertwined with a business partner’s records, HMRC may target the partner directly.
• Employers , to verify employment income, expense claims and benefits in kind, particularly in cases involving disguised remuneration or IR35.
• Letting agents and estate agents , in property investigations, to obtain rental schedules, tenancy agreements and transaction histories.

The approval requirement

Paragraph 3 of Schedule 36 imposes a fundamental condition on third-party notices: before HMRC can issue such a notice, it must have either the taxpayer’s written agreement to the notice or prior approval from the First-Tier Tribunal (FTT).

In practice, HMRC almost always seeks FTT approval rather than taxpayer consent. There are obvious reasons for this: asking the taxpayer for consent telegraphs HMRC’s investigative interest to a third party; the taxpayer is unlikely to consent; and the FTT process is straightforward for HMRC. Taxpayer consent is used where HMRC and the taxpayer have agreed a cooperative investigation framework, which is relatively rare outside of COP9.

The FTT approval process

When HMRC applies to the FTT for approval of a third-party notice, the application is made without notice to the taxpayer. The taxpayer is not present at the hearing, does not receive advance notification that the application is being made and has no opportunity to make representations before approval is granted.

The FTT applies what practitioners describe as a “low bar”: it must be satisfied that HMRC has reasonable grounds for issuing the notice. This is the same threshold as applies in many preliminary civil enforcement steps, significantly lower than the balance of probabilities standard used in substantive hearings. The FTT is not conducting a mini-trial of the underlying tax investigation; it is simply checking that HMRC has a rational basis for seeking the information.

Because of the low threshold and the ex parte nature of the hearing, FTT approval for third-party notices is routinely granted. HMRC’s evidence typically consists of a written statement from the investigating officer explaining the nature of the enquiry and why the documents are needed.

Notification to the taxpayer

Although the taxpayer is not involved in the approval process, paragraph 3(3) of Schedule 36 requires HMRC to notify the taxpayer that a third-party notice has been issued. This notification must be given either at the same time as the notice is served on the third party or as soon as reasonably practicable thereafter.

There is an exception: the FTT can agree that HMRC need not notify the taxpayer (or can delay notification) if such notification would “prejudice the assessment or collection of tax.” This exception is used where HMRC believes the taxpayer would take steps to destroy or conceal documents if they knew a notice had been served on their bank. It is invoked relatively rarely, but it does mean that in some cases the taxpayer will not learn of a third-party notice until after the documents have been obtained.

The taxpayer’s limited position

The most important and frustrating aspect of third-party notices from the taxpayer’s perspective is that the taxpayer has no direct right of appeal against a third-party notice. The appeal right in paragraph 29 of Schedule 36 applies only to taxpayer notices. Only the recipient of the third-party notice, the bank, the accountant, the solicitor, has standing to challenge it.

In practice, third-party recipients rarely mount a challenge. Banks in particular have compliance teams that routinely respond to Schedule 36 notices and almost never appeal them. The economic cost of a legal challenge outweighs any benefit to the institution. Accountants occasionally push back if they have concerns about scope or privilege, but sustained challenges are uncommon.

For the taxpayer, this means that the practical options are limited:

• Where the taxpayer learns of a proposed third-party notice before it is issued (e.g. because HMRC has sought their consent), they can refuse consent and make clear that they would contest the scope, which may cause HMRC to narrow the notice or seek FTT approval for a more focused version.
• Where HMRC has failed to obtain FTT approval or taxpayer consent, the notice is unlawful and the third party should not comply. A specialist can write to HMRC and the third party setting out the procedural defect.
• Judicial review of HMRC’s decision to issue the notice is theoretically available, but is high-cost and high-threshold and practically only worth pursuing in the most egregious cases.

Legal professional privilege

Paragraph 23 of Schedule 36 expressly protects legally privileged material. This protection applies equally to third-party notices: even where a third-party notice has been lawfully issued and FTT-approved, the recipient cannot be compelled to produce documents that attract legal professional privilege.

This is most commonly relevant where a solicitor receives a third-party notice. The solicitor is under a professional obligation to withhold privileged material even if instructed by the client to produce it (because privilege belongs to the client but can only be waived by the client explicitly, not impliedly). The solicitor should:

1. Review the file carefully against the categories requested in the notice
2. Identify all documents that may attract LPP, advice letters, counsel opinions, memoranda of advice, litigation-related correspondence
3. Produce compliant documents promptly
4. Write to HMRC confirming that further documents have been withheld on grounds of LPP and offering a general description of the withheld categories

Financial institution notices (paragraph 4)

Where HMRC seeks information from a financial institution , a term that covers banks, building societies, credit unions, insurance companies, investment firms and similar regulated entities, paragraph 4 of Schedule 36 imposes a higher threshold. FTT approval is always required for financial institution notices, regardless of whether the taxpayer has consented.

The reason for this additional safeguard is the breadth of information that financial institutions hold and the sensitivity of detailed financial transaction records. FTT approval ensures that at least one layer of independent judicial oversight has been applied before a financial institution is compelled to produce extensive account data.

In practice, the distinction between paragraph 2 (general third-party notice) and paragraph 4 (financial institution notice) is important because a notice served on a bank without paragraph 4 FTT approval, even if paragraph 3 approval has been obtained, may be unlawful. Specialist practitioners check this carefully.

Accountant privilege: the narrower protection

Taxpayers often assume that communications with their accountant attract the same privilege as communications with their solicitor. This is incorrect. Accountants who are not also legally qualified do not hold documents under legal professional privilege. There is a separate, narrower concept of “tax adviser privilege” under paragraph 25A of Schedule 36, but it applies only to communications that are legal advice in character, not to the preparation of accounts, tax returns, computations or correspondence with HMRC.

This means that when HMRC serves a third-party notice on an accountant, the accountant must generally produce:

• Client file documents, including engagement letters and client information
• Working papers used in preparing accounts and tax returns
• Correspondence with the client about compliance matters
• Draft accounts and computations

The accountant is entitled to withhold only those documents that constitute legal advice, for example, a formal written opinion on a specific point of tax law prepared by a legally qualified tax adviser in the capacity of a legal adviser. The boundary is narrow and genuinely contested in practice. Where there is uncertainty, the accountant should take their own legal advice before producing disputed documents.

For the full context of HMRC’s information powers, see our pillar guide to Schedule 36 information notices. For penalties that arise from non-compliance, see our guide to Schedule 36 penalties. If your investigation has been escalated to COP9, our Fraud Investigation Service page explains how we help.

Frequently asked questions

Related guides in this series

• HMRC Schedule 36 Information Notices: The Complete Guide
• How to Appeal an HMRC Schedule 36 Information Notice
• Penalties for Non-Compliance with HMRC Schedule 36 Notices
• HMRC Inspection Powers: Business Premises Visits