At the end of a self assessment enquiry HMRC will issue an enquiry closure notice (s28A TMA 1970 and para 32 Schedule 18 FA 1998) confirming the Officer’s conclusions. If the taxpayer disagrees with the conclusions then the taxpayer may appeal against the notice and request an internal review or a hearing before the Tribunal. In some cases, an internal review may shed light on the reasoning for HMRC’s decision which may be helpful to the taxpayer in deciding whether to appeal the internal reviewer’s decision and request a Tribunal hearing.
Alternatively, a taxpayer may apply to the First Tier Tribunal for a direction requiring HMRC to issue a closure notice (s28A(4) TMA 1970 and para 33 Schedule 18 FA 1998). The Tribunal will give the direction unless it is “…satisfied that there are reasonable grounds for not issuing a closure notice…” (s28A(6) TMA 1970 and para 33(3) Schedule 18 FA 1998). Two recent cases shed some light on these processes.
Bilal Khan  UKFTT 1050 (TC)
This case concerned an enquiry into the taxpayer’s 2010/11 tax return under s9A TMA 1970. HMRC obtained the business’ records and other information. The main issue was whether there was other income which had not been properly reflected in the business profits on Mr Khan’s tax return. Other than pointing out that some information had been provided during the course of the two years of the enquiry, no explanations were provided on the taxpayer’s behalf as to why the outstanding information (which was subject to an information notice issued under Schedule 36 Finance Act 2008) remained outstanding or was unavailable.
The First Tier Tribunal (FTT) Judge summed up the closure notice provisions as follows: “There is a presumption that an application to the Tribunal to issue a closure notice must be granted unless HMRC show that there are reasonable grounds to refuse it. If the Tribunal believes that the enquiry is being inappropriately protracted or pursued, s 28A TMA says that the Tribunal must issue a closure notice unless satisfied that there are reasonable grounds for not issuing such a notice.”
HMRC demonstrated to the Judge’s satisfaction that there were reasonable grounds for continuing the enquiry to determine whether the taxpayer’s return was complete and correct.
The Tribunal will not give a direction for a closure notice where information reasonably required by HMRC remains outstanding and there is nothing to suggest that it is unavailable. Consequently it is best to refrain from requesting one until after all relevant, available information has been provided and HMRC has had time to consider it. If there is still no progress, then various tactics may be considered (as set out in Bloomsbury’s HMRC Investigations Handbook 2014/15) such as Alternative Dispute Resolution (mediation) in addition to requesting a closure notice.
Fidex Ltd  UKUT 454 (TCC)
HMRC enquired into Fidex’s corporate tax return for 2005. The enquiry correspondence over the next three years primarily focussed on whether there was an issue under paragraph 19A Schedule 9 Finance Act 1996. HMRC issued a closure notice in 2010 concluding that an adjustment should not have been made so the company’s trading loss should be lower. A subsequent internal review of the closure notice upheld HMRC’s decision. Fidex appealed to the FTT. HMRC then raised a new argument in support of the closure notice in its Statement of Case for the FTT hearing, which related to paragraph 13 of Schedule 9. Fidex appealed against the FTT’s decision to permit HMRC to raise this new issue after the issue of the closure notice – they contended that the scope of any appeal must be confined to the amendments that gave effect to the conclusions in the closure notice.
The Upper Tribunal (UT) judges referred to the Supreme Court’s decision in Commissioners for HMRC v Tower MCashback LLP1  UKSC 19. In passing they noted that HMRC does not have to give reasons for its conclusions in a closure notice by virtue of s49E(6) TMA 1970. The UT decided that the various principles apply including:
- “The subject matter of the enquiry, the conclusions and amendments (if any) in the closure notice” define and confine the scope of the appeal. HMRC is not permitted to expand the appeal’s scope via an appeal;
- The reasoning that led to HMRC’s conclusions is irrelevant – it is the conclusions which matter;
- There is no requirement to give reasoning for conclusions;
- “The officer has a duty to make the closure notice as helpful to the taxpayer as is possible or appropriate in the circumstances”; and
- The FTT can consider legal arguments which have played no part in the reasoning for the closure notice’s conclusions.
In Fidex’s case, the UT decided that the appeal was against the conclusion that Fidex could not claim the debit in question. The Tribunal can therefore consider any arguments that relate to this conclusion, including the new one raised in HMRC’s Statement of Case.
Appeal hearings can consider all technical arguments relevant to the decision set out in a closure notice in order that the matter is fully reviewed. Similarly the taxpayer may decide that they only wish to appeal against three out of ten issues (for example) encompassed in the closure notice so that the tribunal hearing solely focuses on those three issues.
Internal reviews remain a useful, relatively low cost (for the taxpayer) tool as if (as is often the case) HMRC notifies its conclusions (under s49E(6) TMA 1970) then it also notifies its reasoning. This can shed light on the rationale for a decision and therefore may inform whether the taxpayer decides to appeal to the Tribunal.
Where the enquiry has been long running it may be worth summarising the issues and rationale for the taxpayer’s position when requesting an internal review to aid the Review Officer’s understanding. Review Officers have not previously been involved in the case and may agree with the taxpayer’s position, which can solve the need for a Tribunal hearing entirely.
Company website: http://www.bdo.co.uk/
Helen Adams is a Tax Investigations specialist at BDO with experience of managing complex investigations into cases of tax avoidance and suspected serious tax fraud. She is a contributing author to HMRC Investigations Handbook 2014/15.