Embiricos v Revenue and Customs Commissioners
| Jurisdiction | England & Wales |
| Judgment Date | 11 January 2022 |
| Neutral Citation | [2022] EWCA Civ 3 |
| Year | 2022 |
| Court | Court of Appeal (Civil Division) |
[2022] EWCA Civ 3
Lady Justice Nicola Davies, Lady Justice Simler and Mr Justice Francis
Court of Appeal (Civil Division)
Procedure – Partial closure notice in relation to HMRC enquiry – Whether a partial closure notice can be issued in relation to a taxpayer's claim to the remittance basis without specifying the amount of tax due – No – Appeal dismissed – TMA 1970, s. 28A.
The Court of Appeal upheld an Upper Tribunal (UT) decision on partial closure notices (PCNs) in R & C Commrs v Embiricos [2021] BTC 507, agreeing that HMRC do not have the power to issue a PCN in respect of a domicile and remittance basis claim without specifying the increased tax due because of that conclusion.
The appellant (Mr Embiricos) considered himself to be domiciled outside the UK and claimed the remittance basis in his tax returns for 2014–15 and 2015–16. HMRC enquired into Mr Embiricos' tax returns and concluded that he was domiciled in the UK for those years.
Mr Embiricos wanted to appeal against HMRC's decision that he was domiciled in the UK but, as HMRC had not agreed to jointly refer the question of his domicile to the tribunal, he could not do so until HMRC issued a closure notice under TMA 1970, s. 28A.
HMRC considered that they could not issue a closure notice until they had quantified the amount of tax which would be due if they were correct about Mr Embiricos' domicile status. To enable them to do this, they had issued a taxpayer information notice requiring Mr Embiricos to provide information to enable them to calculate the tax due.
Mr Embiricos did not accept that he should provide HMRC with details of his overseas income and gains before the question of his domicile had been determined. He therefore applied to the first-tier tribunal (FTT) for a direction requiring HMRC to issue a PCN in relation to his domicile/remittance basis claim (which he would then be able to appeal).
The FTT accepted that a closure notice (under the legislation as it was before “closure notices” were replaced with PCNs and final closure notices (FCNs)) had to state the amended amount of tax due as a result of HMRC's conclusions. However, the FTT noted that the PCN regime was a “fundamental change”, and decided that a PCN did not have to state the amount of tax which would be due based on the conclusions in the PCN. Instead, the issue of domicile could be treated as one “matter” per TMA 1970, s. 28A(1A) and the quantification of the tax due could be treated as a separate “matter”.
HMRC appealed to the UT, which allowed their appeal. The UT disagreed with the FTT and considered that a purposive construction of TMA 1970, s. 28A supported HMRC's position.
Mr Embiricos appealed to the Court of Appeal, which dismissed his appeal. The Court of Appeal found that the introduction of PCNs was not a “fundamental change” as the FTT had held. PCNs were intended to operate in the same way and be subject to the same restrictions as what are now FCNs. It seemed to the Court of Appeal that an issue could only be a “matter” for the purposes of TMA 1970, s. 28A(1A) if – were it the only issue being enquired into – HMRC could issue a valid FCN in respect of it. But whether or not that analysis was correct, the Court of Appeal had no doubt that in this case the “matter” for the purposes of s. 28A(1A) was the appellant's claim to benefit from the remittance basis, with Mr Embiricos' domicile being relevant to that “matter”.
However, the real question was what a PCN had to address in order for the enquiry into that matter to be closed and a valid PCN issued.
Given that it was common ground that Mr Embiricos had foreign income and gains in 2014–15 and 2015–16, in order to comply with s. 28A(2)(b) a PCN was required to state the officer's conclusion that the remittance basis was disallowed and amend the return to bring into charge the relevant foreign income and gains, with a calculation of the income and capital gains tax payable for each year. “In other words where the conclusion on the validity of the matter enquired into has computational consequences for the tax return and self-assessment contained within it, the PCN must give effect to the conclusion by amending the taxpayer's self-assessment.”
The Court of Appeal noted that this does not mean that a PCN must always make amendments to the return by specifying the tax payable in order to give effect to the officer's conclusion. The amendments necessary will depend on the matter in issue and on the officer's conclusion. If the officer's conclusion does not have computational consequences because it does not affect the self-assessment for the year or the taxpayer in question, then no amendment is required to be made by the PCN to the calculation of tax due in the self-assessment.
In this case, as HMRC had concluded that Mr Embiricos was domiciled in the UK and so was not entitled to the remittance basis of taxation in those tax years, HMRC could not give effect to that conclusion without the information needed to determine his worldwide income and gains on the arising basis, and without making all amendments to the returns for those tax years required to give effect to their conclusion, including an assessment of the amount of tax consequently brought into charge. Without that, a valid PCN could not be issued under s. 28A(2)(b).
This judgment confirms that PCNs do not provide the flexibility in the enquiry process that many taxpayers had previously hoped.
Kevin Prosser QC and Barbara Belgrano (instructed by Ince Gordon Dadds LLP) appeared for the appellant
Akash Nawbatt QC and Sebastian Purnell (instructed by General Counsel and Solicitors to HM Revenue and Customs) appeared for the respondent
[1] The question raised by this appeal concerns the circumstances in which an officer of the Commissioners for Her Majesty's Revenue and Customs (“HMRC”) who is enquiring into a tax return can give (or be required to give) the taxpayer a partial closure notice (“PCN”). In particular, can HMRC be required to give a PCN when the officer has completed his enquiries into a matter to which the enquiry relates, without quantifying the tax due as a result of the conclusion reached by the officer in relation to that matter? Here, the matter enquired into was whether or not the taxpayer is entitled to claim the benefit of the remittance basis of assessment as a person not domiciled in the UK in the relevant tax years.
[2] The answer to this question depends upon the correct construction of section 28A of the Taxes Management Act 1970 (“TMA”) (as amended by Schedule 15 Finance (No.2) Act 2017). In short, the appellant, Mr Embiricos, submitted that HMRC can be required to give a PCN in these circumstances: whether the remittance basis claim is valid or not can properly be regarded as a “matter” in its own right within section 28A(1A) such that a PCN can be given to inform the taxpayer that the officer has completed his enquiries into that “matter”, with the amount of tax payable being a separate “matter” in relation to which a further closure notice can be given subsequently once other issues have been resolved. On the appellant's case it is sufficient for the purposes of section 28A(2) if the officer states his conclusion that the claim is disallowed, and makes the amendments to the return “required to give effect to” that conclusion by simply removing the remittance basis claim from the return.
[3] HMRC disagree. Their case in summary is that “matter” in section 28A(1A) must mean a matter in respect of which HMRC could issue a final closure notice (“FCN”) if it were the only issue being enquired into. The legislative intent behind the enactment of the PCN regime is to enable HMRC and the taxpayer to achieve finality on the “matter” which is the subject of the PCN by securing the early payment of tax brought into charge. To achieve such finality, the HMRC officer's conclusion on a “matter” must enable all necessary amendments to a taxpayer's tax return arising from the officer's conclusion to be made, including where relevant, a statement of the amount of any tax brought into charge by the amendment. In other words, the quantum of the tax payable is not a discrete matter for the purposes of section 28A which can be the subject of a separate PCN. Rather, the amendments to the return “required to give effect to” the officer's conclusion must include a calculation of any tax payable. Where that cannot be done because HMRC do not have all relevant information, the officer cannot (and cannot be required to) issue a PCN.
[4] The First-tier Tribunal (Judge Robin Vos and Helen Myerscough, “the FTT”) held that HMRC did have power and could be required to issue a PCN concluding HMRC's enquiry into the validity of the remittance basis without quantifying the tax due as a result. The FTT also allowed the appellant's appeal against an information notice requiring him to provide the financial information necessary to enable HMRC to quantify the tax payable as a consequence of concluding that the appellant was domiciled in the UK in the relevant tax years (2014 to 2016) and not entitled to claim the remittance basis of assessment.
[5] The FTT's decision requiring HMRC to issue a PCN concluding the remittance basis claim enquiry was reversed by the Upper Tribunal (Adam Johnson J and UT Judge Thomas Scott, “the UT”) by a decision dated 6 January 2021. The UT held that HMRC could not issue a PCN in respect of the remittance basis claim without stating the amount of tax which would be due as a consequence of HMRC's conclusion that the appellant was domiciled in the UK.
[6] On this appeal, the appellant challenges the UT's decision and contends that the FTT's conclusion was correct albeit for different reasons than those relied on by the FTT.
[7] Kevin Prosser QC and Barbara Belgrano appeared on behalf of the appellant. Akash Nawbatt QC and Sebastian...
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Embiricos
...overturned this Tribunal's decision in respect of the PCN, and the Court of Appeal upheld the decision of the Upper Tribunal (reported at [2022] BTC 1). An application by Mr Embiricos for permission to appeal to the Supreme Court was refused shortly before the hearing of the applications th......