Executors of Mrs Levy
| Jurisdiction | UK Non-devolved |
| Judgment Date | 26 June 2019 |
| Date | 26 June 2019 |
| Court | First Tier Tribunal (Tax Chamber) |
[2019] UKFTT 418 (TC)
Judge Andrew Scott
Mr Keith Gordon, instructed by Cubism Law, appeared for the applicant/ appellant
Mr Sebastian Purnell, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Procedure – Application for final or partial closure notice – TMA 1970, s. 28A – Nature of tribunal's jurisdiction – Whether reasonable grounds for not giving a final closure notice – Yes – Whether power to direct a partial closure notice in respect of domicile where tax unknown – No – Appeal against information notice – Whether information reasonably required for enquiry – Yes – FA 2008, Sch. 36.
The First-tier Tribunal (FTT) dismissed an application for a final or partial closure notice and dismissed an appeal against an information notice. The FTT determined that HMRC did not have the power to issue a partial closure notice if it could not specify the amount of tax due.
HMRC had opened enquiries into Mrs Levy's personal tax returns. The enquiries related to Mrs Levy's claim for the remittance basis. Mrs Levy applied for a closure notice in relation to the enquiries on the basis that the enquiry had run on too long, extensive information had been provided and the enquiry had turned into being pursued in a “vexatious fashion, solely with a view to unearthing a fact that HMRC might later seek to seize upon to assert an acquisition of a domicile of choice in the UK by the taxpayer.”
Prior to the application being heard HMRC concluded that the remittance basis claim had not been valid because Mrs Levy had been domiciled in England and Wales. Mrs Levy died prior to the application being heard, but her executors (“the applicant”) maintained the application for a closure notice and also appealed against an information notice issued by HMRC under FA 2008, Sch. 36, para. 1 concerning income or gains arising outside the UK.
Mr Gordon, acting on behalf of the taxpayer, argued that the FTT should have allowed the appeal against the information notice and should have required HMRC to issue a final closure notice in relation to the enquiries, because:
- The FTT could determine the substantive domicile issue in these proceedings and the burden lay on HMRC to make out their case and they have failed to do so. Alternatively, the statutory provisions required HMRC to show that they had at least a rational or arguable basis for their decided view on domicile and they had failed to demonstrate that. In either event, a failure by HMRC to make out their case as to Mrs Levy's domicile meant that it inevitably followed that there were no reasonable grounds for the enquiry to continue and the information was not reasonably required for the purposes of the enquiry.
- The enquiry had simply run its course and, given the way in which it had been carried on, it was a disproportionate burden on the taxpayer to allow it to continue.
In respect of the first strand of Mr Gordon's submission the FTT found that it had to assess, in circumstances where HMRC had reached a considered decision as to domicile that inevitably lead to further enquiries, whether HMRC's considered decision was a genuine one that, realistically, had some merit. The FTT found that it was and therefore there was a reasonable case for HMRC's view as to Mrs Levy's domicile (although it also accepted that the taxpayer's position was credible). The FTT accordingly rejected the first strand of Mr Gordon's submission.
The FTT also rejected the second strand of Mr Gordon's submission, that the enquiry was disproportionate.
In the FTT's view, HMRC had reasonable grounds to continue with the enquiry and the application for a final closure notice was refused.
The applicant also applied for the issue of a partial closure notice (as introduced by Finance (No.2) Act 2017, s. 63 and Sch. 15) requiring HMRC to “close” the enquiry straight away so far as relating to the domicile issue. It would then only be if HMRC were successful in establishing that Mrs Levy had acquired a domicile in England and Wales that the enquiry would then move on to determining the additional tax that would be due for the relevant tax years. The FTT agreed with HMRC's view that there was no power to give a partial closure notice in relation to the domicile issue where the amount of tax was unknown. In doing so it came to the opposite conclusion of Judge Robin Vos and Helen Myerscough in the FTT decision of Embiricos [2019] TC 07083. Instead finding, it was clear that there was no power under TMA 1970, s. 28A for HMRC to issue a partial closure notice in respect of a “matter” that was said to consist of a determination of Mrs Levy's claim for the remittance basis at a time when the tax effect of the determination was unknown.
The FTT found that if it was wrong and HMRC did have the power to issue a partial closure notice without calculating the increased amount of tax due, HMRC nonetheless had reasonable grounds for not issuing a partial closure notice in those terms. In reaching that conclusion, Judge Scott had regard, in particular, to the fact that the information had already been obtained by the taxpayer and that any delay in its provision carried with it a risk that any subsequent enquires made by HMRC relating to it might be hindered by the inability to access information or documents that would be reasonably required for the purposes of the enquiry.
The FTT also found that in light of the judgment that HMRC had reasonable grounds for not issuing a final or partial closure notice, it considered that the appeal against the information notice failed.
Judge Andrew Scott's decision in this case, that HMRC do not have the power to issue a partial closure notice if they cannot specify the amount of tax due, was the opposite conclusion to that reached by Judge Robin Vos and Helen Myerscough in the FTT's previous decision of Embiricos [2019] TC 07083. The Embiricos decision has been appealed to the Upper Tribunal by HMRC.
[1] This case relates to enquiries into self-assessment tax returns submitted by Mrs Levy for the tax years 2014–15 and 2015–16. Mrs Levy, who has since died in August 2018, had made a claim in those returns to be subject to the remittance basis.
[2] The effect of making a claim to the remittance basis is that, in the case of income and gains arising to the taxpayer outside the United Kingdom, the taxpayer is taxed on the income and gains only so far as amounts are remitted to the United Kingdom. That contrasts with a taxpayer who is unable to make a claim to the remittance basis. In that case the taxpayer is taxed on his or her worldwide income or gains on an arising basis: the fact that the income or gains are not remitted to the United Kingdom is of no relevance.
[3] On 10 May 2018 an application was made on behalf of Mrs Levy seeking a closure notice in relation to the enquiries. As to the reasons for closing each enquiry, the application said this:
It has run on too long. Extensive information has been provided on the taxpayer's behalf and the enquiry is now being pursued in a vexatious fashion, solely with a view to unearthing a fact that HMRC might later seek to seize upon to assert an acquisition of a domicile of choice in the UK by the taxpayer.
[4] At that time HMRC were still considering whether or not Mrs Levy had acquired a domicile of choice in England and Wales. Following the exchange of witness statements in relation to the application for the giving of the closure notice, HMRC did then reach a decision on the matter of Mrs Levy's domicile status, concluding in a letter of 29 January 2019 that, for the relevant tax years, she had been domiciled in England and Wales.
[5] Nonetheless, the executors of Mrs Levy maintained the application for a closure notice and resisted the provision of information concerning income or gains arising outside the United Kingdom on the ground that it was of no relevance to HMRC as Mrs Levy had, in their view, been domiciled in the United States of America in the relevant tax years.
[6] Consequently, HMRC issued an information notice under paragraph 1 of Schedule 36 to the Finance Act 2008 (“FA08”) seeking the information. The notice also requested information for the tax year 2016–17 in relation to which HMRC have also opened an enquiry. HMRC are of the view that Mrs Levy was not entitled to make a claim for the remittance basis for that year. The application for the giving of a closure notice does not, however, extend to the enquiry in relation to the tax year 2016–17.
[7] An appeal was brought against the information notice on 2 April 2019.
[8] The solicitors acting on behalf of the taxpayer (Cubism Law) then notified the tribunal by emails sent on 18 April and 4 May 2019 that, if the application for a final closure notice were to be dismissed, the taxpayer wished, in the alternative, for the tribunal to direct that a partial closure notice be issued in respect of Mrs Levy's domicile status for the tax years 2014–15 and 2015–16. They referred to the decision of this tribunal in Embiricos [2019] TC 07083 in which it had been held that, in a case with facts similar to this one, the power to issue a partial closure notice in respect of Mr Embiricos's domicile existed despite the tax being unknown.
[9] In the light of a forthcoming application to be made by HMRC seeking permission to bring an appeal against the Embiricos decision, HMRC invited the applicants to rethink their approach or agree to stay the partial closure notice issue pending the resolution of any appeal against the Embiricos decision. The taxpayer's solicitors pointed out that it would be convenient to resolve all matters in one hearing, particularly as no new facts would be needed to determine the partial closure notice application and that Counsel for HMRC in this case had also acted in Embiricos.
[10] I considered that it would be helpful to hear submissions...
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