Frosh and Another; Thomas and Another v Revenue and Customs Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 08 August 2017 |
| Neutral Citation | [2017] UKUT 320 (TCC) |
| Date | 08 August 2017 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2017] UKUT 0320 (TCC)
Upper Tribunal (Tax and Chancery Chamber)
Judge Roger Berner, Judge Jonathan Cannan
Julian Hickey, instructed by Cornerstone Tax Advisors, appeared for the appellants
Hui Ling McCarthy, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Stamp duty land tax – Project Blue Ltd [2013] TC 02777 scheme – Enquiries into land transaction returns – FA 2003, Sch. 10, para. 24 – Applications for closure notices – Refused by the First-tier Tribunal on ground that HMRC had not been provided with information and documents – Provision of information and documents in sample cases – Invitations to settle – Appeals dismissed.
The Upper Tribunal (UT) upheld the First-tier Tribunal (FTT) decision in Frosh [2016] TC 05307 refusing to direct the issue of closure notices in respect of enquiries into SDLT returns.
The appellants participated in a stamp duty land tax (SDLT) avoidance scheme, similar to that litigated in Project Blue Ltd (formerly Project Blue (Guernsey) Ltd) v R & C Commrs [2016] BTC 22. The scheme relied on FA 2003, s. 45(3) to exempt from SDLT the purchase of property and FA 2003, s. 71A to exempt a sale and leaseback transaction. HMRC opened enquiries into the SDLT returns in connection with the transactions. Due to the number of participants in the scheme, HMRC and the scheme promoters agreed that full disclosure was only required by a sample of participants and this did not include the appellants. Following the decision of the FTT in Project Blue Ltd [2013] TC 02777, in which HMRC were successful, HMRC wrote to the appellants in October 2013 inviting them to withdraw from the scheme and pay the SDLT in question: and listed the documentation required by HMRC in the event the appellants chose not to settle, to enable HMRC to prepare for a tribunal hearing. The appellants did not provide a substantive response to HMRC's settlement invitation letter and nor did they provide the documentation requested.
HMRC wrote again in similar terms in August 2015; following receipt of these letters, in December 2015 the appellants submitted applications for closure notices to the tribunal.
The FTT decided that the absence of the information and documents relating to the appellants' own transactions provided reasonable grounds for HMRC not to give a closure notice. The FTT therefore declined to direct that a closure notice be given within any specified period.
The UT split the grounds of appeal as follows:
Ground 1: This was essentially the appellants' Edwards v Bairstow challenge ((1955) 36 TC 207). It was submitted that the FTT erred in law because the only reasonable conclusion to be drawn from HMRC's investigation into the SDLT planning was that they had sufficient information and knowledge to give a closure notice to each of the appellants. This was based on the content of the settlement invitation letters, which the appellants submitted showed that:
- HMRC was in a position to quantify the amount of SDLT due and payable;
- HMRC had at that stage determined that the SDLT planning failed by reference to Project Blue, and they continued to hold the view that the SDLT planning failed by reference to FA 2003, s. 71A;
- from HMRC's perspective, there were no open issues in terms of the efficacy of the SDLT planning; and
- HMRC were no longer conducting an enquiry but were positioning themselves to litigate before the FTT.
Ground 2: This ground was that the FTT erred in law in interpreting FA 2003, Sch. 10, para. 24 as excluding any discretion on the part of the FTT unilaterally to set a “specified period” for HMRC to issue a closure notice. The FTT should have decided that it had the power to set a specified period of its own choice.
Ground 3: It was argued that the FTT erred in law in deciding that it could not direct the issue of a closure notice because it had no power at that stage to direct the disclosure of documents. It was submitted that the FTT misdirected itself on the law, and that the inability of the FTT to direct disclosure of documents was not a valid consideration in determining whether HMRC had discharged the legal burden to show that they had reasonable grounds for not giving a closure notice.
In respect of ground 2 the UT judged that to the extent that the FTT directed itself that the only period for the issue of the closure notice that had to be taken into account in its determination was that specified by the appellants (i.e. immediately) was an error of law. It was clear that the reference to “a specified period” in para. 24(3) was a reference to such period as the tribunal itself could specify, and that the tribunal had a discretion in this regard irrespective of any period specified in the application. That error of law did not however mean that the UT set aside the FTT's decision as the error was not material to the conclusion reached by the FTT that it was in any event premature to direct that a closure notice be issued.
In respect of ground 3, the UT did not consider that the FTT displayed any error of law. The UT found that the FTT was saying that having concluded that it was reasonable for the enquiry not to be closed at that stage because of the outstanding documents and information, there was no scope for the tribunal to set a time frame which depended on the production of such material. That was, in the UTs view, the correct approach.
Ground 1 was the appellants' principal ground of appeal. The UT found that there was little authoritative guidance for dealing with applications for closure notices. It found that if a review of the individual cases showed anything, it was that the value judgment required of the FTT in addressing a particular case should not be subjected to any kind of straitjacket. The only relevant legal principle to be applied by the FTT was to consider whether HMRC had reasonable grounds for not giving a closure notice within a specified period (FA 2003, Sch. 10, para. 24(3)). Although regard had to be had to the context in which an application for a closure notice was made and the legal nature of a closure notice i.e. that a closure notice must either (a) state that in the opinion of HMRC no amendment of the land transaction return was required, or (b) make the amendments of the return required to give effect to their conclusions, and although a closure notice might, in certain circumstances, be in broad terms, that is not the norm and is not an appropriate measure for assessing reasonableness for not giving a closure notice.
In the UT's judgment, nothing in the settlement invitation letters went anywhere near demonstrating that the FTT's decision was one that it could not reasonably have made. The settlement invitation letters did no more than invite the appellants to concede or to move towards settlement. They did so on the basis that, at the stages at which they were sent, there had first been a decision of the FTT that the purchaser in Project Blue was liable to SDLT, and secondly that the UT in that case had dismissed the purchaser's appeal from that decision, whilst coming to a different view as to the amount of the chargeable consideration. The approach of inviting the appellants to concede did not require that HMRC had reached the stage at which a closure notice could be issued, nor in the UT's view could it properly be inferred that such was the case.
The UT found that the FTT had properly directed itself as to the applicable law and accordingly dismissed the appellants' appeals.
The UT found that the FTT had made an error of law in directing itself that the only period for the issue of the closure notice that had to be taken into account in its determination was that specified by the appellants. However it did not set aside the FTT's decision because the error was not material to the conclusion reached by the FTT that it was premature to direct that a closure notice be issued.
Therefore the FTT's refusal to direct the issue of closure notices in respect of enquiries into SDLT returns was upheld. This was so even though HMRC were aware of the nature of the planning scheme undertaken by the taxpayers and had, through the issue of settlement invitation letters, already taken the view that their planning did not succeed.
[1] This is an appeal by the appellants against the refusal of the First-tier Tribunal (“FTT”) (Judge Amanda Brown) to direct the issue of closure notices in respect of enquiries into SDLT returns made by the appellants.
[2] The FTT's jurisdiction to make (or refuse) such a direction is conferred by paragraph 24 of Schedule 10 to the Finance Act 2003 (“FA 2003”). It is in a familiar form, largely replicating similar powers that apply, for example, to enquiries into self assessment returns for individuals, partnerships, trustees and companies.
[3] Paragraph 24 provides:
(1) The purchaser may apply to the tribunal for a direction that [HMRC] give a closure notice within a specified period.
(2) Any such application is to be subject to the relevant provisions of Part 5 of the Taxes Management Act 1970 (see, in particular, section 48(2)(b) of that Act).
(3) The tribunal hearing the application shall give a direction unless satisfied that [HMRC] have reasonable grounds for not giving a closure notice within a specified period.
[4] Although paragraph 24 cross-refers to Part 5 of the Taxes Management Act 1970, nothing turns on those provisions.
[5] The jurisdiction of the Upper Tribunal is on points of law arising out of the decision of the FTT (see s 11(1) of the Tribunals, Courts and Enforcement Act 2007). In the context of the exercise by the FTT of its jurisdiction under FA 2003, Sch 10, para 24, the issue to be determined by the FTT is whether it is satisfied that HMRC have reasonable grounds for not giving a closure notice.
[6] The determination of the FTT in that...
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