Hemingway
| Jurisdiction | UK Non-devolved |
| Judgment Date | 05 January 2019 |
| Neutral Citation | [2019] UKFTT 11 (TC) |
| Date | 05 January 2019 |
| Court | First Tier Tribunal (Tax Chamber) |
[2019] UKFTT 0011 (TC)
Judge Nigel Popplewell
The Appellant appeared in person
Mr Christopher Vallis, of the Solicitor's Office and Legal Services Department of HM Revenue & Customs, appeared for the respondents
Procedure – Appeal in relation to a claim for relief under ITEPA 2003, s. 401 – Respondents application to strike-out the appeal on the basis that the First-tier Tribunal does not have jurisdiction to hear the appeal – Application upheld – Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273), r. 8(2).
The First-tier Tribunal (FTT) struck out a taxpayer's appeal because the closure notice being appealed had been issued following an enquiry into an unsolicited return and was therefore not a valid closure notice and accordingly the FTT did not have jurisdiction to hear the appeal.
In 2015–16 Mr Hemingway (the appellant) was paid compensation for the loss of rights under a stock option scheme provided by his employer. The appellant believed that £30,000 of the payment should be exempted under ITEPA 2003, s. 401 and submitted an unsolicited return on that basis. HMRC enquired into the return and issued a closure notice denying the appellant the benefit of ITEPA 2003, s. 401. The appellant appealed against the decision in the closure notice. It appeared that while HMRC initially treated the return as if it had been served pursuant to a notice to file under TMA 1970, s. 8, in the run up to the appeal, and following correspondence from the appellant, HMRC changed their mind and applied to strike out the appeal on the basis that since the appellant submitted a voluntary return, the provisions of TMA 1970, s. 8 were not engaged and therefore their enquiry and the subsequent closure notice were invalid. And so, since the FTT only had jurisdiction to hear an appeal under TMA 1970, s. 31, and that in turn could only be made in respect of a valid closure notice, the FTT had no jurisdiction.
The appellant submitted that:
- his return was made under TMA 1970, s. 8;
- HMRC had accepted his return without questioning its validity;
- HMRC had not acted in accordance with their policy towards treating voluntary returns as being made pursuant to a notice to file;
- HMRC's change of treatment was unfair;
- the appeal right under TMA 1970, s. 31(1)(b) was against any conclusion in a closure notice, not just a valid conclusion nor one stated in a valid closure notice;
- the closure notice operated as a free standing assessment which was not a self-assessment so could be appealed; and
- a strike out wasted everyone's time and was a draconian sanction.
The FTT noted that the fundamental principle illustrated in Patel [2018] TC 06426; that a voluntary return was not a return which had been made “under” TMA 1970, s. 8 applied in this case. In the FTT's view, unless a return was given in response to a s. 8 notice to file it would not be given under TMA 1970, s. 8 for the purposes of opening an enquiry even if HMRC's policy was to treat it as having been so made.
It was also the FTT's view that, applying the principles from the Upper Tribunal case of R & J Birkett v R & C Commrs [2017] BTC 511, it had no supervisory jurisdiction over the way in which HMRC had exercised their discretion towards the appellant. It was a matter for judicial review and the FTT had no judicial review jurisdiction. It seemed to the FTT that even if HMRC's position regarding acceptance of voluntary returns was ultimately enshrined in statute, it was in some way concessionary since, in the FTT's view, it was not enshrined in TMA 1970, s. 8 itself and it was clear that the FTT's ability to review such concessionary treatment by HMRC was outside the FTT's jurisdiction.
The FTT also rejected the appellant's submission that the voluntary return was in fact given pursuant to a notice to file on the basis that the first page of any return included a notice to make a return. In accordance with Wood [2018] TC 06339 the FTT did not consider that a downloaded tax form meant that the notice had been “given” to the appellant by an officer of the Board.
The FTT finally rejected the appellant's submission that he had a right of appeal on the basis that the closure notice was an assessment which was not a self-assessment. While the FTT found this to be an “ingenious” argument, it could not accept it.
The FTT accordingly struck out the appellant's appeal under the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273), r. 8(2), on the basis that it had no jurisdiction to hear it.
Here are three interesting things to note from this decision:
- HMRC argued against their long-established practice of treating unsolicited tax returns as if they were returns received following a notice to file.
- As the appellant's case fell within ITEPA 2003, s. 711, following this decision the appellant could require HMRC to give him a notice to file, the appellant could then submit a return, HMRC could open an enquiry and issue a closure notice, which the appellant could appeal, and the appellant's substantive case could still be heard.
- Finance Bill 2018–19, cl. 87, as introduced to the House of Lords on 9 January 2019, will put HMRC's usual policy of accepting voluntary returns as statutory returns on a statutory footing and to apply it retrospectively.
[1] In the tax year 2015/2016 the appellant was paid a sum of £35,228.15 as compensation for the loss of rights under a stock option scheme provided by his employer. It is the appellant's case that this compensation benefits from the £30,000 exemption in section 401 of the Income Tax (Earnings and Pensions) Act 2003 (“ITEPA”). And so tax of £16,240, allegedly due to HMRC, is not so due.
[2] The appellant's claim was made in an unsolicited return (which he subsequently amended) (referred in this Decision as a “voluntary” return).
[3] The respondent subsequently enquired into the return and issued a closure notice dated 22 January 2018 denying the appellant the benefit of section 401 ITEPA.
[4] The appellant appealed against the decision in that closure notice.
[5] HMRC have now applied to strike out that appeal on the basis that since the appellant submitted a voluntary return, the provisions of section 8 of the Taxes Management Act 1970 (“TMA 1970”) are not engaged. HMRC have declined to exercise their discretion to treat the voluntary return as if it was made and delivered pursuant to a section 8 TMA 1970 notice (a “section 8 notice to file”). They say that this means that their enquiry is invalid, as is the closure notice and so, since this Tribunal only has jurisdiction to hear an appeal under section 31 TMA, and that in turn can only be made in respect of a valid closure notice, this Tribunal has no jurisdiction.
[6] And since this Tribunal has no jurisdiction, HMRC say, I must strike out the appellant's appeal under rule 8(2)(a) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (the “Tribunal Rules”).
[7] I have not considered the merits of the appellant's substantive appeal, and nothing in this Decision should be taken as expressing any view on the merits or otherwise of that substantive appeal.
[8] I was provided with a bundle of documents. The facts are straightforward and largely undisputed. I find them to be as follows:
- The appellant first registered for self-assessment on 7 May 2012 for the tax year ending 5 April 2012 and was subsequently taken out of self-assessment on 13 May 2013.
- For the year 2015/2016 the appellant's employer made the compensation payment referred to at [1] which that employer treated as income. This resulted in the appellant's PAYE income exceeding £100,000 thus bringing him back into self-assessment.
- The appellant submitted a voluntary return in April 2016 for the tax year 2015/2016, and subsequently amended that return on 20 August 2016 to reflect his view that the compensation payment attracted relief under section 401 ITEPA.
- On 16 March 2017 HMRC opened an enquiry into that return pursuant to section 9A TMA 1970.
- On 22 January 2018 HMRC closed that enquiry pursuant to section 28A TMA 1970. The stated conclusion in that letter (the closure notice) was that the appellant was not entitled to relief under section 401 ITEPA.
- The appellant appealed against that conclusion to HMRC on 27 January 2018 and subsequently to this Tribunal on 2 February 2018.
- On 13 April 2018 the appellant wrote to Mrs G Carwardine of the Solicitors Office and Legal Services Department of HMRC indicating, amongst other things, that:My understanding is that the closure notice being appealed purports to be issued under section 28A Taxes Management Act 1970 (TMA) and that would be dependent on a valid enquiry opened under s. 9A TMA to enquire into a return under s.8 TMA that in turn requires that I am given notice by an officer of the Board to make a return.I am not aware of any notice by an officer of the Board to make a return for the tax year ended 5 April 2016 and instead believe my return was voluntary meaning that an enquiry under s.9A TMA and the subsequent closure notice is not valid.I apologise for raising this now, particularly as HMRC's Statement of Case may be in the late stages of preparation but I have only recently become aware of this point made by the FtT.There then follows a link to the First-tier Tribunal Decision of Patel (Patel [2018] TC 06426).
- In her letter of 27 June 2018 written to the appellant, Gill Carwardine indicated that her understanding from Mr Hemingway's letter of 13 April was that he did not want it to be treated as a return under section 8 TMA 1970. She explained HMRC's policy about accepting returns voluntarily on the same basis as returns received in response to a notice issued under section 8 TMA 1970 and indicated that this was the case provided that the intention of the taxpayer was that it should be treated as such.
- She then...
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...that the FTT considered it was very unlikely to have any jurisdiction over. Comment In this case, as in the recent case of Hemingway [2019] TC 06920, HMRC argued against their usual long-standing practice of treating unsolicited returns as if they were returns received following a notice to......