Mabbutt
| Jurisdiction | UK Non-devolved |
| Judgment Date | 05 May 2016 |
| Neutral Citation | [2016] UKFTT 306 (TC) |
| Date | 05 May 2016 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge Jane Bailey, Ms Jane Shillaker
Keith Gordon, of counsel, appeared for the Appellant
Ms Moira Browne, presenting officer, appeared for the Respondents
Income tax and capital gains tax – Preliminary issue – Self assessment – Notice of enquiry into return given under Taxes Management Act 1970 (TMA 1970), s. 9A – Whether notice of enquiry valid if return incorrectly described in notice – No – Whether notice saved by TMA 1970, s. 114 – No – Appeal allowed.
The First-tier Tribunal (FTT) allowed a taxpayer's appeal against a closure notice. The FTT found that an enquiry had not been opened because no valid notice of enquiry had been given as the enquiry letter referred to the year ended 6 April 2009 instead of the year ended 5 April 2009.
In January 2010 Mr Mabbutt (the appellant) submitted his tax return for the year ended 5 April 2009. In January 2011 HMRC wrote to the appellant thanking him for his tax return for the year ended 6 April 2009 and advising him that they intended to enquire into the return, and enclosing a copy of a letter sent to his agent which referred to a notice being given under TMA 1970, s. 9(a). In due course HMRC issued a closure notice in respect of the year ended 5 April 2009. The appellant appealed against the closure notice on the basis that an enquiry had not been opened because no valid notice of enquiry had been given. This was on the basis that the January 2011 letter to the appellant appeared to attempt to open an enquiry into a non-existent return, because there was no such tax year as the year ended 6 April 2009. The letter could not have effect unless it was remedied by TMA 1970, s. 114 (which provided than an assessment etc. was not void by reason of mistake, defect or omission where in substance and effect it conforms with the Taxes Acts), and as s. 114 was prescriptive as the circumstances in which it applied and this case did not fall within those prescribed circumstances the error was fatal. HMRC submitted that although there was an error in both the January 2011 letters, which should be read together, the error was minor and by virtue of s. 114(1) did not affect the validity of the notice of enquiry.
The FTT found that the disputed notice of enquiry was only the January 2011 letter to the appellant and not also the letter to the agent. Although it accepted that it was possible for two or more documents together to form a notice (as was the case in Coolatinney Developments Ltd TAX[2011] TC 01116 and Portland Gas Storage Ltd v R & C Commrs TAX[2014] BTC 520) and that there was nothing in TMA 1970, s. 9A to prevent notice being given by means of more than one document, in this case the disputed notice of enquiry was only the January 2011 letter to the appellant.
The FTT considered that there were four parts to TMA 1970, s. 114(1). First, the subsection only applied to an assessment or determination, warrant or other proceeding and a notice of enquiry must have been within these categories. Second, the disputed notice of enquiry must have purported to have been made pursuant to a provision of the Taxes Acts. Third, the disputed notice must have been in substance and effect in conformity with or according to the intent and meaning of the Taxes Acts. Finally, the person or property charged or affected by the disputed notice must have been designated therein according to common intent and understanding. Based on the facts the FTT found that:
1) a notice of enquiry constituted an other proceeding;
2) with reference to Dr Williams' comments in Lee v R & C Commrs SCD(2008) Sp C 715, the disputed notice of enquiry did purport to be a notice of enquiry into a tax return and therefore the January 2011 letter to the appellant did purport to be made pursuant to a provision of the Taxes Acts;
3) HMRC had to be accurate in relation to the essential elements of a notice of enquiry (the principle that the date had to be correct where it was fundamental to the disputed document was reiterated by Judge Berner in Sokoya TAX[2009] TC 00125) even if the taxpayer would have been be capable of discerning HMRC's true intention despite a minor error (per Baylis v Gregory TAX[1987] BTC 226). For a notice of enquiry to meet the requirements of TMA 1970, s. 9A, the return into which the enquiry was to be opened had to be stated accurately and with sufficient detail for it to be clear which return was intended. The return which was described in the letter in January 2011 was for a tax year which did not exist. The disputed notice of enquiry was not in substance and effect in conformity with the intent and meaning of the Taxes Acts.
4) as there was no error in the name or address of the appellant in the January 2011 letter to him the appellant was designated in the disputed notice of enquiry according to common intent and understanding.
The FTT concluded that in order for HMRC to rely on TMA 1970, s. 114 to remedy the error in the January 2011 letter sent to the appellant, they needed to satisfy it that all four of the requirements in s. 114 were met. Although it was satisfied that three of those requirements were met, it did not agree that the letter was in substance and effect in conformity with or according to the intent and meaning of the Taxes Acts. The January 2011 letter to the Appellant did not therefore constitute a valid notice of enquiry under TMA 1970, s. 9A into the appellant's tax return for the tax year ended 5 April 2009 and TMA 1970, s. 114 did not apply to save the disputed notice of enquiry. Without a valid enquiry notice, there was no enquiry and the purported closure notice had no standing. Accordingly the appellant's appeal was allowed.
This case highlights the importance of carefully checking any enquiry letters, penalty notices etc. received from HMRC, to ensure that they adhere to what is legally required before deciding how to act on them.
By HMRC using a date that was one day out they have potentially cost the UK exchequer £653,000 in tax revenue, as this was the amount of tax at stake in the substantive case which concerned the effectiveness of a DOTAS registered tax scheme.
[1] This appeal is against a closure notice dated 1 July 2014 by which the Respondents close their enquiry in the Appellant's tax return for the year ended 5 April 2009. The Appellant appeals against the conclusions in the closure notice on the basis that an enquiry was not opened because no valid notice of enquiry was given. If there was no valid enquiry then there can be no valid closure notice.
[2] The parties are agreed that the only issue for us to decide is whether a valid enquiry notice was served under section 9A Taxes Management Act 1970 (TMA 1970). If we find that there was then the Appellant's appeal against the conclusions in the closure notice will continue on the basis of argument as to the effectiveness of a DOTAS registered tax scheme and how its operation affects the calculation of the tax due for the year ended 5 April 2009; the Appellant's appeal is likely to be stood behind a lead case.
[3] If we find that there was no valid enquiry notice then (subject to any appeal), as no enquiry would have been opened and the Respondents are now out of time to raise a discovery assessment, the Appellant's tax liability for the year ended 5 April 2009 will be settled on the basis of the calculations set out in his tax return for that year. The difference between the parties' calculations of the tax due is approximately £653k.
[4] The parties are agreed on the background to the sending of the disputed notice of enquiry. The Respondents claim there was a minor error in the notice which is insufficient to invalidate it. The Appellant claims that the error is fatal and therefore there is no valid notice of enquiry.
[5] The relevant part of section 9A TMA 1970 is as follows:
(1) An officer of the Board may enquire into a return under section 8 or 8A of this Act if he gives notice of his intention to do so (notice of enquiry)–
a) to the person whose return it is (the taxpayer),
b) within the time allowed.
(2) The time allowed is–
a) if the return was delivered on or before the filing date, up to the end of the period of twelve months after the day on which the return was delivered;
…
[6] Subsection 114(1) TMA 1970 provides:
(1) An assessment or determination , warrant or other proceedings which purports to be made in pursuance of any provision of the Taxes Acts shall not be quashed, or deemed to be void or voidable, for want of form, or be affected by reason of a mistake, defect or omission therein, if the same is in substance and effect in conformity with or according to the intent and meaning of the Taxes Acts, and if the person or property charged or intended to be charged or affected thereby is designated therein according to common intent and understanding.
Norman v Golder (HMIT) TAX(1944) 26 TC 293 at 297
Fleming (HMIT) v London Produce Co Ltd TAX(1968) 44 TC 582
Baylis (HMIT) v Gregory TAX[1987] BTC 226
R (on the application of London Borough of Barnet Council) v Parking Adjudicator [2006] EWHC 2357
Pipe v R & C Commrs TAX[2008] BTC 558
Lee v R & C Commrs SCD(2008) Sp C 715
Sokoya TAX[2009] TC 00125
Coolatinney Developments Ltd TAX[2011] TC 01116
Portland Gas Storage Ltd v R & C Commrs TAX[2014] BTC 520
R & C Commrs v Glyn TAX[2015] BTC 531
Raftopoulou v R & C Commrs TAX[2015] BTC 532
[7] Mr Gordon opened his submissions by setting out the background to the appeal and the legislative history. He submitted that it was important that a...
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