Martin
| Jurisdiction | UK Non-devolved |
| Judgment Date | 02 December 2019 |
| Neutral Citation | [2019] UKFTT 710 (TC) |
| Date | 02 December 2019 |
| Court | First Tier Tribunal (Tax Chamber) |
[2019] UKFTT 710 (TC)
Judge Rupert Jones
The Appellant appeared in person
Jonathan Davey QC, Barbara Belgrano and Sam Chandler, Counsel instructed by HM Revenue and Customs' Solicitor's Office appeared for the respondents
Income tax – Closure notice and amendment to 2012–2013 return – HMRC's disallowance of partnership losses for relief against other income on the basis he was a partner in Great Marlborough LLP which was not trading on a commercial basis with a view to profit – HMRC's issuing of two letters purporting to open an enquiry – HMRC's failure to open an enquiry into the partnership return – Mumber of procedural challenges – Validity of HMRC's TMA 1970, s. 9A enquiry – Validity of HMRC closure notice – Appeal dismissed.
The First-tier Tribunal (FTT) dismissed a taxpayer's appeal against a closure notice disallowing loss relief purportedly relating to a tax avoidance scheme. The taxpayer's procedural challenges were rejected, and by not raising a substantive challenge to the conclusions in the closure notice until the hearing he was too late to do so.
Mr Martin (the appellant) claimed loss relief and loan interest relief in his 2012–13 tax return arising out of the activities of Great Marlborough LLP (GM LLP). On 19 February 2014 HMRC wrote to the appellant to notify him of their intention to open an enquiry into his return. This was on the basis that the losses arose from an “Icebreaker” tax avoidance scheme like those found not to have worked in various FTT and Upper Tribunal cases. On 7 January 2015 (in a letter incorrectly dated 7 January 2014) another HMRC officer sent a letter to the appellant informing him of their intention to enquire into his return. HMRC did not request any information but said that they might require information later.
In Märtin [2017] TC 05942, the appellant successfully applied to the FTT to order HMRC to close their enquiry within 30 days of the decision. HMRC only requested information from the appellant once he had made his application, and the FTT was not satisfied that the three year delay between opening the enquiry and requesting information was justified.
Within 30 days of the FTT's decision, HMRC issued a closure notice under TMA 1970, s. 28A disallowing the claims to the partnership loss and loan interest relief relating to GM LLP. The closure notice included HMRC's conclusions, which were in line with the Tribunals' decisions in respect of the Icebreaker scheme, that:
- GM LLP was not carrying on a trade on a commercial basis with a view to profit and that therefore the restriction in ITA 2007, s. 66 applied so that no losses were available for set off against other income;
- the losses of GM LLP appeared to arise directly in connection with relevant tax avoidance arrangements so that ITA 2007, s. 74ZA applied to restrict relief available to set against other income, to nil;
- if it were not for the above the loss relief would have been restricted to £25,000 under ITA 2007, s. 103C as there was no evidence that the appellant was personally engaged in the commercial activities of GM LLP;
- the loan interest had not been used wholly for the purposes of a trade carried on by a partnership on a commercial basis with a view to profit and therefore the relief claim could not stand; and
- the loan interest appeared to have arisen directly in connection with relevant tax avoidance arrangements and therefore in accordance with ITA 2007, s. 809ZG no relief was to be given.
The appellant appealed the closure notice on the grounds that:
- there had been no valid enquiry opened, either because HMRC's letter of 19 February 2014 was invalid because no enquiry had been opened in GM LLP, or because two enquiry notices had been issued;
- there had been an abuse of power or potential for fraud by HMRC, by not requesting any information for three years and then requesting the information only a couple of hours before the deadline to state any grounds of appeal in the closure notice application had expired; and
- the closure notice was invalid because HMRC could not issue such a notice under TMA 1970, s. 28A where HMRC had not validly issued an enquiry notice under TMA 1970, s. 9A.
When the appellant submitted an “Outline of Case” 14 days before the hearing he added that he wanted to appeal on the ground that HMRC's decision to disallow the losses was not reasonable. The FTT did allow the appellant to raise this challenge at this late stage.
At the hearing the appellant attempted to introduce a substantive challenge to HMRC's conclusions in the closure notice, claiming that he had evidence that the losses claimed through GM LLP were allowable because he was an active partner in GM LLP which was trading on a commercial basis with a view to profit. The appellant accepted that he had not raised the issue explicitly before, but it was not until HMRC's evidence on the first day of the hearing that he heard any information to support HMRC's conclusions. The FTT refused to allow the appellant to make a substantive challenge to the closure notice, deciding that it would not be fair nor in accordance with the overriding objective in the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273), r. 2.
The appellant objected to a witness statement served by HMRC 14 days before the hearing. The FTT admitted the statement under SI 2009/273, r. 15 as it enabled it to deal fairly with the appellant's grounds of appeal than would otherwise be the case and there was no prejudice caused to the appellant.
The appellant made 150 pages of written closing submissions after the hearing in which he raised numerous points. The FTT considered and specifically rejected five grounds of appeal:
- The Tribunal was not satisfied that HMRC had been given a second bite at the cherry by being able to argue that the enquiry had been validly opened when this had already been discussed in the application for a closure notice.
- The Tribunal was satisfied that it should admit the late witness statement of an HMRC officer and their oral evidence given at the hearing.
- The Tribunal found no merit to the appellant's argument that HMRC should not be allowed to provide evidence that an enquiry had been validly opened.
- The Tribunal addressed separately the reasonableness of information held by HMRC at the time to support the conclusions within their closure notice; the evidence now available to support those conclusions; and the relevance of any inconsistent statements HMRC might have made in the closure notice application proceedings as to the extent of evidence they held.
- The Tribunal rejected the suggestion that there had been any misconduct on the part of HMRC or their legal representatives in these proceedings nor in the course of their enquiry.
In relation to the validity of the enquiry notice the FTT found that the only point of challenge within its jurisdiction was whether, as the appellant contended, his appeal against the Closure Notice should succeed on the basis that there was no valid enquiry for HMRC to close. The FTT rejected that contention because:
- HMRC were not obliged to adduce evidence as to validity of the enquiry at the closure notice application hearing;
- an enquiry into GM LLP's return was not a prerequisite for an enquiry into the appellant's return;
- the enquiry notice of 19 February 2014 was an official notice and not, as the appellant submitted, a non-statutory letter made to a partner upon opening a partnership enquiry;
- HMRC had not already opened an enquiry prior to issuing the enquiry notice of 19 February 2014, as the letter dated 7 January 2014 had simply been misdated;
- even if no notice to file under TMA 1970, s. 8 had been issued by HMRC, given TMA 1970, s. 12D it was treated as having been given on the day the return was filed and was treated as having been filed in pursuance of that notice; and
- the territorial scope of TMA 1970, s. 9A is not limited to England, Scotland and Wales.
In relation to the validity of the closure notice the FTT decided that:
- while the appellant could challenge the amendment made by the closure notice on the basis that it was incorrect, he could not do so in the FTT on the basis that HMRC had acted abusively/unreasonably/irrationally in some public law sense (In any event, the FTT was satisfied that HMRC had not acted abusively, unreasonably or irrationally in relation to the information relied on in support of the closure notice nor the reasons nor conclusions contained in it;
- as detailed above, the appellant could not make a substantive challenge to the basis for the closure notice;
- HMRC had acted reasonably and gave sufficient reasons in making and relying upon the conclusions it reached in the closure notice;
- although in the closure application hearing HMRC submitted that they needed more information, by issuing the closure notice based on information they already had, HMRC may have been mistaken as to the extent of what they did and did not hold in relation to GM LLP; there was no evidence to support any suggestion that HMRC deliberately misled the FTT; and
- the allegation that HMRC had backdated a letter requesting information was unfounded.
The FTT found that HMRC's enquiry was lawfully opened and conducted and that the closure notice and amendment to the return were lawfully and validly issued.
The appeal was accordingly dismissed.
The taxpayer had previously succeeded in getting the Tribunal to order HMRC to close their enquiry into his tax return. As expected HMRC did this by issuing a closure notice amending the tax return to exclude the claimed loss relief. The taxpayer appealed the notice, but rather than attempting to prove that he was entitled to the claimed loss relief, he instead raised numerous unsuccessful procedural challenges, and only attempted to raise his substantive challenge at the hearing.
[1] The Appellant appeals against a closure notice issued...
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