Patel and Another
| Jurisdiction | UK Non-devolved |
| Judgment Date | 05 April 2018 |
| Neutral Citation | [2018] UKFTT 185 (TC) |
| Date | 05 April 2018 |
| Court | First Tier Tribunal (Tax Chamber) |
[2018] UKFTT 0185 (TC)
Judge Guy Brannan
James Ramsden QC and Conrad McDonnell, Counsel, instructed by Reynolds Porter Chamberlain LLP appeared for the appellant
Aparna Nathan and Marika Lemos, Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Income tax – Preliminary issue – Voluntary returns – No notice given by HMRC under TMA 1970, s. 8(1) requiring a taxpayer to file a return – HMRC treating returns as made under TMA 1970, s. 8 – Enquiry commenced under TMA 1970, s. 9A – Closure notice issued under TMA 1970, s. 28A – Whether returns made under TMA 1970, s. 8(1) and therefore whether enquiry and closure notices valid – Held: no – Scope of care and management powers under TMA 1970, s. 1 and Commissioners of Revenue and Customs Act 2005 (CRCA 2005), s. 5 – Scope of ancillary powers under CRCA 2005, s. 9.
The First-Tier Tribunal upheld the taxpayer's appeal that voluntary returns were not returns made under TMA 1970, s. 8(1).
Ms Shiva Patel (SP) and Ms Ushma Patel (UP) appealed against closure notices issued by HMRC under TMA s. 28A (“the closure notices”) in March 2016. The closure notices amended the appellants' self-assessment income tax returns for the year ending 5 April 2009 (“the Returns”). As a result, HMRC claimed that the appellants owed additional income tax for the tax year ended 5 April 2009 (“the 2009 tax year”) in the following amounts: £6,742 by SP and £1,266.60 by UP.
It was agreed that the following issue should be resolved as a preliminary issue at a preliminary hearing. The issue was whether HMRC had the power under TMA s. 9A to enquire into the Returns and whether HMRC had the power under TMA s. 28A to amend the Returns in circumstances where the Returns were made and delivered by the appellants voluntarily, and where the appellants had not been sent a notice to do so by HMRC under TMA s. 8(1).
SP and UP completed paper tax returns for the 2009 tax year, and filed them with HMRC in January 2010. The appellants' representatives wrote explaining that their clients had attempted to register for self-assessment, unsuccessfully, hence the reason for sending a paper return.
The judge said the Returns were what were known as “voluntary” or “unsolicited” returns. HMRC did not give the appellants notice pursuant to TMA s. 8(1). That important fact was common ground. On 29 January 2010, HMRC sent letters acknowledging the returns and stating that HMRC would treat them as if in response to a s. 8 notice. No response was received by HMRC from the appellants or their agents to those letters.
In April 2010 UP amended her 2009 tax return and the amendment was processed by HMRC in July 2010. In October 2010, HMRC sent TMA s. 9A notices to the appellants opening enquiries into the Returns. No response was received by HMRC and no challenge to the validity of the notices was made at that time.
On 9 October 2015, UP applied to the Tribunal under TMA s. 28A(4) for a direction requiring HMRC to issue a closure notice. A similar application was made on 25 November 2015 by SP. Both applications raised, for the first time, the issue of whether the Returns were returns made under TMA s. 8.
On 2 March 2016, closure notices were issued. These closure notices stated the conclusions of an officer of the Board and purported to amend the appellants' Returns to give effect to those conclusions. The appellants appealed against the closure notices on 30 March 2016 and the appeals were notified to the Tribunal on 19 November 2016, following a statutory review by HMRC which upheld the original decisions.
The judge said the relevant statutory provisions, all from TMA, were s. 7; s. 8; s. 9ZA; s. 9; s. 9A and s. 28A; and in respect of the collection and management powers, TMA, s. 1 and s. 5 and Commissioners of Revenue and Customs Act 2005 (CRCA 2005), s. 9.
The judge said an important issue in the appeal concerned the meaning of “a return under s. 8 [TMA]”. This was discussed in detail with reference to a number of cases all revolving around the principle that further actions follow from a return being under a s. 8 notice. Crucially dates and the timeline of actions follow from the date of the s. 8 notice.
Cases referred to included: R (on the application of De Silva) v R & C Commrs [2017] BTC 37; the Court of Appeal in WH Cockerline & Co v IR Commrs (1930) 16 TC 1. The similar provisions in corporation tax and Bloomsbury Verlag GMBH [2016] TC 04778 were also examined in detail, as was Revell [2016] TC 04887.
Post-hearing submissions were made in respect of a decision released by the FTT on 13 February 2018 in Wood [2018] TC 06339 (“Wood”). In Wood the FTT concluded that no s. 8(1) TMA notice had been served on the taxpayer by HMRC. The importance was that penalties under Sch. 55 depended upon its engagement because of a s. 8 notice, and thus the latter was a crucial document.
The words used by Parliament in this statutory provision were entirely clear. Whilst a court or tribunal was not confined to a literal interpretation of the statutory words, but must consider the context and scheme of the Act as a whole, purposive construction could not be used to give effect to a perceived different or wider policy objective in cases where the words used by Parliament did not bear that meaning.
The judge said it would be wholly inappropriate for the Tribunal to attempt to redraft the terms of s. 8. The self-assessment compliance code contained in the TMA had been carefully crafted by Parliament and many provisions required or referred to “a return under s. 8” TMA in order to operate.
It was, therefore, apparent that the TMA self-assessment compliance code placed particular emphasis on returns being made “under s. 8”. It was only once a return was made under s. 8 that a number of statutory rights and obligations arise. Giving a notice under s. 8(1) was a formal step which created a formal legal obligation to submit a return. The making of a return in response to that legal obligation created by a s. 8(1) notice was also a formal step which had formal legal consequences. Parliament intended that these formal consequences should only flow in cases where a taxpayer had submitted a return after being required to do so by a notice given under s. 8(1).
The judge rejected HMRC's submissions on the construction of TMA s. 8 andconcluded that each Return was not a “return under s. 8” TMA.
Further comments were made regarding the exercise of collection and management powers under TMA s. 1 and CRCA s. 5, and the exercise of auxiliary powers under CRCA s. 9, but did not alter the decision that this preliminary issue be decided in favour of the appellants.
This case deals with a basic and important issue in the tax return process, which is why the Tribunal judge dealt in a lot of detail on the principles before making his decision in a 33 page report. It is an important case to read with regard to the significance of s. 8, and that notices given under s. 8 determine the following structure of how liabilities are determined and the other consequences that flow directly from the receipt by a taxpayer of a s. 8 notice.
If dealing with a client's submission of a voluntary tax return (independent of a s. 8 notice), the case will repay re-reading.
[1] Ms Shiva Patel and Ms Ushma Patel (together, “the appellants”) appeal against closure notices issued by the Respondents (“HMRC”) pursuant to s. 28A Taxes Management Act 1970 (“TMA”) on 2 March 2016 (“the closure notices”).
[2] The closure notices amended the appellants' self-assessment income tax returns for the year ending 5 April 2009 (“the Returns” or “the Return”1) and, as a result, HMRC claim that the appellants owe additional income tax for the tax year ended 5 April 2009 (“the 2009 tax year”) in the following amounts:
- £6,742 in the case of Ms Shiva Patel; and
- £1,266.60 in the case of Ms Ushma Patel.
[3] By agreed Directions endorsed by the Tribunal on 2 May 2017, it was agreed that the following issue (“Ground 1”) should be resolved as a preliminary issue at a preliminary hearing. The issue is whether HMRC have the power under s. 9A TMA to enquire into the Returns and whether HMRC have the power under s.28A TMA to amend the Returns in circumstances where the Returns were made and delivered by the appellants voluntarily and where the appellants have not been sent a notice to do so by HMRC under s. 8(1) TMA. Essentially, the issue before me is whether the Returns are to be regarded as returns made “under section 8 … TMA” for the relevant purposes of the TMA.
[4] The relevant facts were not in dispute.
[5] Ms Shiva Patel and Ms Ushma Patel completed paper tax returns, in the same form as Self-Assessment tax returns used by HMRC for the 2009 tax year, and filed them with HMRC on 18 January 2010 and 29 January 2010 respectively.
[6] On sending the Returns, the appellants' representatives wrote: “Our client attempted to register for self-assessment, however they were unsuccessful and hence the reason the sending a paper return.”
[7] There is no suggestion that the Returns were in the wrong form or format. Each Return was signed by the respective appellant as complete and correct to the best her knowledge and belief.
[8] The Returns were what are known as “voluntary” or “unsolicited” returns. In other words, HMRC did not give the appellants notice pursuant to s.8(1) TMA requiring the appellants to make and deliver a return for the 2009 tax year. That important fact was common ground.
[9] Once the Returns had been received, HMRC processed them into their Self-Assessment System and both appellants were allocated a unique taxpayer reference number.
[10] On 29 January 2010, HMRC sent letters to Ms Ushma Patel and to Ms Shiva Patel's agent which acknowledged receipt of the Returns. The letters both stated:
I [HMRC] will treat the form for all purposes as though you sent it...
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Hemingway
...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 retu......
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Redmount Trust Company Ltd
...and had no legal consequence for the purposes of FA 2003, in like manner as held in Bloomsbury Verlag GMBH [2016] TC 04778 and Patel [2018] TC 06426 in the context of TMA 1970. Further, while the position on voluntary returns for direct tax purposes has been retrospectively overturned by th......
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Redmount Trust Company Ltd
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Hansard
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