R Archer v The Commissioners for Hm Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | Lord Justice Lewison,Lady Justice Asplin,Lord Justice Longmore |
| Judgment Date | 30 November 2017 |
| Neutral Citation | [2017] EWCA Civ 1962 |
| Docket Number | Case No: C1/2017/0468 |
| Court | Court of Appeal (Civil Division) |
| Date | 30 November 2017 |
[2017] EWCA Civ 1962
Lord Justice Longmore
Lord Justice Lewison
and
Lady Justice Asplin
Case No: C1/2017/0468
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THEQUEENS BENCH DIVISION ADMINISTRATIVE COURT
MR JUSTICE JAY
CO16492016
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr David Goldberg QC, Mr Conrad McDonnell&Mrs Amanda Brown (instructed by KPMG LLP) for the Appellant
MISS Aparna Nathan & Miss Marika Lemos (instructed by HMRC Solicitor's Office) for the Respondents
Hearing date: 22 nd November 2017
Does Mr Archer owe HMRC a debt which exceeds the current bankruptcy level of £5,000? If so, then HMRC are entitled to serve a statutory demand in order to pave the way for bankruptcy proceedings. HMRC claim that he owes them a debt in consequence of section 59B (5) of the Taxes Management Act 1970 ("the TMA") which applies to an amount of tax payable as a result of the amendment or correction of a self-assessment under section 28A of the TMA. Mr Archer says that, at least at present, he owes them nothing because of the way in which HMRC have made mistakes in the necessary paperwork; but that if he owes them anything he is ready and able to pay. The answer to the ultimate question depends on the answers to three subsidiary questions. The logical order in which to take them seems to me to be as follows:
i) Did closure notices served by HMRC on Mr Archer comply with the requirements of section 28A of the TMA by amending Mr Archer's self-assessments?
ii) If they did not, was there a defect or omission in them which can be cured by section 114 of the TMA?
iii) If the notices are invalid to create a debt can Mr Archer challenge steps taken by HMRC towards his bankruptcy in the ordinary courts or by judicial review; or is his only means of challenge by way of appeal to the First-tier Tribunal ("the FTT")?
In a closely reasoned judgment Jay J answered those questions:
i) The closure notices did not comply with section 28A.
ii) The defects were incapable of cure by section 114 on an application for judicial review.
iii) But Mr Archer ought to have appealed to the FTT which could have cured the defect by the application of section 114. He had not exhausted his available remedies and therefore his application for judicial review was dismissed.
In order to understand the rival arguments, it is necessary first to describe the nature of the statutory scheme of self-assessment to tax. The details have changed from time to time but the basic scheme remains the same. A person may be required by notice to make and deliver a personal return: TMA s 8. The purpose of the return is to establish the amounts to which the taxpayer is chargeable for income tax and capital gains tax. It must provide the information required by the standard form on which it is made together with such accounts and other documents as may be required. The return must include a self-assessment: i.e. an assessment of how much income tax and capital gains tax is payable: TMA s 9 (1). In certain circumstances the taxpayer need not make the assessment himself but in that event HMRC will make it on his behalf, send it to him; and it will be treated as a self-assessment: TMA s 9 (2), (3) and (3A). Where a return is delivered to HMRC, HMRC may enquire into the return. The unrestricted power to open an inquiry is subject to time limits: TMA s 9A. Once under way an enquiry is brought to an end by a closure notice: TMA s 28A. This is at the heart of the appeal, so I need to quote it.
"(1) An enquiry under section 9A(1) of this Act is completed when an officer of the Board by notice (a "closure notice") informs the taxpayer that he has completed his enquiries and states his conclusions.
In this section "the taxpayer" means the person to whom notice of enquiry was given.
(2) A closure notice must either–
(a) state that in the officer's opinion no amendment of the return is required, or
(b) make the amendments of the return required to give effect to his conclusions.
(3) A closure notice takes effect when it is issued.
(4) The taxpayer may apply to the tribunal for a direction requiring an officer of the Board to issue a closure notice within a specified period."
If the taxpayer does not file a return and self-assessment as required by section 8, then HMRC may make a "determination" of the amount on which the taxpayer is chargeable to income tax and CGT and the amount of tax payable by the taxpayer. Notice of the determination must be served on the taxpayer. Such a determination has effect as if it were a self-assessment made by the taxpayer: TMA s 28C.
There is a right of appeal to the FTT against "any conclusion stated or amendment made by a closure notice": TMA s 31. On appeal the FTT may reduce or increase a self-assessment: TMA s 50.
Section 59B (5) provides:
"An amount of tax which is payable or repayable as a result of the amendment or correction of a self-assessment under—
(a) … 28A of this Act (amendment or correction of return under section 8 or 8A of this Act), or
(b) …,
is payable (or repayable) on or before the day specified by the relevant provision of Schedule 3ZA to this Act."
Paragraph 5 of Schedule 3ZA provides that the tax is payable at the end of 30 days after the closure notice is given.
Section 113 (3) of the TMA provides:
"Every assessment, duplicate, warrant, notice of assessment or of demand, or other document required to be used in assessing, charging, collecting and levying tax shall be in accordance with the forms prescribed from time to time in that behalf by the Board, and a document in the form prescribed and supplied or approved by them shall be valid and effectual.'"
Section 114 of the TMA provides:
"(1) An assessment or determination, warrant or other proceeding 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."
The essential facts
The dispute arises out of Mr Archer's attempt to claim tax losses and consequential tax relief in relation to two marketed tax mitigation schemes; one known as RDS (in his return for the tax year 2001/2); and the other as SHIPS (in his return for the tax year 2002/3). The details of the schemes need not concern us. Each return quantified both the losses and the tax relief claimed. Each return also stated in Box 18.3 of the form then in use what Mr Archer said his overall tax liability was. HMRC opened an enquiry into both returns. In 2009 the Court of Appeal decided that neither scheme worked.
On 30 October 2015 HMRC issued follower notices ('FNs') and accelerated payment notices ('APNs') in respect of the RDS losses, relating to both of the tax years in issue. An FN may be issued where a tax enquiry is in progress and HMRC consider that there is a judicial ruling relevant to a claimed tax advantage. An APN may be given during the course of a tax enquiry where an FN has been given in relation to the claimed tax advantage; and must specify the amount of understated tax due. For the tax year 2001/2, the amount said to be due was £7,246,913.60 (i.e. about £400,000 less than the amount specified in the tax return as an allowable relief); for the tax year 2002/3, the amount said to be due was £1,907,248.41 (i.e. the same amount as that specified in the tax return as an allowable relief). On 15 January 2016 an FN and an APN were issued in respect of the SHIPS loss claimed in the 2002/3 tax return. The APN showed an amount due of £5,070,904 being the same as the amount specified by the taxpayer as an allowable relief in his return. There is no right of appeal against an APN. Mr Archer has not paid the amounts stated in either APN. However, HMRC do not rely on either APN as creating a debt due from Mr Archer to HMRC because under section 223 (5) (b) of the Finance Act 2014 payment is not yet due.
On 5 January 2016 KPMG, who have acted on Mr Archer's behalf throughout, applied to the FTT under section 28A (4) of the TMA for a direction that HMRC issue a closure notice in relation to the 2001/2 return. In support of the application KPMG stated:
"There is no amount of tax for 2001/2 which remains uncertain or subject to enquiry…"
HMRC (acting by Mrs Cook) issued what purported to be closure notices in relation to each return on 2 February 2016. The notice relating to the return for the year 2001/2 stated, so far as relevant:
" 'Information about our check of your Self Assessment tax return for the year ended 5 April 2002
I have now completed my check of your Self Assessment tax return for the year shown above. This letter is a closure notice issued under Section 28A(1) and (2) of the Taxes Management Act 1970. Thank you for your help during my check.
I have sent a copy of this letter to your tax adviser.
My decision
Relevant Discounted Security Loss Claim
No relief is due for the loss you claimed to have sustained on a relevant discounted security. [The reasons for my conclusion reflect the decision of the Court of Appeal …]. Viewing these facts realistically, and having regard to the purpose of the relevant legislation …, no loss was made in respect of a relevant discounted security.
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