Reid and Another
| Jurisdiction | UK Non-devolved |
| Judgment Date | 25 April 2018 |
| Neutral Citation | [2018] UKFTT 236 (TC) |
| Date | 25 April 2018 |
| Court | First Tier Tribunal (Tax Chamber) |
[2018] UKFTT 0236 (TC)
Judge Aleksander
Michael Sherry, counsel, and Ximena Montes Manzano, counsel instructed by Reid & Co, solicitors, appeared for the appellant
Kate Selway, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Income tax – Enquiry into self-assessment return – Enquiry into partnership return – Interaction between enquiries –TMA 1970, s. 9A and 12AC – s. 9ZB TMA – Barnes v R & C Commrs [2014] BTC 5 – s. 28A TMA – s. 49E(8) TMA – s. 42(11) TMA – R & C Commrs v Cotter [2013] BTC 837 – R (on the application of De Silva) v R & C Commrs [2016] BTC 6 – King [2016] TC 05163 – Gibbs [2013] TC 02650 – Marshall (HMIT) v Kerr [1993] BTC 194 – DCC Holdings (UK) Ltd v R & C Commrs [2011] BTC 13.
The First-Tier Tribunal (FTT) found that a closure of a partnership enquiry under s. 28B TMA did not at the same time close a s. 9A TMA enquiry into a self-assessment and that enquiry is closed by notice under s. 28A TMA.
The Appellants' contention was that for any tax return, there can only be one enquiry and one closure of that enquiry. The Appellants submitted that:
- s. 9A(3) TMA provides that once a tax return is subject to one open enquiry notice, it may not be the subject of another;
- Once an enquiry has been opened under s. 9A, no further enquiry notice can be issued;
- s. 9A(3) does not distinguish between a deemed notice of enquiry under s. 12AC(6) TMA (partnership return) or an enquiry notice issued under s. 9A(1) TMA;
- A deemed enquiry under s. 12AC(6) TMA opens up all aspects of the taxpayer's return, including the participation in the partnership.
In 2005, both Appellants participated in the Corbiere Scheme, which involved transactions in gilt-edged securities. Reliefs were claimed in 2004–05. Both Appellants also entered a film tax avoidance scheme: Future Screen Partners No 1 LLP (“the LLP”). Losses that arose were claimed in 2004–05.
On 7 September 2006, HMRC issued a notice under s. 12AC TMA to the LLP for 2004/05. The Appellant's 2004–05 returns were the subject of an enquiry conducted under s. 9A TMA 1970.
On 23 October 2008, HMRC wrote to both Appellants to state that a decision had been made to litigate the Corbiere Scheme.
On 3 April 2014, HMRC confirmed that their enquiries into the LLP's partnership returns for 2004–05, 2005–06, 2006–07 and 2007–08 had been completed. HMRC would amend the partnership return and amend Mr Reid's return/claim. On 8 April 2014, HMRC wrote to Dr Emblin.
On 24 April 2014, HMRC sent a closure notice to Mr Reid under s. 28A(1) and (2) TMA and amended the return. On 30 April 2014, HMRC wrote stating that the 24 April closure notice had been worded incorrectly. A corrected version was issued. The wording of the notice was amended and explained the decision although did not alter the amendments to the return. On 30 April 2014, HMRC sent a closure notice to Dr Emblin. The notice was issued under s. 28A(1) and (2) TMA and made amendments to the return.
HMRC wrote to both Appellants on 11 February 2015 setting out their position and offering a review of the decision. The review periods were extended by agreement to 4 December 2015 although were not completed by that date. HMRC's position was upheld pursuant to s. 49E(8) TMA.
Notices of Appeal were submitted to the Tribunal by both Appellants on 1 February 2016.
Dr Emblin's Appeal was that any challenge to the loss carry back claim had to be made by an enquiry under para. 5, Sch. 1A TMA. It was submitted that the claim was valid and final because HMRC did not open any enquiry into the claim.
Mr Reid's Appeal was that no notice of enquiry was issued in respect of the 2003–04, which was the return subject to the loss carry-back claim. Mr Reid's return was not corrected under s. 9ZB TMA, and he did not make a separate carry-back claim. It was submitted that the claim was valid and final.
The FTT was referred to the decision of King [2016] TC 05163, which concerned differences between the profits shown and allocated on the partnership's return and declared on self-assessment returns. The partnership enquiry was closed with a closure notice under s. 28B TMA. Individual enquiries were subsequently closed under s. 28A TMA. It was held that the individuals had a right of appeal in respect of amendments made to the self-assessments by a s. 28A TMA closure notice even though the amendments related to the partnership profits. King [2016] TC 05163 was contended to be a clear authority an enquiry into a partnership return being resolved by a closure notice of an individual self-assessment return demonstrates that s. 28B(4) TMA is not a self-contained provision dealing solely with partnership returns.
The FTT found that:
- Claims for losses in 2004–05 were claimed in the Appellants' self-assessment for 2004/05;
- HMRC could challenge the losses by opening an enquiry under s. 12AC TMA;
- The deemed enquiry under s. 12AC(6) TMA does not open actual enquiries into the partners' tax returns;
- A notice under s. 28B(4) TMA does not close enquiries under s. 9A TMA;
- S. 28B(4) TMA notices amend the partners' self-assessment tax returns in respect of the partnership;
- The s. 28B(4) TMA notices amended the self-assessment returns of the Appellants to show nil losses and there were no losses to be carried back;
- The s. 9A TMA enquiries were validly closed by closure notices issued under s. 28A TMA;
- The second closure notice issued to Mr Reid on 30 April 2014 was invalid;
The Appellants' appeals were dismissed, and the respondents were invited to apply for costs.
The decision confirms that partnership return enquiries are separate and distinct to individual enquiries and each has their own process for closure.
[1] This is an appeal by Mark Reid and Simon Emblin against closure notices issued to them on 24 and 30 April 2014.
[2] Mr Reid is a solicitor and principal in the firm Reid and Co. Dr Emblin is a tax consultant to the firm. Because the issues in their respective appeals are similar, on 30 March 2016 the Tribunal directed that their appeals were to proceed and be heard together. The appeals were allocated to the complex category.
[3] At the hearing, the appellants were represented by Michael Sherry and Ximena Montes Manzano, and HMRC were represented by Kate Selway. As the facts are not in dispute, I heard no oral evidence, but a statement of agreed facts and a bundle of documents were produced.
[4] In this decision, legislative references are to the provisions of the Taxes Management Act 1970 (“TMA”), unless otherwise stated.
[5] The facts are not in dispute between the parties and I find them to be as follows.
[6] In 2005, both Appellants participated in what was known as the “Corbiere Scheme”. This tax avoidance scheme involved the Appellants entering into transactions involving gilt-edged securities with the intention that they would be able to claim two separate reliefs when the securities were transferred. The reliefs were claimed by the Appellants in the tax year 2004/5.
[7] Both Appellants also participated in a film tax avoidance scheme (“the Film Scheme”) as members of Future Screen Partners No 1 LLP (“the LLP”). They both claimed that losses arose from their membership of the LLP in the tax year 2004/5.
[8] It is not in dispute that both tax avoidance schemes failed, and did not give rise to the tax reliefs claimed. For this reason, the precise nature of these schemes is not considered further.
[9] Dr Emblin filed his self-assessment tax return for 2003/04 on 11 January 2005. He claimed relief for the losses arising under the Film Scheme in 2004/05 against his taxable income for 2003/04 using the “white space” in box 4.79 of the partnership supplement to this self-assessment tax return. He was advised by HMRC by letter dated 23 March 2005 that the claim should not have been made in the 2003/04 return, but should have been made in a separate claim. HMRC had therefore amended his 2003/04 return under s9ZB TMA. Dr Emblin gave notice rejecting the corrections, but complied with HMRC's advice and claimed the Film Scheme losses in a letter dated 1 April 2005.
[10] Mr Reid submitted his self-assessment tax return for 2003/04 on 31 January 2005. He claimed relief for the losses arising under the Film Scheme in 2004/05 against his taxable income for 2003/4 using the “white space” in box 4.79 of the partnership supplement to this self-assessment tax return. Mr Reid was not asked by HMRC to make a separate claim for the Film Scheme losses.
[11] Mr Reid's self-assessment tax return for 2004/05 was received by HMRC on 31 January 2006, and Dr Emblin's was received on 24 January 2006. In these 2004/05 returns, both Mr Reid and Dr Emblin disclosed details of the Corbiere Scheme and claimed a deduction for manufactured interest. They also made claims for the losses of the LLP arising in 2004/05 under the Film Scheme.
[12] On 7 September 2006, HMRC sent notice to the LLP under s12AC that they were enquiring into its partnership tax return for 2004/05.
[13] On 25 September 2006, HMRC sent notice to Mr Reid and his then tax accountant (Worton Rock) that they were enquiring into his tax return for 2004/05. The letter stated that HMRC were not satisfied that Mr Reid was entitled to the relief claimed in respect of the Corbiere Scheme. The letter to Worton Rock stated that the enquiry was being conducted under s9A TMA.
[14] On 10 January 2007, HMRC sent notice to Dr Emblin that they were enquiring into his tax return for 2004/05 under s9A TMA. The letter stated that HMRC were not satisfied that Dr Emblin was entitled to the relief claimed in respect of the Corbiere Scheme.
[15] Correspondence ensued between HMRC, Mr Reid, Dr Emblin, and their representatives. On 23 October 2008, HMRC wrote to both Appellants to state that a decision had been made to litigate the Corbiere Scheme and that:
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