Revenue and Customs Commissioners v Bristol and West Plc
| Jurisdiction | England & Wales |
| Judge | Lord Justice Briggs |
| Judgment Date | 27 April 2016 |
| Neutral Citation | [2016] EWCA Civ 397 |
| Docket Number | Case No: A3/2014/1400 |
| Court | Court of Appeal (Civil Division) |
| Date | 27 April 2016 |
[2016] EWCA Civ 397
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM UPPER TRIBUNAL
(TAX AND CHANCERY CHAMBER)
Mr Justice Peter Smith
FTC/77/2013
Royal Courts of Justice
Strand, London, WC2A 2LL
Lady Justice Black
Lord Justice Briggs
and
Lord Justice David Richards
Case No: A3/2014/1400
Kevin Prosser QC and James Rivett (instructed by HMRC) for the Appellant
Graham Aaronson QC and James Henderson (instructed by Herbert Smith Freehills LLP) for the Respondent
Hearing dates: 19/20 January 2016
This is the judgment of the court, to which all its members have contributed.
This appeal raises two discrete issues arising from tax litigation in the First-tier and Upper Tribunals in which the taxpayer is Bristol & West plc ("B&W"), a member of the Bank of Ireland group, concerning the appropriate Corporation Tax treatment of the novation of a portfolio of "in the money" interest-rate swaps ("the Novation") to another company in the same group, Bank of Ireland Business Finance Limited ("BIBF") for a premium of £91 million, on 29 August 2003.
The first issue is one of substantive law, namely whether the Novation was a transaction to which paragraph 28 of Schedule 26 to the Finance Act 2002 applied, for the purpose of B&W's Corporation Tax liability in the accounting period during which the Novation occurred. In outline, paragraph 28 provides, in relation to transactions between group companies to which it applies, a form of disregard (or rollover) for Corporation Tax purposes. This issue, which we will therefore call "the Disregard Issue", is about the interpretation of paragraph 28, in its statutory context, by reference to very simple agreed facts.
In its self-assessment Corporation Tax return for the accounting period ending on 31 March 2004, B&W claimed the benefit of that disregard by not bringing into account for Corporation Tax purposes its receipt of the £91 million premium. HMRC amended B&W's return so as to bring that sum into account. On B&W's appeal both the FtT (Mr Howard Nolan and Ms Susan Lousada) and the UT (Peter Smith J) decided, for broadly similar reasons, that the disregard in paragraph 28 did not apply to the Novation.
The second issue is purely procedural. The question is whether, in the course of correspondence between HMRC and B&W in October and November 2007, HMRC issued a Closure Notice within the meaning of paragraph 32 of Schedule 18 to the Finance Act 1998, which had the effect of disabling any challenge by HMRC to the application of the statutory disregard to the Novation, in B&W's self-assessment tax return. Again, since the relevant communications between the parties were all in writing, (and since it is not suggested that the subjective intentions or beliefs of the writers on each side are determinative of the question), this second issue is one of analysis, upon facts which are not in dispute. We will call it "the Closure Issue".
In its appeal to the FtT B&W maintained, unsuccessfully, that HMRC had indeed issued a disabling Closure Notice, but the FtT disagreed. In the UT, the judge came to the opposite view so that, regardless of B&W's failure in both Tribunals on the disregard issue, it was nonetheless successful overall, in maintaining immunity from Corporation Tax liability in relation to the premium paid to it for the Novation.
The result was that HMRC is the appellant in this court, seeking to reverse the UT's decision on the Closure Issue, and B&W cross-appeals by Respondent's notice on the Disregard Issue. Having heard the helpful submissions of Mr Kevin Prosser QC for HMRC and Mr Graham Aaronson QC and Mr James Henderson for B&W in that order, we propose to deal with the Closure Issue first.
The Closure Issue
Part IV of Schedule 18 to the Finance Act 1998 makes provision for enquiry into self-assessment tax returns by companies in relation to Corporation Tax. In outline, paragraph 24 provides that HMRC may enquire into a company tax return if they give notice to the company of their intention to do so within a specified time. Paragraph 27 gives HMRC power to require the company to produce such documents and to provide such information as they may reasonably require for the purposes of the enquiry. Paragraph 30 empowers HMRC to amend the company's self-assessment during the course of the enquiry, upon specified grounds, and paragraph 31 makes provision as to the consequence of an amendment by the company of its own tax return during the progress of an enquiry. Paragraphs 31A to D make provision for the reference to the Special Commissioners (as the procedure was then, prior to the introduction of the Tribunal system for tax appeals) of questions arising in connection with the subject matter of the enquiry while the enquiry is in progress, for their determination.
Paragraph 32 then provides as follows, in relation to completion of the enquiry:
"An enquiry is completed when an officer of Revenue and Customs by notice (a "closure notice") informs the company the officer has completed the officer's enquiry and states the officer's conclusions. The notice takes effect when it is issued".
Paragraph 33 makes provision for the company to apply (then) to the Commissioners for a direction that HMRC give a Closure Notice within a specified period. The Commissioners are obliged to give that direction unless satisfied that HMRC have reasonable grounds for not giving a Closure Notice within a specified period.
Paragraph 34 makes the following provision about amendment of the return after the completion of the enquiry. First, the company is given 30 days beginning with the day on which the enquiry is completed to amend its return, so as to bring it into accord with the conclusions stated in the Closure Notice. Secondly, HMRC is empowered, during the following 30 days, to make such amendments to the company's return, by notice, as they consider necessary. Provision is then made for an appeal by the company, within a further 30 days after notification of the amendment.
The Facts
The Novation occurred, as we have said, on 29 August 2003. It fell within B&W's accounting period ending on 31 March 2004. B&W submitted its tax return for that period on 7 April 2005. We will call it "the Return".
HMRC gave notice of its intention to enquire into the Return by notice dated 22 November 2005. By March 2007 HMRC had made it clear in correspondence that a principal issue in the enquiry was the question whether, as B&W claimed but HMRC disputed, the disregard in paragraph 28 of Schedule 26 to the Finance Act 2002 applied to the Novation. There was an additional issue in the enquiry, which we will label "the accrued income issue" without needing to describe it.
In mid-September 2007, correspondence shows that the enquiry was still an on-going one in the sense that HMRC was seeking further specialist advice about the Disregard Issue, and also seeking clarification on certain points from B&W.
The correspondence about the enquiry was carried on mainly between a Mr Gavin Howard, a tax specialist in HMRC's Direct Tax section, and a Mr Liam Boyd, the head of UK Tax for the Bank of Ireland on behalf of B&W. There were also parallel enquiries into the tax returns of two other Bank of Ireland subsidiaries.
On 30 October (or possibly one day earlier) Mr Howard made a written request to his colleague, a Mr Gill, to issue Closure Notices in relation to the enquires relating to those two other group companies. By mistake, Mr Gill also took the requisite steps (by input into the HMRC computer system) to issue Closure Notices in relation to the enquiry into B&W's tax return for the 2004 period (i.e. the Return), and also its return for the previous year. Those inputs by Mr Gill set in motion a process which led inexorably to the printing of a Closure Notice document, hundreds of miles away, by HMRC's contractor Fujitsu, even though Mr Howard discovered Mr Gill's error later on 30 October, and tried, unsuccessfully, to prevent that happening.
Recognising that, once printed, the Notice would be put into an envelope by Fujitsu and collected from its premises for postal delivery by Royal Mail, and that he was for all practicable purposes powerless to prevent its posting in due course to B&W, Mr Howard sent Mr Boyd the following email, at 0744 on the following morning (31 October):
"Morning Liam,
I wanted to pre-warn you that 2 Closure Notices were issued today in error in relation to B&W Plc for periods ended 31/3/03 and 31/3/04. We will be taking action to correct the position in due course. I'll confirm the position in writing within the next few days.
Best regards
Gavin"
Mr Boyd, who was at home, unwell, at the time, responded at 0816 on the same day in an email sent from his Blackberry, saying:
"OK Gavin. Thanks"
We will refer to Mr Howard's email as "the October email".
It is possible, although not certain, that the computer-generated Notice had been printed and put into an envelope by the time of the October email, but it was not collected for posting from Fujitsu until 1 November, as second class post, and therefore not delivered until Saturday 3 November, or possibly the following Monday or Tuesday, 5 or 6 November. We will call it "the October Notice".
The October Notice, as printed, posted and received, described itself as having been issued on 31 October. It was in conventional and uncontentious form for the purposes of notifying the completion of the enquiry, and stating, as HMRC's...
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