Revenue and Customs Commissioners v Mabbutt
| Jurisdiction | UK Non-devolved |
| Judgment Date | 02 August 2017 |
| Neutral Citation | [2017] UKUT 289 (TCC) |
| Date | 02 August 2017 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2017] UKUT 0289 (TCC)
Upper Tribunal (Tax and Chancery Chamber)
Judge Colin Bishopp, Judge Guy Brannan
Akash Nawbatt QC, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the appellants
Keith Gordon, Counsel, instructed by Moore Stephens LLP, Accountants, appeared for the respondent
Self-assessment – Notice of enquiry into return given under TMA 1970, s. 9A – Reference in the letter opening enquiry to the tax year ended 6 April 2009 – Whether notice of enquiry invalid – Application of TMA 1970, s. 114 – Appeal allowed.
The Upper Tribunal (UT) allowed HMRC's appeal against a First-tier Tribunal (FTT) decision ([2016] TC 05075) that no valid notice of enquiry had been given under TMA 1970, s. 9A and that TMA 1970, s. 114 could not correct the defect and dismissed the taxpayer's cross-appeal concerning TMA 1970, s. 114(1).
HMRC had written to the taxpayer on 17 January 2011, informing him that they intended to enquire into his tax return “for the year ended 6 April 2009”. HMRC had intended to refer to the tax year ended 5 April 2009. HMRC issued a closure notice on 1 July 2014.
The taxpayer appealed against the closure notice to the FTT challenging its conclusions, but also arguing that no valid closure notice could be given for the year ended 5 April 2009 as no valid notice of enquiry had been given. HMRC were out of time to serve a notice of enquiry into the year ended 5 April 2009. The question of whether the enquiry had been validly opened was considered as a preliminary issue.
The FTT held that because of the mistake concerning the date, the letter of 17 January 2011 did not constitute a valid notice of enquiry compliant with TMA 1970, s. 9A and that s. 114 could not save it. Further, the FTT decided that a letter to the taxpayer's agents referred to in and enclosed with the letter to the taxpayer, which also referred to the tax year ended 6 April 2009 and contained details concerning a tax avoidance scheme disclosed under the disclosure of tax avoidance schemes (DOTAS) rules that had been entered into by the taxpayer in the tax year ended 5 April 2009, did not form part of the disputed notice of enquiry (see Mabbutt [2016] TC 05075).
HMRC's grounds of appeal to the UT were:
- The FTT's conclusion that the relevant notice of enquiry was limited to the letter to the taxpayer and did not include the enclosed letter to his agent was wrong in law;
- The FTT's conclusion that HMRC did not give valid notice of its intention to enquire into the taxpayer's tax return for the year ended 5 April 2009 was wrong in law; and
- The error in the letter to the taxpayer was minor and it was in substance and effect in conformity with the intent and meaning of the Taxes Acts. The FTT's conclusion to the contrary (i.e. that TMA 1970, s. 114 did not apply to cure the error) was based on a misdirection in law.
The taxpayer cross-appealed on the basis that as there was no statutory reference contained in the letter addressed to him, the letter could not have been written pursuant to the Taxes Acts for the purposes of TMA 1970, s. 114(1).
The UT held that the letter to the taxpayer's agent did form part of the disputed notice of HMRC's intention to open an enquiry and that the FTT erred in law when it decided otherwise. A notice of enquiry under TMA 1970, s. 9A does not have to observe any particular formalities and all that was required was a document in writing informing the taxpayer of HMRC's intention to open an enquiry into a particular tax return (see Flaxmode Ltd v R & Commrs (2008) Sp C 670). An objective test has to be applied, so the question is whether a reasonable taxpayer receiving the two letters of 17 January 2011 would have understood them as having to be read together and from that composite communication would have understood that they were intended to give the taxpayer notice of HMRC's intention to open an enquiry into a return. The UT considered that a reasonable taxpayer would recognise that the letter to the taxpayer could only be fully understood if read together with the letter to the agent.
The UT also considered that the letter to the taxpayer was a valid notice for the purposes of TMA 1970, s. 9A and stated that it would reach the same conclusion even if the letter to the agent did not form part of that notice. In its judgment, when viewed objectively, there could be no doubt that a reasonable taxpayer reading the letter to the taxpayer would have concluded that HMRC were intending to open an enquiry and that the reference to the year ended 6 April 2009 was simply a minor clerical slip. The UT saw no reason to depart from the reasoning or conclusions of the UT in GDF Suez Teesside Ltd v R & C Commrs [2017] BTC 507.
Given its other conclusions, it was strictly unnecessary for the UT to consider whether defects in the notice could be cured by TMA 1970, s. 114. However, it dealt with the point and the cross-appeal at the same time. It concluded that the letter to the taxpayer was “in substance and effect in conformity with the intent and meaning of the Taxes Acts” and that there was no reason to refer expressly to the statutory provision, which dismissed the taxpayer's cross appeal. The UT also considered that if the mistaken date invalidated the letter, the error was such that TMA 1970, s. 114(1) would have applied to cure the defect.
HMRC's appeal was allowed and the taxpayer's cross-appeal was dismissed.
As the tax at stake in the substantive case is understood to be around £653,000, establishing that HMRC had opened a valid enquiry and had therefore issued a valid closure notice is a significant first step for HMRC.
[1] On 17 January 2011, the Appellants (“HMRC”) wrote to the Respondent, Michael Mabbutt, informing him that they intended to enquire into his tax return “for the year ended 6 April 2009”. We refer to this as “the Mabbutt letter”. The reference in it to 6 April 2009 was a mistake; there was no tax year which ended on that date. HMRC intended, instead, to refer to the year ended 5 April 2009. HMRC's enquiry nevertheless proceeded, and it led to a closure notice issued on 1 July 2014.
[2] Mr Mabbutt appealed against the closure notice to the First-tier Tribunal (“the FTT”), challenging its conclusions but also arguing that there could be no effective closure notice in relation to the tax year ended 5 April 2009 because no valid notice of enquiry had been given. HMRC were by then out of time to serve a further (correct) notice of their intention to open an enquiry into Mr Mabbutt's tax return for that year. It was directed that the question whether an enquiry had been validly opened should be heard as a preliminary issue.
[3] The FTT (Judge Bailey and Ms Shillaker) held that because of the mistake the Mabbutt letter did not constitute a valid notice of enquiry compliant with section 9A Taxes Management Act 1970 (“TMA”) and that section 114 TMA could not save it. The FTT also held that a letter to Mr Mabbutt's accountants, Dickinsons (“the Dickinsons letter”) referred to in, and a copy of which was enclosed with, the Mabbutt letter did not form part of the disputed notice of enquiry.
[4] HMRC now appeal, with the permission of the judge, against the FTT's decision. Mr Mabbutt cross-appeals on one point in relation to section 114(1) TMA.
[5] For the reasons given below, we allow HMRC's appeal and dismiss Mr Mabbutt's cross-appeal.
[6] The facts found by the FTT can be briefly stated and were not disputed. The following summary is taken mainly from [16(a)–(j)] of the FTT's decision (“the Decision”).
[7] Mr Mabbutt submitted his tax return for the year ended 5 April 2009 online on 29 January 2010. During that tax year Mr Mabbutt had entered into a DOTAS registered tax scheme. “DOTAS” stands for “Disclosure of Tax Avoidance Schemes” and refers to legislation contained primarily in the Finance Act (“FA”) 2004, Part 7 (sections 306 to 319 as amended). If a tax avoidance scheme is disclosed under these provisions it is allocated a reference number.
[8] The Mabbutt letter, so far as material, was as follows:
Dear Mr Mabbutt,
Thank you for your Tax Return for the year ended 6 April 2009. I am writing to tell you that I intend to enquire into this Return. I have written to your agent, Dickinsons to ask for the information I need and a copy of my letter is enclosed for your information.
I will not be checking other areas of your Return unless the reply, or other information, gives me reason to do so. In such circumstances, the scope of the enquiry could be widened to cover the whole of the Tax Return.
[9] The letter also enclosed a copy of HMRC's Code of Practice 8 which related, in particular, to tax avoidance schemes. The relevant part of the Dickinsons letter was:
Dear Sirs
Mr M Mabbutt
I have today given notice under section 9(a) [sic] Taxes Management Act 1970, to your above named client, of my intention to enquire into his Tax Return for the year ending 6 April 2009. I enclose a copy of this notice for your information.
To enable me to check that the Tax Return is correct and complete, please let me have the following information:
…
[10] Although the FTT did not quote its entire text, the Dickinsons letter referred expressly to the DOTAS registered scheme and to its reference number (which was also included on Mr Mabbutt's tax return for the year ended 5 April 2009).
[11] In February 2011 there was correspondence between the promoter of the DOTAS registered scheme and HMRC concerning the material sought from Mr Mabbutt and how this could best be provided. The FTT concluded (Decision [16(e)]) that there was no confusion in the mind of the scheme promoters as to the arrangements into which HMRC wished to enquire.
[12] Next, on 24 March 2011, Dickinsons wrote to HMRC as follows:
Will you please confirm that you agree with Mr Mabbutt's Tax Return for the year ended 5 April 2009...
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