Revenue and Customs Commissioners v Embiricos
| Jurisdiction | UK Non-devolved |
| Neutral Citation | [2020] UKUT 370 (TCC) |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2020] UKUT 370 (TCC)
Mr Justice Adam Johnson, Judge Thomas Scott
Upper Tribunal (Tax and Chancery Chamber)
Procedure – Partial closure notice in relation to HMRC enquiry – Whether a partial closure notice can be issued in relation to a taxpayer's claim to the remittance basis without specifying the amount of tax due – No – Appeal allowed – TMA 1970, s. 28A.
The Upper Tribunal (UT) overturned a First-tier Tribunal (FTT) decision on partial closure notices (PCNs) in Embiricos [2019] TC 07083, deciding that when HMRC issue a PCN in respect of an enquiry into a taxpayer's tax return the notice must specify the amount of tax due.
The respondent (Mr Embiricos) considered himself to be domiciled outside the UK and claimed the remittance basis in his tax returns for 2014–15 and 2015–16. HMRC enquired into Mr Embiricos' tax returns and concluded that he was domiciled in the UK for those years.
Mr Embiricos wanted to appeal against HMRC's decision that he was domiciled in the UK but, as HMRC had not agreed to jointly refer the question of his domicile to the tribunal in accordance with TMA 1970, s. 28ZA, he could not do so until HMRC issued a closure notice under TMA 1970, s. 28A.
HMRC considered that they could not issue a closure notice until they had quantified the amount of tax which would be due if they were correct about Mr Embiricos' domicile status. To enable them to do this, they had issued a taxpayer information notice requiring Mr Embiricos to provide information to enable them to calculate the tax due.
Mr Embiricos did not accept that it was either necessary or appropriate for HMRC to have details of his overseas income and gains before the question of his domicile had been determined. He therefore applied to the tribunal for a direction requiring HMRC to issue a PCN in relation to his domicile/remittance basis claim (which he would then be able to appeal) and had separately appealed against the information notice on the basis that the information was not reasonably required until his domicile status had been confirmed.
The FTT accepted that in accordance with the High Court decision in R (on the application of Archer) v R & C Commrs [2017] BTC 3and as affirmed by the Court of Appeal in R (on the application of Archer) v R & C Commrs [2018] BTC 1, a closure notice (under the legislation as it was before “closure notices” were replaced with PCNs and final closure notices) had to state the amended amount of tax due as a result of HMRC's conclusions. However, the FTT noted that the PCN regime was a “fundamental change”, and decided that a PCN did not have to state the amount of tax which would be due based on the conclusions in the PCN. Instead, the issue of domicile could be treated as one “matter” per TMA 1970, s. 28A(1A) and the quantification of the tax due could be treated as a completely separate “matter”, in respect of which a further closure notice could be given.
Given the FTT's view that HMRC should give a PCN in relation to domicile and the consequent remittance basis claim, it allowed the appeal against the information notice as the information contained in that notice was not reasonably required pending determination of Mr Embiricos' domicile. The FTT also decided that if it was wrong on the PCN point the appeal against the information notice should fail.
HMRC appealed to the UT, submitting that the FTT erred in concluding that a PCN could be issued which denied Mr Embiricos' claim to the remittance basis without specifying the tax thereby arising. The reasons for the submission were as analysed by Judge Andrew Scott in the FTT case of Executors of Mrs Levy [2019] TC 07233, in which he concluded that a PCN could not be issued without specifying the amount of tax due.
In deciding whether the remittance basis was a separate “matter” to which HMRC's enquiry related, such that a PCN could be issued in respect of it by simply amending the return to remove the claim but without specifying the tax due, the UT considered: the relevant background materials; the amendments made to the legislation to introduce the PCN regime; appeal rights in relation to PCNs; the relevance of statements made in Archer; TMA 1970, s. 28ZA; and the practical consequences of the FTT's interpretation. Having reviewed all these issues the UT disagreed with the FTT and considered that a purposive construction of TMA 1970, s. 28A as a whole, in its statutory context, taking account of the manner of implementation of the PCN code and the consequential weight to be afforded to Archer, supported HMRC's position in this appeal. It also considered that Parliament could not have intended the PCN provisions to operate in parallel with the long-standing mechanism in TMA 1970, s. 28ZA for joint referral of a question to the tribunal, but as a unilateral right, subject to the approval of the tribunal.
The UT concluded that the FTT had reached the wrong conclusion and accordingly HMRC's appeal was allowed. As the FTT had directed, given this decision, Mr Embricos' appeal against the information notices was dismissed.
Until this decision we had two FTT decisions on PCNs, reaching opposite conclusions. This decision provides that HMRC do not have the power to issue a partial closure notice if they cannot specify the amount of tax due, and therefore agrees with Judge Andrew Scott's analysis of the matter in Executors of Mrs Levy [2019] TC 07233.
Akash Nawbatt QC and Sebastian Purnell, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the appellants
James Kessler QC and Ross Birkbeck, instructed by Moore Family Office Limited, appeared for the respondent
[1] HMRC appeal against the decision of the First-tier Tribunal (the “FTT”) reported at [2019] TC 07083 (the “Decision”). The appeal raises an important point concerning the issue by HMRC of a partial closure notice in respect of an enquiry into a taxpayer's tax return.
[2] HMRC opened enquiries into the claim by Mr Embiricos in his self-assessment tax returns for the years ended 5 April 2015 and 5 April 2016 that he was domiciled outside the UK and entitled to the remittance basis of taxation. HMRC having concluded as a result of their enquiries that he was domiciled in the UK, Mr Embiricos sought a closure notice from HMRC for those years so that he would be able to appeal against HMRC's decision. HMRC considered that they could not issue a closure notice until they had quantified the amount of tax which would be due if the remittance basis was denied. To that end, HMRC issued Mr Embiricos with an information notice request. The FTT held that the legislation concerning partial closure notices did not require that HMRC had quantified the amount of tax due. Such a notice could, and should, be issued stating HMRC's conclusion as to domicile and amending the returns so as to withdraw the remittance claim. The FTT further concluded that, assuming its decision on this point was correct, Mr Embiricos' appeal against the information notice was allowed.
[3] With the permission of the FTT, HMRC appeal against the FTT's decision that the partial closure notice did not need to specify the amount of tax due, and could and should be issued simply denying the taxpayer's claim to benefit from the remittance basis.
[4] It is helpful to set the scene with a brief description of the reasons behind the introduction of the legislation regarding partial closure notices (“PCNs”). What follows relates to the income tax and capital gains tax liabilities of individuals.
[5] HMRC have a statutory right to enquire into a self-assessment tax return made by an individual taxpayer. To that end, HMRC also have specific powers to obtain relevant information and documents during an enquiry. While an enquiry is in progress, HMRC and the taxpayer may jointly refer to the FTT for determination any question arising in connection with the subject matter of the enquiry.
[6] Before the introduction of the PCN regime, the legislation provided that an enquiry which had been opened by HMRC was completed when HMRC issued a “closure notice”, informing the taxpayer that HMRC had completed their enquiries into that return. The notice had to either state that no amendment of the return was required, or make the amendments of the return required to give effect to the conclusions of the HMRC officer. The code sought to balance HMRC's rights to obtain information and progress an enquiry with the right of a taxpayer to seek finality to a prolonged enquiry process. That was achieved by providing a right for the taxpayer, on certain terms, to apply to the FTT for a direction requiring HMRC to issue a closure notice for the period under enquiry. The tribunal was obliged to make that direction unless it was satisfied that there were reasonable grounds for not doing so.
[7] Broadly, the issue of a closure notice marked the end of the enquiry stage for that period of assessment, and the beginning of the taxpayer's rights of appeal.
[8] The difficulty was that a closure notice was something of a blunt instrument. In practice, HMRC might enquire into several aspects of a taxpayer's return for a particular period. HMRC might, for instance, enquire into a large claim for losses arising under a tax avoidance scheme and a much smaller, unconnected claim to deduct business expenses in the taxpayer's trade. Since a closure notice would end the enquiry stage for that period, there was no mechanism (other than by the joint referral for determination of a question to the FTT) for HMRC or the taxpayer to achieve or seek from the tribunal closure of one aspect of those enquiries but not the others.
[9] In order to address this problem, in December 2014 the Government initiated a consultation process. In due course, this led to the introduction in 2017 of amendments to the legislation to distinguish two types of closure notice...
To continue reading
Request your trial
-
Charman v Revenue and Customs Commissioners
...of Arnold LJ:Abbott v Philbin [1961] AC 352; [1960] 3 WLR 255; [1960] 2 All ER 763, HL(E)Embiricos v Revenue and Customs Comrs [2020] UKUT 370 (TCC); [2021] STC 201, UTGray’s Timber Products Ltd v Revenue and Customs Comrs [2010] UKSC 4; [2010] 1 WLR 497, SC(Sc)Hamblett v Godfrey [1987] 1 W......
-
Embiricos v Revenue and Customs Commissioners
...1970, s. 28A. The Court of Appeal upheld an Upper Tribunal (UT) decision on partial closure notices (PCNs) in R & C Commrs v Embiricos [2021] BTC 507, agreeing that HMRC do not have the power to issue a PCN in respect of a domicile and remittance basis claim without specifying the increased......
-
(1) Urenco Chemplants Limited and (2) Urenco UK Limited v The Commissioners for HM Revenue and Customs [2022] UKUT 00022 (TCC)
...aware of the then existing case law concerning expenditure “on the provision of” plant or machinery: HMRC v Empaminondas Embiricos [2020] UKUT 370 (TCC) at [63]. As emphasised in Derry, the correct approach to statutory interpretation in a situation such as this is undermined by a need to r......
-
The Commissioners for HM Revenue and Customs v Empaminondas Embiricos [2020] UKUT 0370 (TCC)
...[2020] UKUT 0370 (TCC) Appeal number: UT/2019/0080 PROCEDURE – partial closure notice in relation to HMRC enquiry – can a partial closure notice be issued in relation to a taxpayer’s claim to the remittance basis without specifying the amount of tax due – no – appeal allowed UPPER TRIBUNAL ......