Sternlicht and Others
| Jurisdiction | UK Non-devolved |
| Judgment Date | 24 February 2021 |
| Neutral Citation | [2021] UKFTT 59 (TC) |
| Date | 24 February 2021 |
| Court | First Tier Tribunal (Tax Chamber) |
[2021] UKFTT 59 (TC)
Judge Jeanette Zaman
Income tax – Application by HMRC to strike out appeal on basis that it has no reasonable prospect of success – Sole ground of appeal that notices to file assumed received by Appellants were not valid – Application allowed and appeal struck-out.
[1] By notices of appeal dated 13 June 2018, Mr Sternlicht appealed on behalf of himself, Joshua Neumann, David Goldberg, Moshe Broner-Cohen and Jonathan Schwarz (together “the Appellants”) against closure notices issued by HMRC in respect of the tax year 2011–2012 which disallowed their claims for share loss relief under Chapter 6 of the Income Tax Act 2007 (“ITA 2007”). Those claims related to amounts that the Appellants had invested in a company called Chargelock Ltd (as per the Appellants) or Chargelock Capital Ltd (as per HMRC); nothing turns on the use of different company names.
[2] There were three grounds of appeal set out in the notices of appeal, relating to s16A Taxation of Chargeable Gains Act 1992, s137 ITA 2007 and whether the acquisition of shares was at arm's length (the “Original Grounds of Appeal”). HMRC filed and served its Statement of Case on 3 October 2018.
[3] All the Original Grounds of Appeal have since been withdrawn by the Appellants. The only remaining issue in the appeals is a new ground of appeal (set out in full at [9] below) which asserts that the notices received by the Appellants from HMRC, stated to have been given under s8 Taxes Management Act 1970 (“TMA 1970”) (the “s8 notices”), were not valid such that the subsequent notices of enquiry and closure notices were of no effect (the “New Ground of Appeal”).
[4] HMRC have applied to strike out this New Ground of Appeal, and thus the Appellants' appeal. It is that application which was before me.
[5] In the course of the hearing of the application for the strike-out it was apparent that HMRC and the Appellants differed as to the scope of the New Ground of Appeal. HMRC considered that it raised solely legal issues. The Appellants' position was that this was not simply a legal issue but required evidence to be adduced. However, HMRC had three (alternative) arguments in support of their position that the Appellants' claim had no reasonable prospect of success, one of which would not require any evidence. I considered all of these arguments, and the Appellants' submissions in relation thereto, and for the reasons explained below concluded that the New Ground of Appeal (even when interpreted widely to cover the evidential questions raised by Mr Gordon) had no reasonable prospects of success and should be struck out.
[6] I had before me a 101 page hearing bundle, bundles of authorities prepared by the Appellants and HMRC and a skeleton argument from each party.
[7] The background set out below was common ground between the parties, and I so find as facts for the purpose of considering this application.
[8] Mr Sternlicht's tax return for the tax year 2011-2012 was submitted online on 28 January 2013. HMRC issued notices of enquiry under s9A TMA 1970, and, in due course, closure notices. The Appellants appealed to the Tribunal on 13 June 2018.
[9] On 22 March 2019 Mr Sternlicht notified HMRC of the New Ground of Appeal. That email referred to the fact that separately the Appellants had applied for a stay pending ADR, referred to the fact that the new ground has been or is being advanced in other cases and continued:
In short, it is my position that the closure notices are ineffective. The reasoning is as follows:
- The appeals are against closure notices (CNs).
- For the CNs to be valid, there must be a valid notice of enquiry into each relevant tax return.
- For there to be a valid notice of enquiry there must be a return being enquired into.
- For there to be a valid return, there must have been a valid notice requiring a return under s8 TMA.
- For the notice to be valid, it should have been issued by an officer (and not by computer).
Thus the whole argument turns on point 5 above. I proceed on the assumption that each appellant (like virtually all other taxpayers) would have been sent an automated notice to file tax returns for the 2011/12 tax year (the year under appeal). Accordingly, they were not notices under s8. The consequences of that are ultimately that there can be no valid enquiry or closure notice.
Under FA 2019, s. 87, step 4 has been revised – a return need not be in response to a notice. The legislation is retrospective and will therefore legitimise any voluntary returns previously made by taxpayers.
However, the retrospective legitimisation of the tax return does not and cannot also have the effect of retrospectively legitimising any purported enquiry. That would require wording far broader than that currently in section 12D.
Accordingly, there was no valid enquiry into these tax returns and therefore the purported closure notices are of no effect.
[10] On 29 March 2019 HMRC referred to the fact that the Tribunal had granted the stay, and said they would reply to the email in relation to the New Ground of Appeal once they knew the position in relation to ADR. The stay expired on or shortly before 22 June 2019 and the Appellants applied for a further stay, which was opposed by HMRC.
[11] On 1 July 2019 the Appellants applied to the Tribunal to add the New Ground of Appeal.
[12] On 4 July 2019 HMRC informed the Appellants that they no longer opposed a further stay whilst the Appellants considered the position relation to ADR but also that, as the issue raised in the New Ground of Appeal was live in another appeal before both this Tribunal and the Upper Tribunal (the “UT”), HMRC suggested a stay behind those other appeals.
[13] By email dated 9 July 2019 HMRC clarified that they were content for “all grounds” to be considered at the same hearing, ie they did not express opposition to the addition of the New Ground of Appeal. With the agreement of the Appellants, HMRC applied to the Tribunal for a stay (behind Allam [2020] TC 07532 in this Tribunal and Rogers and Shaw in the UT) by letter dated 10 July 2019.
[14] On 29 July 2019, Judge Brooks granted a stay behind the appeal of R & C Commrs v Rogers [2020] BTC 533 to the UT. That direction was silent as to the amendment to the grounds of appeal.
[15] Following publication of the decision of the UT in Rogers and Shaw on 30 December 2019 (R & C Commrs v Rogers [2020] BTC 533) and this Tribunal in Allam [2020] TC 07532, HMRC invited the Appellants (on 11 February 2020) to withdraw the New Ground of Appeal.
[16] On 16 March 2020 Mr Sternlicht (acting on behalf of all the Appellants) stated that they had decided to withdraw the Original Grounds of Appeal but would continue to pursue the New Ground of Appeal. This was communicated to the Tribunal by Mr Sternlicht on 19 March 2020.
[17] Following further correspondence between the Tribunal and the parties (as to whether permission had already been granted for the addition of the New Ground of Appeal), by letter dated 18 August 2020 the Tribunal (Judge Vos) acknowledged the withdrawal of the Original Grounds of Appeal (requiring that a specific notice of withdrawal should be sent to the Tribunal and HMRC in respect of each of the “co-Appellants”), stated that the Tribunal had already accepted the New Ground of Appeal and directed Mr Sternlicht to set out the basis upon which the Appellants resisted HMRC's application to strike out the New Ground of Appeal in light of the UT decision in Rogers and Shaw and the passage through Parliament of the Finance Bill (a reference to what is now s103 Finance Act 2020 (“FA 2020”)).
[18] Mr Sternlicht responded by letter dated 27 August 2020 setting out why they considered the Tribunal should not strike out the New Ground of Appeal, and HMRC responded on 1 September 2020. There was then a further response from Mr Sternlicht on 2 September 2020.
[19] Whilst there has been no formal consolidation or joinder of the appeals of the five Appellants, HMRC's application was made to strike out all five specified appeals and the hearing was to determine that application for all five Appellants.
[20] Rule 8 of The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (the “Tribunal Rules”) sets out the circumstances in which the Tribunal must or may strike out the whole or part of proceedings. HMRC's application was made on the basis of rule 8(3)(c):
…
(3) The Tribunal may strike out the whole or a part of the proceedings if–
- the appellant has failed to comply with a direction which stated that failure by the appellant to comply with the direction could lead to the striking out of the proceedings or part of them;
- the appellant has failed to co-operate with the Tribunal to such an extent that the Tribunal cannot deal with the proceedings fairly and justly; or
- the Tribunal considers there is no reasonable prospect of the appellant's case, or part of it, succeeding.
[21] The power to strike out proceedings must be exercised in accordance with the overriding objective in rule 2 of the Tribunal Rules:
(1) The overriding objective of these Rules is to enable the Tribunal to deal with cases fairly and justly.
(2) Dealing with a case fairly and justly includes–
- dealing with the case in ways which are proportionate to the importance of the case, the complexity of the issues, the anticipated costs and the resources of the parties;
- avoiding unnecessary formality and seeking flexibility in the proceedings;
- ensuring, so far as practicable, that the parties are able to participate fully in the proceedings;
- using any special expertise of the Tribunal effectively; and
- avoiding delay, so far as compatible with proper consideration of the issues.
(3) The Tribunal must seek to give effect to the overriding objective when...
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Smith Homes 9 Ltd
...disregarded. Mr Cannon's submissions [28] Mr Cannon referred to the correct approach to a strike out application set out in Sternlicht [2021] TC 08044 at [20] to [25]. The Tribunal said that the application should be considered on the basis of the current law and it applied the guidance fro......