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Contact: michael.firth@taxbar.com
Procedure.Tax
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F7: Closure notice applications
Applying for a closure notice direction from the Tribunal
Personal, trustee and partnership returns
"(4) The taxpayer may apply to the tribunal for a direction requiring an officer of the Board to issue a partial or final closure notice within a specified period.
(5) Any such application is to be subject to the relevant provisions of Part 5 of this Act (see, in particular, section 48(2)(b)).
(6) The tribunal shall give the direction applied for unless satisfied that there are reasonable grounds for not issuing the partial or final closure notice within a specified period.
(7) In this section “the taxpayer” means the person to whom notice of enquiry was given." (TMA 1970, s.28A(4) - (7))
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Same wording for partnership tax returns in s.28B(5) - (8) save that "taxpayer" also includes the successor:
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"(8) In this section “the taxpayer” means the person to whom notice of enquiry was given or his successor." (TMA 1970, s.28B(8))
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Company tax returns
"(1) The company may apply to the tribunal for a direction that an officer of Revenue and Customs gives a partial or final closure notice within a specified period.
(2) Any such application is to be subject to the relevant provisions of Part 5 of the Taxes Management Act 1970 (see, in particular, section 48(2)(b) of that Act).
(3) The tribunal shall give a direction unless satisfied that an officer of Revenue and Customs has reasonable grounds for not giving a partial or final closure notice within a specified period." (FA 1998, Sch 18, para 33)
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SDLT
"(1) The purchaser may apply to the tribunal for a direction that the Inland Revenue give a closure notice within a specified period.
(2) Any such application is to be subject to the relevant provisions of Part 5 of the Taxes Management Act 1970 (see, in particular, section 48(2)(b) of that Act).
(3) The tribunal hearing the application shall give a direction unless satisfied that the Inland Revenue have reasonable grounds for not giving a closure notice within a specified period." (FA 2003, Sch 10, para 24)
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Power to direct closure notice strikes a balance
“[16] The issuing of a closure notice is a significant event. It closes the enquiry and requires the Commissioners' officer concerned to state his conclusions and, where those conclusions so require, to amend the taxpayer's tax return to give effect to those conclusions. Only then will the taxpayer be able to make any appeal to the tribunal for determination of any matters disputed between the taxpayer and the Commissioners (such matters having been crystallised in the conclusions in the closure notice and the amendments to the return). The scope of any such appeal is shaped and limited by the terms of the closure notice: as Henderson J expressed it in the Tower MCashback case (at [128]), "Issue of the notice is an irrevocable step, and once it has been taken the battle ground on any future appeal will be defined by reference to it." It is understandable, therefore if the Commissioners are somewhat cautious as to when their enquiries may be regarded as sufficiently complete to enable them to issue a closure notice – Miss Wakefield expressed this sense of caution when she pointed out that the Commissioners were mindful of the lessons to be learnt from the decision in the Tower MCashback case, summed up by Henderson J in these terms (at [128]): "If there is a moral to be drawn, it is that HMRC should ensure that they have considered all the points on which they may wish to rely before a closure notice is issued."...
[19] The provisions of section 28B TMA 1970 are (as with the corresponding provisions relating to companies discussed in the case of HMRC v Vodafone 2 [2006] STC 483 at [44]) "constructed so as to produce a reasonable balance", given these different interests of the Commissioners and the taxpayer. It is implicit in the powers given to the General or Special Commissioners to give a direction requiring the issue of a closure notice, and is part of that "reasonable balance", that a closure notice can be required notwithstanding that the officer has not pursued to the end every line of enquiry or investigation – what is required is that he should have conducted his enquiry to a point where it is reasonable for him to make an informed judgment as to the matter in question, so that, exercising such judgment, he can state his conclusions and make any related amendments to the taxpayer's return. The exercise of that judgment may require the officer to express his conclusions in broad terms, or even express alternative conclusions (see the observations made in the case of D'Arcy v HMRC [2006] UKSPC 549 at [12]) – which should at the practical level allow an officer of the Commissioners to avoid the pitfalls identified in the Tower MCashback case of a closure notice too restrictively drafted in its conclusions." (Eclipse Film Partnerships No.35 LLP v. HMRC [2009] STC (SCD) 293, §16…19).
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FTT to give direction unless satisfied that there are reasonable grounds not to
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“(6) The tribunal shall give the direction applied for unless satisfied that there are reasonable grounds for not issuing a closure notice within a specified period.” (TMA 1970, s.28A(6) see also FA 1998, Sch 18, para 33(3)).
"[15] There was no dispute as to the relevant principles to apply. Both parties referred to my decision in BCM Cayman LP and others v HMRC [2017] UKFTT 226 (TC), which reviewed the relevant case law. I would also refer to the subsequent Upper Tribunal decision in Frosh and others v HMRC [2017] UKUT 320 (TCC). In summary:
(1) The procedure is intended as a protection to a taxpayer against enquiries being inappropriately protracted, providing a “reasonable balance” to HMRC’s substantial powers to investigate returns (HMRC v Vodafone 2 [2006] STC 483 at [33] and [34]) and protecting the taxpayer against undue delay or caution on the part of the officer in closing the enquiry (Eclipse Film Partners No 35 LLP v HMRC [2009] STC (SCD) 293 at [17]). The Tribunal is required to exercise a value judgment, determining what is reasonable on the facts and circumstances of the particular case (Frosh at [43]). This involves a balancing exercise.
(2) The reasonable grounds that HMRC must show must take account of proportionality and the burden on the taxpayer (Jade Palace Limited v HMRC [2006] STC (SCD) 419 at [40]).
(3) The period required to close an enquiry will vary with the circumstances and complexity of the case and the length of the enquiry: complex tax affairs and large amounts of tax at risk are likely to extend an enquiry, but the longer the enquiry the greater the burden on HMRC to show reasonable grounds as to why a time for closure should not be specified (Eclipse Film Partners, and Jade Palace at [42] to [43]). It may be appropriate to order a closure notice without full facts being available if HMRC have unreasonably protracted the enquiry: see Steven Price v HMRC [2011] UKFTT 264 (TC) at [40].
(4) A closure notice may be appropriate even if the officer has not pursued to the end every line of enquiry. What is required is that the enquiry has been conducted to a point where it is reasonable for the officer to make an “informed judgment” of the matter (Eclipse Film Partners at [19]).
(5) If it is clear that further facts are or are likely to be available or HMRC has only just received requested documents and may well have further questions, then a closure notice may not be appropriate: see for example Steven Price, and also Andreas Michael v HMRC [2015] UKFTT 577 (TC). The Tribunal should guard against an inappropriate shifting of matters that should be determined by HMRC during the enquiry stage to case management by the Tribunal. However, the position will turn on the facts and circumstances of each case: Frosh.
(6) The Supreme Court’s comments on the subject of closure notices in HMRC v Tower MCashback LLP [2011] UKSC 19, [2011] 2 AC 457 are highly relevant. In particular, Lord Walker commented that whilst a closure notice can be issued in broad terms, an officer issuing a closure notice is performing an important public function in which fairness to the taxpayer must be matched by a “proper regard for the public interest in the recovery of the full amount of tax payable”, although where the facts are complicated and have not been fully investigated the “public interest may require the notice to be expressed in more general terms” (paragraph [18]). Lord Hope also said at [85] that the officer should wherever possible set out the conclusions reached on each point that was the subject of the enquiry. In Frosh the Upper Tribunal commented at [49] that a closure notice in broad terms is “not the norm” and so should not be taken as an appropriate yardstick for assessing whether HMRC’s grounds for not closing the enquiry are reasonable." (Beneficial House (Birmingham) Regeneration LLP v. HMRC [2017] UKFTT 801 (TC), Judge Falk)
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Meaning of reasonable grounds
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"[123] In identifying the meaning of 'reasonable grounds', we refer to the construction adopted in case law authorities for determining an application for a postponement of tax. The statutory basis for a postponement of tax being granted is under s 55(6) TMA: 'that there are reasonable grounds for believing that the appellant is overcharged to tax'.
[124] In Sparrow Ltd v Inspector of Taxes [2001] STC (SCD), a decision on a s 55 TMA application, the Special Commissioner, Dr Brice, adopted the meaning for 'reasonable ground' used in Australian Doctors' Fund Ltd v Commonwealth of Australia (1994) 49 FCR 478, as stated at [71] of Sparrow:
'“To be 'reasonable', it is requisite only that they be not fanciful, imaginary or contrived, but rather they be reasonable; that is to say based on reason, namely agreeable to reason, not irrational, absurd or ridiculous.”'
[125] The construction for 'reasonable ground' in Sparrow is accompanied at [72] by a reference to the state of mind involved in 'believing' that is part of the statutory wording of s 55(6):
'“[w]hen a statute prescribes that there must be 'reasonable grounds' for a state of mind … it requires the existence of facts which are sufficient to induce that state of mind in a reasonable person.”'
[126] So far as the definition of 'reasonable grounds' is concerned, there is common ground between s 28A(6) TMA and s 55(6) TMA. However, it is necessary to distinguish that there is no subjective element of 'believing' in the statutory wording of s 28A(6) TMA, and the distinction means that the test of 'reasonable grounds' under s 28A(6) is to be construed essentially as an objective test." (McWatt v. HMRC [2018] UKFTT 228 (TC), Judge Poon)
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Burden of showing reasonable grounds on HMRC
“…as [the taxpayer] submitted, this requires the Tribunal to give the direction sought unless the Tribunal is satisfied that there are reasonable grounds for not issuing a closure notice within a specified period. As he further submitted, the burden of so satisfying the Tribunal falls on HMRC.” (Alkadhi v. HMRC [2012] UKFTT 741 (TC), §46).
More difficult to show reasonable grounds to continue lengthy enquiry
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"[46] The enquiries in both cases have been relatively lengthy, which in principle increases the burden on HMRC to show why closure notices should not be issued. The fact that HMRC considers that tax avoidance schemes have been implemented does not by itself justify an extension of the enquiries. However, the amounts at stake are substantial and the subject matter of the enquiries are relatively complex. Whilst HMRC have not always pursued the enquiries as promptly as they might have done, my overall impression is that the enquiries have been characterised by failures to respond promptly or fully to HMRC’s requests, and by failures to ensure that HMRC have accurate information, including about whether documents do or do not exist..." (Beneficial House (Birmingham) Regeneration LLP v. HMRC [2017] UKFTT 801 (TC), Judge Falk)
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General test
“However desirable it may appear to an officer of HMRC that an enquiry should be continued, the test to be applied by the tribunal is whether on an objective view it is appropriate for a closure notice to be issued. This involves close scrutiny of the questions put to the taxpayer and its advisers, the information provided in response and its adequacy, and the extent to which it appears to the tribunal that further enquiry would produce information enabling the company’s corporation tax liability to be adjusted to a level differing from that shown in the return.” (Estate 4 Ltd v. HMRC [2011] UKFTT 269 (TC), §38)
Premature closure may lead to unintended consequences
“Procedurally, a premature closure of such enquiries can lead to unintended legal consequences, which are illustrated by the appellate history of Tower MCashback. Lord Walker, in giving the Supreme Court judgment on the case [2011] UKSC 19, stated at [13]: 'A great deal of expensive legal argument might have been avoided if [the investigating officer] had stood his ground and insisted that he needed more time to consider the matter.’” (Featherstone v. HMRC [2016] UKFTT 747 (TC), §82).
Enquiries must be conducted in reasonable and proportionate way
"[47] In my view Mr Green was reasonably entitled to extend the enquiry because he took a different view to Mr Siddique of certain matters. There may be cases where personnel changes at HMRC take place, and different officers take a different view to their predecessors as to an enquiry or aspects of an enquiry. Such changes are to some extent inevitable, and HMRC should ensure that proper respect is paid by officers to the approach of predecessors. Enquiries can present a significant burden to taxpayers and any disruption to an enquiry caused by personnel changed should be kept to a minimum. Enquiries must not be conducted in a way which is unreasonable, disproportionate or oppressive. In those cases, the Tribunal has power on applications such as this to direct a partial or final closure notice. However, the present case is not such a case. I do not consider it was unreasonable for Mr Green to extend the enquiry to cover depreciation and accountancy costs." (Bryan v. HMRC [2020] UKFTT 239 (TC), Judge Cannan)
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- Criticism of HMRC not issuing information notices to allow taxpayer to appeal
"[49] HMRC express that they have not issued a formal information notice under Schedule 36 to FA 2008 because they consider Ms Hayes would have been unlikely to comply with it due to her "attitude".
[50] Ms Hayes vehemently refuted that suggestion.
[51] I strongly criticise HMRC's inclusion of this statement in their statement of reasons. It adds nothing to their submissions on the question at hand regarding closing the enquiry at this time. Ms Hayes has responded to all correspondence issued to her by HMRC and has asked appropriate and clear questions of HMRC. Some of those questions were not answered to Ms Hayes' satisfaction and this has given rise to this application to the Tribunal. She queried the validity of the enquiry and therefore did not respond to the information requests until that question was resolved, which has only occurred on the making of this decision.
[52] The correspondence I have seen and her demeanour within the hearing did not suggest an "attitude" of refusal to comply, but rather a person wishing to exercise her statutory rights.
[53] If HMRC issued a formal information notice, Ms Hayes may choose to exercise a right of appeal concerning the contents of that notice.
[54] However, no such notice has been issued and there is no right of appeal to this Tribunal on an informal information request. Therefore I do not consider the scope of the information request further.
" (Hayes v. HMRC [2024] UKFTT 118 (TC), Judge McGregor)
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Unnecessary for HMRC to be certain figures are accurate before closing
“Mr Paulin accepts, as he must, that it is not necessary for HMRC to be certain that the figures are wholly accurate before they can issue a closure notice (see Michael v HMRC [2015] UKFTT 577 (TC))” (Nichols v. HMRC [2016] UKFTT 155 (TC), §17).
But not required to simply use estimates
“If we directed HMRC to close the enquiry into Mr Michael’s tax return for 2012-13 now, it would put them in the position of being “forced to make assessments without knowledge of the full facts” as the tribunal put it in Stephen Price. In our view, it is not necessary for HMRC to be certain that the figures are wholly accurate before they can issue a closure notice. We consider, however, that it would not be appropriate in this case to direct that HMRC must issue a closure notice when it is clear that further information is or may be available that will affect Mr Michael’s liability to tax. We say this because it appears to us that there is real uncertainty about the level of takings from the Charcoal Grill for the year ended 5 April 2013, as revealed by the decision of HMRC in the VAT investigation to issue an assessment for under recorded takings covering part of the period.” (Michael v. HMRC [2015] UKFTT 577 (TC), §30).
“If [the taxpayer] were correct that HMRC have no reasonable grounds to refuse to issue a closure notice where they have not yet been provided with all the relevant information about the scheme (putting aside the issue whether the request for information was belated) because they can make an assessment in any event, this would mean HMRC do not reasonably require the information for the purpose of checking the tax return. This would in effect compel HMRC to issue assessments based on far less than the full facts and be unable to obtain those unless and until HMRC obtained a disclosure order in proceedings.” (Price v. HMRC [2011] UKFTT 624 (TC), §11).
Unnecessary for HMRC to complete detailed analysis
"[50] The dates I am setting for the issue of closure notices should in principle allow all outstanding information requests to be dealt with, and should also allow some time for HMRC to review the responses. I recognise that HMRC may have supplemental questions and that there may be insufficient time for them to be addressed (or the LLPs may refuse to co-operate in addressing them). However, a balance is needed. If the currently outstanding requests are dealt with then in my view that should sufficiently address the concern that matters might otherwise be inappropriately shifted from the enquiry stage to case management by the Tribunal. I think there is a distinction here between obtaining information and documents, which should if at all possible be dealt with during the enquiry stage, and undertaking all the detailed analysis that HMRC would like to undertake. Whilst it is clearly desirable that HMRC develop a clear position which can be expressed both in the closure notices and in their Statements of Case, that needs to be balanced with the need to avoid the enquiries being unnecessarily protracted. I have endeavoured to ensure that HMRC are given adequate time to review the responses to express an informed judgment, even if they have not fully completed their analysis. I also do not think that it is reasonable for the closure of the enquiries to be delayed for reasons that are wholly related to HMRC’s internal working practices, for example in respect of the time said to be required to obtain valuation input." (Beneficial House (Birmingham) Regeneration LLP v. HMRC [2017] UKFTT 801 (TC), Judge Falk)
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No reasonable grounds if HMRC are wrong about the law
“On that basis it is legitimate to put the question in the following way, that is to ask whether there is anything in the wording of para 33 to suggest that it does not confer jurisdiction to decide incidental points of law, that is points of law that need to be resolved in order to decide whether there are reasonable grounds for not giving a closure notice. If it was a point of law which the Commissioners could decide for themselves, that would not attract the same attention as a point of Community law which may take many years to determine and where there may need to be more than one reference, but the difference is one of scale and not of principle. Once it is concluded that the Commissioners have jurisdiction under para 33 to determine an incidental point of law, no distinction can be drawn between different types of point of law.” (HMRC v. Vodafone 2 [2006] EWCA Civ 1132, §21).
Discretion as to whether to decide point of law at closure notice application: is point of law fundamental?
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"[54] The Vodafone case was a very particular instance where the legal issue was not simply one among many issues that was raised by the construction of anti-avoidance legislation. It was, as Arden LJ said, a point that was so fundamental as to be capable of bringing the enquiry to a halt if decided in a particular way: [26]. In my judgment, the jurisdiction to decide an incidental point of law in an application for a closure notice direction is useful, as the Vodafone case shows, but only if the discretion to exercise it is used sparingly. The position that we have found ourselves in this appeal demonstrates why. It will very often be the case that a statutory provision sets a number of cumulative conditions to be satisfied before it applies. Some of those conditions may be relatively straightforward and require little information from the taxpayer and some may require more extensive information. Taxpayers should not be encouraged to pick and choose which information they provide and then ask the tribunal to decide the applicability of one element in the hope that a "quick win" will bring the rest of the enquiry to a halt. That is a recipe for inefficient, stop/start enquiries and risks wasting a great deal of judicial time. Judge McKeever undertook a detailed analysis of the information requests and received written and oral evidence from the HMRC officer as to the relevance of the information requested and the history of the enquiry. Although Judge McKeever said that it was not necessary to set out the history in detail, her summary exposition nevertheless took up several pages of her decision.
[55] The issue determined by this application does not resolve the entire dispute between the parties. Even if the Appellants had succeeded in showing that there were no arrangements here for the purposes of section 146B, we were told that HMRC have other points they can pursue on the accuracy of the Appellants' tax returns, one of which is that there are arrangements here falling foul of a different anti-avoidance provision, section 155. That would result in the entitlement to loss relief being set at nil because UKPNHL would not be regarded as being owned by a consortium at all. There seem to be various scenarios possible at the end of the enquiries that will mean that this whole exercise has been pointless.
[56] The approach adopted in this application has also required the tribunals and this court to apply the statutory provision in the absence of any clear findings of fact about the scheme as a whole and without any agreed statement of facts. We raised with the parties at the hearing what would have been the position if the FTT had decided that the arrangements did potentially fall within section 146B and the Appellants had later brought a substantive appeal before the FTT against the amendment of their returns. What would be the status of the FTT's decision on this legal point when the same issue came to be debated in the substantive appeal once all the facts were known? The discussion quickly ran into the choppy waters of legal precedents and issue estoppel.
[57] I would therefore firmly discourage the FTT from embarking on the kind of hearing that occurred here. There is a separate route by which a taxpayer can challenge an information notice served by HMRC if it regards the notice as disproportionate or unfair. The jurisdiction conferred on the tribunal to direct HMRC to issue a closure notice is not generally a suitable vehicle for deciding points of law in the course of an enquiry such as the present." (South Eastern Power Networks Plc v. HMRC [2021] EWCA Civ 283, Rose LJ)
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“The crux of this matter is whether the legal point or points are fundamental to the determination of the enquiry. That is to say, would a decision, one way or the other enable me to conclude either that HMRC did have reasonable grounds for continuing the enquiry, or alternatively, that they did not.” (South Eastern Power Networks Plc v. HMRC [2017] UKFTT 494 (TC), §190, Judge McKeever).
Consider compliance burden avoided if point of law decided against HMRC
“As to the relevance of the burden of compliance, I understand Lady Arden to be saying that it is a factor to consider, in that a decision on a particular point of law may render it unnecessary to proceed with an onerous investigation of the facts. I do not believe she intended to imply that the Tribunal could only decide the point of law if it were proved that the burden of compliance would be unduly onerous.” (South Eastern Power Networks Plc v. HMRC [2017] UKFTT 494 (TC), §188, Judge McKeever).
FTT deciding point of law to establish whether enquiry into purpose is relevant
“I have concluded that none of the other issues discussed above provide reasonable grounds for the Respondents to continue with their enquiries which means that this issue: the relevance of purpose, is fundamental to the enquiry. If the Applicants’ construction of section 146B is correct, purpose is not relevant. If the Respondent’s interpretation is correct, purpose is relevant. This is precisely the sort of question which Park J had in mind in Vodafone 2. If the Tribunal decides the question of law, it will determine the application for the closure notice…I therefore conclude that this is one of those rare cases where the Tribunal not only has jurisdiction to decide the law, but can and should do so.” (South Eastern Power Networks Plc v. HMRC [2017] UKFTT 494 (TC), §§232 - 233, Judge McKeever).
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Unlikely to be reasonable grounds if HMRC produce no evidence
“The critical factual question is why HMRC did not seek any information or documents from the taxpayer for the first three years of the open enquiry. As I have said, even if the documents/information are clearly relevant to the enquiry, HMRC should not procrastinate. They may have a good reason for the delay in this case: indeed, if they could prove the case I have set out at §§38-40 above, that might well be a good reason for the three year delay. But HMRC must prove the facts on which their submission relies. Here, the appellant does not accept the reliability of what HMRC said in the various letters in evidence before me; I had no written or oral evidence from the officers, (despite some of them being present in the hearing room). So I have no evidence on which I can conclude that the disputed factual position is as HMRC represent it to be…I have therefore not been satisfied in the absence of evidence that HMRC’s three year delay in asking for the relevant documents/information was justified; and it seems to me that unless the delay is justified, the closure application ought to be granted.” (Martin v. HMRC [2017] UKFTT 488 (TC), §§44 - 45, Judge Mosedale).
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“As to whether I should direct HMRC to issue a closure notice in the present case, as Mr Gordon submits, given the wording of s 28A(6) TMA and without any evidence how can I be satisfied that there are reasonable grounds for not directing that a closure notice be issued. The short answer is I cannot.” (Nichols v. HMRC [2016] UKFTT 155 (TC), §17).
Examples
- Existence of information notice does not prevent closure notice being ordered
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“The legislature cannot have intended that the protection afforded to the taxpayer by the closure notice procedure could automatically be negatived by the issue of an information notice and the authorities cited support this.” (South Eastern Power Networks Plc v. HMRC [2017] UKFTT 494 (TC), §118, Judge McKeever).
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- Outstanding information (ground for refusal)
“On the other hand, even where a quantified sum was in dispute, HMRC should not ordinarily be obliged to make an assessment where the taxpayer has not provided the relevant information which he holds.” (Martin v. HMRC [2017] UKFTT 488 (TC), §34, Judge Mosedale).
“As HMRC are only at the stage of reviewing the information initially requested and await the further bank statements, the enquiry is at such a preliminary stage, that it is not possible to put any realistic time frame on how long the enquiry will take to complete. In the absence of the full information, HMRC are not yet at the stage of being able to identify fully what further enquiries are needed let alone being able to conclude what, if any, amendment is required to the taxpayer’s return. At the present time that would be a matter of speculation only.” (Cherian v. HMRC [2016] UKFTT 316 (TC), §86).
“It is our view that there are reasonable grounds for not issuing a closure notice in this case. The respondents are not in a position to genuinely start (let alone complete) their enquiries and state their conclusion which follows from those enquiries since the appellant has not provided the information to which the respondents are, as we say, entitled.” (Carpenter v. HMRC [2016] UKFTT 262 (TC), §24).
“The taxpayer is not entitled to withhold information reasonably required for the purpose of checking his tax return where it may be material to the correctness of that return. HMRC should not be forced into issuing assessments based on less than full facts…It would not be appropriate for the Tribunal to order a closure notice without full facts being available to HMRC.” (Bilal Khan v. HMRC [2014] UKFTT 1050 (TC) §37…§38);
“HMRC is entitled to know the full facts related to a person’s tax position so that they can make an informed decision whether and what to assess. It is clearly inappropriate and a waste of everybody’s time if HMRC are forced to make assessments without knowledge of the full facts. The statutory scheme is that HMRC are entitled to full disclosure of the relevant facts: this is why they have a right to issue (and seek the issue of) information notices seeking documents and information reasonably required for the purpose of checking a tax return (see Schedule 36 of Finance Act 2008).” (Price v. HMRC [2011] UKFTT 624 (TC), §10).
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- Outstanding information not shown to be reasonably required (ground for granting)
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"[22] No reason to suspect that Dr Price may have under-assessed his tax liability was put before me. The best that could be said by Ms. McArdle was that she did not feel that she had completed her checks. It follows, therefore, that I do not agree that the Respondents reasonably required un-redacted bank statements to complete the check.
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[24] The enquiry into Dr Price's tax position commenced on 2 May 2017. This means that it has now been extant for over two years. There has been no complaint that there has been delay on the part of Dr Price or his advisors in providing information. There is to my mind no further outstanding information. Although this enquiry is being carried out by the complex avoidance unit the Respondents did not give details about the amount of tax that might be at stake or the reasons why this was a particularly complex investigation. Given what I say above and the volume of information already provided I am of the view that a reasonable officer can at least make an informed judgement of the matter (per Eclipse Film Partners at [19]) based upon the information to hand." (Perfectos Printing Inks Co Ltd v. HMRC [2019] UKFTT 388 (TC), Judge Malek)
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- Outstanding information reasonably required but no longer available (closure notice granted)​
"[21] However, the Appellant has stated that the information and further documentation requested is not available due to the effluxion of time and/or that it never existed due to the nature of the arrangements and relationships. This has now been definitively stated in two witness statements which contain a statement of truth (and which thereby constitute evidence before this Tribunal and, as appropriate, subject to the provisions of the Perjury Act 1911).
[22] In such circumstances, and applying the balancing exercise referred to in Frosh, the Tribunal is satisfied that there are no reasonable grounds to maintain the Enquiry. HMRC must decide on the information and documentation they hold. HMRC are capable of making an informed judgment as to the quality of the information provided to them and whether it justifies the claim to charity tax relief on the payments made in the accounting period to 30 June 2017. If they consider, in the absence of the further information and documentation that their concerns justify a conclusion that the payments totalling £821,000 were not eligible for charity tax relief they may close on that basis. In substance it is no different to any other closure notice where HMRC are not satisfied on the evidence as to entitlement for a relief or deduction." (Newpier Charity Limited v. HMRC [2022] UKFTT 373 (TC), Judge Amanda Brown KC)
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- Unreasonable delay in pursuing an enquiry (ground for granting)
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“It seems to me that where there has been a significant delay by HMRC in pursuing an enquiry, it is for HMRC to give a good reason for the delay. They must show the ‘reasonable grounds’ for not ordering closure to the enquiry, and it is difficult to see that it would be reasonable to prolong an enquiry which had been unreasonably protracted, particularly when closing the enquiry does not prevent them refusing the applicant the loss relief to which they consider he may not be entitled.” (Martin v. HMRC [2017] UKFTT 488 (TC), §37, Judge Mosedale).
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- Time to consider information provided (ground for refusal)
“The evidence required to establish whether an individual has been living and working full-time abroad is not necessarily simple, as was shown in the case of Hankinson v Revenue and Customs Commissioners [2009] UKFTT 384 (TC), TC 00319. We consider it appropriate, and probably necessary, for HMRC to examine in detail all the information contained in the “schedule of residence” and to review all the relevant circumstances. We are unable to assess how much time this process will take. As HMRC’s enquiry under s 9A TMA 1970 into Mr Alkadhi’s return for 2007-08 is not complete, and as no time limit can be set for the enquiry to be completed, we are satisfied that there are reasonable grounds for not issuing a closure notice within a specified period.” (Alkadhi v. HMRC [2012] UKFTT 741 (TC), §51)
- No grounds for suspicion of impropriety by taxpayer (close enquiry)
“Having reviewed the information provided to HMRC, together with the evidence given by Mr Henry and Mr Thackeray, we find that it does not disclose any specific reason to suggest that this might be the case [i.e. that the company’s profits have been understated], and does not therefore form a sufficiently clear basis for continuing to make further enquiries into the level of the remuneration so far as the return of Estate 4 for the period is concerned. In order for us to have been satisfied to the contrary, we would have needed to have been persuaded that Alessandro Crevelli’s explanation as to his financial resources was not adequate. None of the evidence presented to us was sufficient to draw us to such a conclusion.” (Estate 4 Ltd v. HMRC [2011] UKFTT 269 (TC), §41)
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- HMRC offer to settle not sufficient to show that closure notice should be issued
"[52]...The Invitation to Settle letters did no more than invite the appellants to concede or to move towards settlement. They did so on the basis that, at the stages at which they were sent, there had first been a decision of the FTT that the purchaser in Project Blue was liable to SDLT, and secondly that the Upper Tribunal in that case had dismissed the purchaser’s appeal from that decision, whilst coming to a different view as to the amount of the chargeable consideration. In those circumstances, the approach of inviting the appellants to concede was one that could readily be taken on
the basis of the confirmation from Cornerstone, recorded in HMRC’s letters of 23 October 2013, that the appellants had used the same scheme. Such an approach did not require that HMRC had reached the stage at which a closure notice could be issued, nor in our view could it properly be inferred that such was the case. There is no necessary correlation between the circumstances in which an invitation to settle, or an invitation to concede and pay the tax without tribunal proceedings, may be made and the circumstances in which it would be unreasonable for HMRC to prolong an enquiry without issuing a closure notice. In these particular cases, in our judgment, there is no such correlation at all." (Frosh v. HMRC [2017] UKUT 320 (TC), Judges Berner and Cannan)
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“Once the settlement letters are put in their proper context it is absolutely clear that the Applicants have not met the informal information requests of the Respondents.” (Frosh v. HMRC [2016] UKFTT 558 (TC), §60).
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- HMRC entitled to look for implementation failures even after they have concluded tax avoidance scheme does not work
“As indicated above the closure notice lays the battle grounds for any subsequent appeal. If a closure notice were ordered immediately as requested by the Applicants it could do no more than preserve the Respondents’ position pending any appeal in Project Blue but could not conclude on any implementation matters which would open the Applicants rather than the PCC open to a liability to SDLT. Particularly given the current position of the case law on the underlying technical issues on the application of s45A and 71A Finance Act 2003 the absence of the information and documentation requested is critical. To order a closure notice would result in the inappropriate shifting of matters properly to be determined by the Respondents to case management for the tribunal.” (Frosh v. HMRC [2016] UKFTT 558 (TC), §61).
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- However, HMRC not entitled to keep lengthy enquiry open to pursue alternative routes to the same conclusion
“Even if, as Mr Stone submitted (relying on the passage in D’Arcy cited above), it is correct that the unallowable purpose argument (Issue 3) could be stated as an alternative conclusion with the amendments to the returns giving effect to HMRC’s preferred conclusion (Issue 4), it is clear that that is not necessary. The same applies to Issue 4b. It follows from Tower MCashback and also from Fidex Ltd v HMRC [2016] EWCA Civ 385 that it is perfectly legitimate for HMRC to state that their conclusion is that the interest is disallowed. Issue 4, Issue 3 and/or Issue 4b can appropriately be stated as reasons for that conclusion, or HMRC could simply refer to earlier correspondence for those reasons.” (BCM Cayman v. HMRC [2017] UKFTT 226 (TC), §36, Judge Falk)
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- Closure notice granted where information notice appeal upheld
"[161] It is common ground that if we find that the documents in the information notice are not reasonably required, a period of 90 days is sufficient to complete the enquiry." (Davies v. HMRC [2022] UKFTT 369 (TC), Judge McKeever)
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Closure notice within a specified period
For the FTT to consider what might be an appropriate period
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"[18] To the extent that the FTT was directing itself that the only period for the issue of the closure notice that had to be taken into account in its determination was that specified by the appellants, in our judgment that was an error of law. It is clear that the reference to “a specified period” in paragraph 24(3) is a reference to such period as the tribunal itself may specify, and that the tribunal has a discretion in this regard irrespective of any period specified in the application. That is the only sensible construction of paragraph 24. To find otherwise would be to impose an unwarranted constraint on the direction a tribunal could make, which must, in the context of the closure of an enquiry, depend on the particular circumstances found by the tribunal.
[19] We respectfully agree with the special commissioner (Mr Theodore Wallace) in Jade Palace Ltd v Revenue and Customs Commissioners [2006] STC (SCD) 419, at [44], when considering the analogous provisions in relation to company tax returns contained in Schedule 18 to the Finance Act 1998 (“FA 1998):
“Both parties accepted that it is for the tribunal giving a direction to specify the period. It is not necessary for the company making the application to specify the period in the application, although this may help to focus the application. Paragraph 33(3) refers to 'a specified period' using the indefinite article and does not therefore refer back to a period to be specified in the application.”" (Frosh v. HMRC [2017] UKUT 320 (TC), Judges Berner and Cannan)
Cannot specify a contingent period
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"[23]...What the FTT was saying here, essentially, is that having concluded that it was reasonable for the enquiry not to be closed at that stage because of the
outstanding documents and information, there was no scope for the tribunal to set a time frame which depended on the production of such material. That was, in our view, the correct approach. A contingent, or open-ended period, such as would be required in those circumstances, would not in our judgment represent a “specified period” for the purpose of paragraph 24. Nor, in our view, could it conceivably be reasonable, in circumstances where the documents and information reasonably required for HMRC to be able to close their enquiry had not been made available (and may continue not to be provided), for a tribunal to form the view that a period could be specified which would render it at the end of that period unreasonable for HMRC not to issue a closure notice." (Frosh v. HMRC [2017] UKUT 320 (TC), Judges Berner and Cannan)
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Unknown volume of information yet to be obtained: cannot specify period
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"[17] I considered whether to direct that a closure notice should be issued within a certain period. It seems to me that the volume of information yet to be obtained is, at this stage, unknown and that which was recently provided may lead to additional requests. In those circumstances I cannot objectively specify a period and I do not therefore direct that a closure notice be given within a specified period." (Bahmanizad v. HMRC [2018] UKFTT 283 (TC), Judge Dean)
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Appeal against FTT decision not to order HMRC to issue closure notice
In light of the likely length of time before the appeal will be heard by the UT, such an appeal will often prove irrelelvant. There are circumstances, however, where the FTT ought to have ordered HMRC to issue the closure notice because the enquiry could not result in an amendment:
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“Since the Tribunal did not issue a direction, the enquiry continued and has now been concluded. A closure notice was ultimately issued amending Easinghall’s profits in accordance with the conclusions drawn by Mr Laurie. Easinghall has appealed against that closure notice and the appeal is pending. However, HMRC accepted that if I allow the present appeal and find that the Tribunal should have directed HMRC to close the enquiry because of Mr Musgrove’s review, then that will effectively dispose of the appeal against the amendment.” (Easinghall Ltd v. HMRC [2016] UKUT 105 (TCC), §39).