Submitting an application for a closure notice under s 28A Taxes and Management Act 1970 (s 28A TMA 1970) is often overlooked as a tactical approach. Two successful applications for closure notices made to the First-tier Tribunal (FTT) help to provide guidance as to the factors to be taken into account when making such a submission.
The cases of Kenneth Bloomfield (TC02982 – 4 October 2013) and Assan Khan (TC03159 – 19 December 2013) were both won by the taxpayers on similar grounds, although there were differentiating elements.
The Bloomfield Case
In January 2010 HMRC opened an enquiry into Mr Bloomfield’s 2007/08 tax return, the main focus being the omission of rental income on three properties believed to be owned by the taxpayer. While Mr Bloomfield initially provided all information and documents requested from him, once the enquiry had reached its third anniversary and HMRC were apparently no nearer to concluding matters and following the appointment of a new inspector after a complaint about the original inspector, Mr Bloomfield submitted an application to the FTT for a closure notice to be issued.
In Mr Bloomfield’s submission he argued, amongst others, that:
- HMRC’s enquiry had been ‘unreasonably protracted, onerous and conducted unreasonably’;
- he was a 70 year old man in poor health and who was undergoing medical tests for memory loss and confusion;
- he cooperated with the information requests made by HMRC; and
- Following the change of inspector dealing with the enquiry, the demands of HMRC became unreasonably excessive and the scope of the enquiry regularly widened.
In response, HMRC contended that there were outstanding issues surrounding Mr Bloomfield’s 2007/08 tax return and that at the time of the FTT hearing they had additional information that could potentially help assist resolve these issues.
The tribunal held that it needed to determine if HMRC satisfied the tribunal ‘that there are reasonable grounds for not issuing a closure notice within a specific period of time,’ and that the ‘the test applied [in such applications should be] on an objective view [whether] it is appropriate for a closure notice to be issued.’
In reaching its decision, the tribunal looked at a number of factors including the period of time the enquiry was on-going, the co-operation of Mr Bloomfield, the queries which remained outstanding and the availability of receiving information to resolve the outstanding queries. Based on the balance of these factors, the tribunal held in favour of Mr Bloomfield and directed that HMRC should issue a closure notice in respect of its enquiry within 30 days of the judgement which would give HMRC sufficient time to complete the remaining queries ‘without due delay’.
The Khan Case
In this case, HMRC opened an enquiry into Mr Khan’s 2009/10 tax return in June 2011. The enquiry originally requested information into the sales computation and expenses relating to Mr Khan’s accountancy business, a list of his rental properties with acquisition dates, how the properties were funded and analysis of expenditure.
At the start of enquiry Mr Khan explained that he delivered a pack of documents to HMRC’s Cardiff office, however, this information never reach the investigating officer. Subsequently, the investigating officer issued a formal information request notice under Schedule 36, paragraph 1 Finance Act 2008. Mr Khan appealed against the request and because he failed to comply with the information notice was issued with a penalty. He did not make contact with HMRC again until April 2012.
During the course of the enquiry, there were five different case handlers, with one confirming in writing that Mr Khan had ‘fully complied with the information and document requests’. However, this was later overturned by a complaints officer who stated that the case officer in question had been ‘incorrect to tell Mr Khan that he had fully complied’.
The enquiry became protracted, with HMRC requesting more and more information from Mr Khan. The case even returned to one of the original inspectors who stated that the purpose of the enquiry was ‘to satisfy [HMRC] that the tax returns filed by [Mr Khan] are complete and correct in all regards’.
On reviewing the facts of this case, the tribunal found that Mr Khan’s responses to HMRC had ‘frequently not been adequate or timely’ and noted that as a practising accountant and having a substantial property business the information requested should have been readily available.
Importantly, the tribunal held it needed to ‘safeguard against [an enquiry] becoming a fishing expedition by the Revenue… [However, equally] the tribunal’s task is to safeguard the public interest in the payment of the correct amount of tax’.
Thus, with this in mind the tribunal directed HMRC to issue closure notices within nine months of the decision, as it felt this was sufficient time for HMRC to fully conclude their outstanding queries.
These cases highlight the importance of the administrative safeguards afforded under the Taxes Management Act 1970 to ensure that the taxpayer is not subject to a protracted and/or ever widening in scope HMRC enquiry (aka fishing exercise). However, before such an application is made, consideration should be given to the circumstances surrounding the enquiry and that all other possible avenues to the resolve the outstanding issues amicably have been explored first for example alternative dispute resolution.
Should you have a query regarding these cases, or have an ongoing issue regarding an applications for a closure notice, please contact the TaxDesk on 0845 4900 509 and ask for Davinia Douglass.