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A clear understanding of closure notices and tax enquiries is crucial for taxpayers who want to ensure they comply with tax regulations and can effectively resolve disputes with HM Revenue and Customs (HMRC). This blog will provide a comprehensive overview of closure notices, delve into the intricate tax enquiry process, and examine the most recent case laws. By staying up-to-date with the latest information, taxpayers can confidently navigate this complex area more easily.
Closure Notices and the Tax Enquiry Process
Issuance of closure notices by HMRC: HMRC issues formal closure notices at the end of a tax return enquiry, stipulating whether amendments are needed. Taxpayers have a 30-day window to appeal the notice, failing which it becomes final, and any additional tax resulting from it has to be paid.
Appealing against closure notices: If a taxpayer does not agree with the closure notice, they can file an appeal within 30 days. To appeal, they need to submit a written statement that explains the points of disagreement and the reasons for the appeal. HMRC may review the decision or offer an internal review, which will be done by an HMRC officer not previously involved in the case. If the taxpayer is still unsatisfied, they can appeal to the First-tier Tribunal.
First-tier Tribunal’s role in resolving disagreements: The First-tier Tribunal serves as an autonomous entity that adjudicates appeals regarding decisions rendered by HMRC. It facilitates dispute resolution in cases where the taxpayer and tax inspector fail to reach a consensus. The Tribunal impartially evaluates the presented evidence and arguments from both parties before issuing a verdict.
Taxpayer’s right to apply for a closure notice: Taxpayers can apply to the First-tier Tribunal, asking them to direct HMRC to issue a closure notice within a specified period, typically 30 days. Common reasons for such applications include HMRC persistently asking for more information without good reason or taking an unreasonably long time to process the provided information.
Challenges Faced by Taxpayers
Unreasonable requests for information by HMRC: Some tax inspectors may be reluctant to admit they have found nothing wrong with a return and persist in requesting more and more (often irrelevant) information. This can be a way of postponing the issuance of a closure notice and thus admitting they were mistaken.
Delay tactics used by inspectors: In some cases, tax inspectors may continue to ask for more information even when all the requested information has been provided. This can cause delays and frustration for taxpayers who believe they have complied with HMRC’s requests.
Case example illustrating these challenges: One such case involved a tax inspector looking into the sale of a business. The inspector asked for more and more information, including correspondence between the seller and their accountants and lawyers, without explaining the reasons for needing this information. The inspector did not find whatever they expected to find in the sale agreement but was unwilling to close the enquiry until they found something to justify the time spent on the case.
Embiricos v HMRC: A Critical Case on Partial Closure Notices
In the Embiricos v HMRC case, the Court of Appeal concluded that HMRC cannot issue a partial closure notice in respect of domicile status and a remittance basis claim without an assessment of the amount of tax due. Mr Embiricos claimed the remittance basis of taxation based on his non-domicile status in the UK but did not provide tax details on overseas income or gains.
The Court of Appeal upheld the Upper Tribunal’s decision, stating that HMRC does not have the power to issue a partial closure notice (PCN) without specifying the additional tax due as a consequence of the conclusions of its enquiries. Without the information HMRC had requested, it was not in a position to make such an assessment.
The Court concluded that the legislative framework relating to closure notices does not distinguish a PCN and a final closure notice (FCN). PCNs, therefore, work in the same way as FCNs and are subject to the same restrictions. Both PCNs and FCNs must state that no amendment of the return is required or make amendments to the return required to effect HMRC’s conclusions.
The decision in the Embiricos v HMRC case will disappoint those taxpayers who wish to have the issue of their domicile status determined before being required to provide further information to HMRC concerning their claim to the remittance basis of taxation. This is particularly relevant when an enquiry is in progress under section 9A, Taxes Management Act 1970 (TMA), and the taxpayer asks HMRC to agree that an issue, such as their domicile status, should be referred to the First-tier Tribunal for determination under section 28ZA(1), TMA.
However, any such referral requires the agreement of HMRC, and in practice, HMRC is generally reluctant to agree to such a referral. In the circumstances like the Embiricos case, consent from HMRC will not be forthcoming. Nevertheless, many practitioners believe that a PCN should be available in Mr Embiricos’ circumstances, and it will be interesting to see if he seeks to appeal the decision to the Supreme Court.
Taxpayers must be aware of closure notices and the tax enquiry process to ensure compliance with tax regulations and effectively resolve disputes with HMRC. By understanding the role of closure notices, the appeals process, and the implications of recent case law such as Embiricos v HMRC, taxpayers can better navigate the complexities of tax enquiries and work towards a fair resolution.
If you need help regaring tax resolution or appeal, please contact Tax Accountant at 0800 135 7323 or email info@taxaccountant.co.uk for expert advice.