Closing an enquiry does NOT mean that no tax is due

[webberg]

There is a case circulating on twitter and elsewhere, in respect of which various inaccurate views are being allowed to be held (in my opinion).

The case if that of Martin in the Upper Tier.

This reference is to a very good summary from Reynolds Porter Chamberlain.

Application directing HMRC to close its enquiry into tax avoidance scheme granted | RPC

The case discussed a couple of points that I will take in reverse order.

First, HMRC opened an enquiry and then did nothing. No letters, no questions, no contact. After three years the taxpayer applied for the enquiry to be closed.

This is achieved by HMRC issuing a closure notice.

A closure notice is simply HMRC saying that they have concluded their enquiry and the result is (usually) more tax is due.

The taxpayer can then challenge that view by going to a Tribunal.

In this case, HMRC attempted to ask some questions 3 years after the initial enquiry but the judge said that the taxpayers application for a closure notice should be granted.

The case does not say what that closure said. It does not say that HMRC decided more tax was due or if they closed the year with no adjustment.

All the taxpayer achieved was a situation in which HMRC could not longer ask questions. that may well harm a view from the agency that more tax is due (in fact I would say that this is a schoolboy error from HMRC and that a tribunal hearing the question of whether more tax could be due will almost certainly take into account the lack of information held by HMRC in reaching that decision).

However, the UTT case was not about whether a liability exists. Rather it was whether the closure notice should be issued.

Message is: A CLOSURE NOTICE ENDS AN ENQUIRY - IT DOES NOT MEAN THAT FURTHER TAX IS NOT DUE.

The second point was technical and around whether a enquiry into an individual can be opened/closed without impacting adjustments that may arise from an enquiry into a related business (in this case an LLP).

For me, this is more disturbing as the UTT said that this could happen. For me, this is akin to giving HMRC two bites of the cherry. I hope this is appealed, but I doubt it will be.

[webberg]

Martin v Revenue & Customs (INCOME TAX - closure notice and amendment to return) [2019] UKFTT 710 (TC) (02 December 2019)

Succeeded in getting a closure notice.

Failed in getting a claimed tax relief.

Please do not think that a closure notice means no more tax - as we see here, often quite the opposite.

[DealorNoDeal]

There ought to be a time limit for closing an enquiry. If there was, it might focus minds at HMRC.

It's not surprising that the likes of loan schemes etc get out of hand when HMRC can open enquiries and then sit on their hands for years (or decades!).

How many open enquiries are they sitting on that are over 10 years old?

Someone from Govt needs to get into HMRC and shake the place up.

[DealorNoDeal]

[RANT]
Most legislation that gets tabled is stuff HMRC requests/wants.

For far too long, the tail has been allowed to wag the dog.

It's about time Govt started giving them legislation which made them get off their arses and do their job.
[/RANT]

[NeedTheSunshine]

There ought to be a time limit for closing an enquiry. If there was, it might focus minds at HMRC.

It's not surprising that the likes of loan schemes etc get out of hand when HMRC can open enquiries and then sit on their hands for years (or decades!).

How many open enquiries are they sitting on that are over 10 years old?

Someone from Govt needs to get into HMRC and shake the place up.

The way they behave is diabolical. Open enquiries and then do nothing. And then in order to clear up the backlog come up with something like the Loan Charge. Unfortunately, I can't see anyone shaking HMRC up drastically any time soon.

[webberg]

I'm afraid that the views above are not based on legal terms.

HMRC can open an enquiry and there is no statutory time limit by when they need to close that enquiry or indeed even to progress it.

However ...

YOU have the ability to drive the timetable.

If YOU consider that the enquiry has gone stale or stalled or that HMRC is simply prevaricating, YOU can go to a Tribunal and ask them to force HMRC to issue a closure notice.

There is no minimum period you have to wait to do this. In theory you could ask a Tribunal the day after the initial letter of enquiry is received. You would be unlikely to convince a tribunal of the need for HMRC to close their enquiry then, but as time goes by and especially if HMRC is inactive, your chances increase.

YOU do not need HMRC's permission to do this.

YOU can represent yourself at Tribunal.

YOU do need to be prepared for the Tribunal to say "yes" or "no" to your request.

If it's a "yes" and the closure notice is issued, then chances are you will need to argue your case in a future Tribunal.

If it's a "no", you can wait a time and ask again.

All of this is under YOUR control.

It is a myth unsupported by law or practice that enquiry is completely under the control of HMRC.

Take control.

[DealorNoDeal]

HMRC can open an enquiry and there is no statutory time limit by when they need to close that enquiry or indeed even to progress it.

But that's the whole point I was making. There ought to be. Whether it's 1 year, 2 years, 3 years, there should be a statutory time limit.

HMRC use (ie. abuse) the current enquiry sytem like place holders.

Unless there's a hard limit, they will keep repeating the same behaviour.

[webberg]

But that's the whole point I was making. There ought to be. Whether it's 1 year, 2 years, 3 years, there should be a statutory time limit.

HMRC use (ie. abuse) the current enquiry sytem like place holders.

Unless there's a hard limit, they will keep repeating the same behaviour.

Operating within the law cannot be termed "abuse".

HMRC do use the enquiry process in a "protective" way and will continue to do so unless the taxpayers realise their power and get on the front foot and take control.

Sitting back, leaking fees to advisers and stalling whilst interest etc accrues is pointless, as is using advisers to challenge peripheral matters rather than the substantive issues.

[NeedTheSunshine]

Operating within the law cannot be termed "abuse".

HMRC do use the enquiry process in a "protective" way and will continue to do so unless the taxpayers realise their power and get on the front foot and take control.

Sitting back, leaking fees to advisers and stalling whilst interest etc accrues is pointless, as is using advisers to challenge peripheral matters rather than the substantive issues.

It would take a brave person to take a closure notice through tribunal. Plus deep pockets. Yes you can represent yourself, but the reality is that you will probably lose and HMRC have deep pockets so would appeal anyway if you won at the first stage. They have time and money on their side.

It would take a group of people from a scheme to push this through and as we've seen, getting a group of contractors together and coordinating is no easy task. Perhaps such a case from a group is already going ahead. I hope so, and wish them well if so. I completely agree that taxpayers need to realise their power. Easier said than done.

[webberg]

It would take a brave person to take a closure notice through tribunal. Plus deep pockets. Yes you can represent yourself, but the reality is that you will probably lose and HMRC have deep pockets so would appeal anyway if you won at the first stage. They have time and money on their side.

It would take a group of people from a scheme to push this through and as we've seen, getting a group of contractors together and coordinating is no easy task. Perhaps such a case from a group is already going ahead. I hope so, and wish them well if so. I completely agree that taxpayers need to realise their power. Easier said than done.

Yes it would be a brave move and yes you would have to have resources.

A Tribunal hearing and deciding a case about a closure notice is unlikely to have that decision appealed.

HMRC may well resist issuing a closure notice but if a decision goes against them (as they have done), their most likely route is to issue the CN and then advance to Tribunal to hear the substantive case.

It is at the substantive level that decent legal support is required.

So you do need a strategy and should not view a CN application in isolation because win or lose there are consequences.

We have spent close on 5 years with our group preparing for those consequences.