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As the lockdowns, restrictive working and general laid back nature of H M Revenue & Customs (HMRC) towards tax enquires ends and ‘normal service’ resumes, a flurry of tax cases have gone through the tax tribunals with some interesting, as well as worrying, results for taxpayers.
This edition of the newsletter therefore focuses on recent cases on topics which the individual taxpayer should be wary of. As ever it shows the importance of obtaining the correct advice at the outset to ensure the best chance of a good result, but some of the cases ended up having an unwelcome twist to set precedents for future case.
We take a quick look at a few recent cases and consider the ramifications of the results and how this has a bearing on both HMRC and taxpayer behaviour when dealing with enquiries.
This case made it all the way through to the Supreme Court (SC) for its final hearing this year. The case summary from the SC is below :
Whether the Respondent is estopped by convention from denying that HMRC had opened a valid enquiry when HMRC had sent the notice to the wrong address and the Respondent’s accountants had interacted with HMRC on the basis an enquiry had been opened.
The appeal arises out of a notice of enquiry sent by HMRC to the Respondent to the wrong address. HMRC subsequently issued a Closure Notice purporting to amend a certain tax return of the Respondent and disallow certain losses claimed. The Respondent disputed this and the question of whether a valid notice of enquiry had been served was heard as a preliminary issue. HMRC contends that its sending of a copy of the notice to the Respondent’s accountants established a mistaken assumption, shared by the parties, that a valid tax enquiry had nevertheless been opened into one of Respondent’s tax returns and the Respondent is therefore prevented by law from denying that there was a valid notice.
The appeal to the SC was led by HMRC who wished to challenge the verdict by the Court of Appeal who found in the taxpayers favour that the enquiry notice was issued invalidly in 2005, therefore rendering the closure notice in 2012 demanding £701,990.96 also invalid as there was no enquiry with which to raise the assessment.
The basic premise was that whilst it was accepted the enquiry notice was invalid, as all parties went along with it for the best part of 7 years before the closure notice and that the matter of its invalid nature was first raised only in 2015, some 12 years after the notice was issued.
Although the enquiry may not have been procedurally valid, through HMRC and BDO’s shared conduct, Mr Tinkler was ‘estopped’ from denying that a valid enquiry was opened and therefore the subsequent closure notice and assessment from 2012 stood.
The result is noteworthy as it demonstrates the need to identify an invalid enquiry notice within a reasonable period of time, as otherwise the tax legislation and procedures, usually found in Taxes Management Act 1970 for enquiry related matters, can be overruled by other general legal principles.
There are many puns that can, and have been, be attached to the decision in Tooth v HMRC  UKSC17, however the ramifications to a concept which many advisors have sought to challenge HMRC on has sent shockwaves through the profession.
At first glance, this appears to be a win for the taxpayer as the SC agreed with him that he had not acted deliberately in submitting an inaccurate Tax Return and therefore had various assessments raised by HMRC dismissed as a result. It reversed the decision of the Court of Appeal as it continues to put the onus on HMRC to demonstrate a proper argument in the round for a taxpayer acting deliberately to bring about a loss of tax.
So, all looks good?
Not quite. There was a further issue in the appeal to which the SC has clarified and one where many a tax appeal had been based, namely the length of time it takes HMRC to issue a discovery assessment once they had knowledge that there has been an inaccuracy in a tax return. If it were felt that HMRC had taken too long to deal with the matter, then an argument that the discovery was ‘stale’ would be had on the basis HMRC should have dealt with it more promptly and the delay was unfair on the taxpayer.
The problem is that ‘staleness’ has no legal concept and the SC determined that provided HMRC issue an assessment withing the statutory time limits for doing so, then it would be a valid assessment.
HMRC can therefore take their time over alleged discoveries, such that they can get their ducks in a row before raising assessments, thereby protecting themselves from appeals against discovery assessments due to lack of evidence.
Therefore, even more emphasis will be put on the accurate filing of tax returns and relevant disclosures to prevent HMRC from being able to claim a discovery within the provisions of section 29 TMA 1970. This should be considered more so where complex or unusual transactions have taken place and professional advice should be sought regarding the suitability of additional disclosures on a tax return to prevent a future ‘discovery’.
HMRC v Jason Wilkes  UKUT 150 (TCC)
In a decision that is widely expected to be appealed by HMRC, the Upper Tier Tax Tribunal rejected an appeal by HMRC following the decision of the First Tier Tribunal that assessments issued by HMRC to a taxpayer were invalid. The assessments had been raised as the taxpayer was liable to the HICBC but had not declared this to HMRC.
The reason the assessments were invalid is due to them being issued under s.29 TMA 1970 as a discovery assessment, however the taxpayer had not filed tax returns for the periods concerned and as such he had never submitted a document to HMRC that could have been considered inaccurate.
Due to an anomaly of how the various aspects of legislation is written, s.29 TMA 1970 can only be used to collect tax due on income that ought to be assessed to tax, as opposed to an ‘amount’ of tax. As the HICBC is not treated as income, and the charge is normally just paid back based on an individual’s income levels, an assessment under s.29 could not be raised and the UT determined that HMRC’s assessments were not valid.
HMRC’s appeal was on the basis the wording is an anomaly and that a wider meaning of what can be collected under s.29 should apply, but this was dismissed by the UT.
It therefore could lead to taxpayers seeking to appeal s.29 assessments issued by HMRC for amounts relating to the HICBC, but only where they had not submitted tax returns. Any individual who considers they may be affected by this should contact us to discuss further.
As said, it is likely that HMRC will appeal this decision on the basis many other assessments could have been issued in this way and as such could now be deemed invalid on an appeal by the taxpayer.
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