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Closure Notices defective but JR dismissed as taxpayer should have appealed to the Tribunal

10 April 2017. Published by Adam Craggs, Partner

In R (on the application of Archer) v HMRC [2017] EWHC 296 (Admin), the High Court agreed with the claimant that a Closure Notice issued by HMRC must state the tax due, but dismissed his application for judicial review on the ground that he should have appealed to the First-tier Tribunal (FTT).


Mr Archer (the Claimant) participated in two tax avoidance schemes which were designed to create losses. The first involved relevant discounted securities (RDS) and the second involved the surrender of second-hand life assurance policies (SHIPS). He claimed losses in his tax returns for the years 2001/2002 and 2002/2003. HMRC opened enquiries into these returns, and in 2009 the Court of Appeal found that both schemes were ineffective in Astall & Edwards v HMRC [2009] EWCA Civ 1010 and Drummond v HMRC [2009] EWCA Civ 608. 

On 30 October 2015, HMRC issued Accelerated Payment Notices and Follower Notices in respect of the RDS scheme and on 15 January 2016 it issued an Accelerated Payment Notice and Follower Notice in respect of the SHIPS scheme. 

On 2 February 2016, HMRC issued two Closure Notices, purportedly in accordance with section 28A, Taxes Management Act 1970 (TMA), which stated that no relief was due for the losses claimed. 

These notices did not specify the amounts of tax due as a result of the unavailability of relief, the HMRC officer simply stating that: "I am amending your return to reflect all of the above".  HMRC's amendments to the Claimant's tax returns and self-assessment were visible online from 3 February 2016. 

The Claimant did not appeal the Closure Notices under section 31 TMA, on the basis that they were invalid as they had not complied with section 28A(2)(b), TMA, as they had not amended his returns. 

HMRC subsequently issued a letter warning of bankruptcy action if the Claimant failed to pay the alleged debt within seven days. 

The Claimant issued judicial review proceedings.

High Court decision

Mr Justice Jay, in dismissing the application, held that:

(1)  A Closure Notice must amend the taxpayer's return itself by stating the amount of tax due (section 28A). The words "I am amending your return" in the Closure Notices did not serve to amend the return, even when combined with the officer amending the computerised returns and self-assessments. Bristol & West plc v HMRC [2016] STC 1491 applied.

(2)  Section 59B(5), TMA, would fix HMRC's claim to a debt only where there had been an amendment to a return under section 28A. As there had been no amendment, no debt could arise unless the defect could be remedied by section 114(1), TMA. In this case it could not. There was no assessment, or even 'purported assessment', on which section 114(1) could operate.  

(3)  Although the Closure Notices were not "assessments", they were some "other proceeding", for the purposes of section 114(1). HMRC set out its conclusions in the Closure Notices and the Claimant should have appealed these conclusions to the FTT under section 31(1)(b). The application for judicial review was therefore an abuse of process and would be dismissed. 

This is another example of the incorrect forum being chosen to challenge a decision of HMRC. On this occasion, the High Court was of the view that the taxpayer should have issued notices of appeal under section 31(1)(b), TMA and pursued his appeals before the FTT. As he chose not to do so, his application for judicial review could not succeed as it was an abuse of process.

However, in the recent case of R&J Birkett v Revenue & Customs Commissioners [2017] UKUT 89 (TCC), the Upper Tribunal confirmed that the FTT did not have jurisdiction to consider a taxpayer's legitimate expectation that no penalty would be imposed by HMRC.

It is important that a taxpayer chooses the right forum when challenging HMRC and expert legal advice should be sought on this critical issue at the earliest possible opportunity.   
A copy of the judgment can be found here.