Further guidance from the Tribunal on closure notices: long stop dates
We recently blogged about the timing of closure notices: "Tribunal directs HMRC to issue Closure Notice".
In the case to which that blog related, the First-tier Tribunal ('FTT') directed HMRC to issue a closure notice within 30 days. However, in the recent case of Assan Khan v HMRC  UKFTT 018 (TC), the FTT directed that HMRC issue a closure notice within a long-stop date of nine months from the date of their decision.
Mr Khan filed his 2009/10 self-assessment return on 26 January 2011. HMRC opened an enquiry on 15 June 2011 with requests relating to Mr Khan's accountancy business and his property portfolio. Shortly before the deadline for complying with that request, Mr Khan claimed to have delivered a set of original documents to HMRC. However, he was given no receipt for the documents (which, HMRC informed the FTT, was standard policy) and HMRC seemingly lost them in the process of delivering them to the case officer. On 30 August 2011, HMRC apologised for the inconvenience caused to Mr Khan and said that they hoped Mr Khan had retained copies which he could provide.
There followed a series of further document and information requests from HMRC. As a result of Mr Khan's failure to comply with an information notice that HMRC had issued on 2 August 2011 (and later narrowed on 3 October 2011) pursuant to paragraph 1, Schedule 36, Finance Act 2008, HMRC issued a series of penalties. By February 2012, these penalties totalled some £1,300.
On 2 April 2012, HMRC wrote to Mr Khan requesting a response to the information request within 30 days, failing which they would issue a closure notice for the 2009/10 tax year and discovery assessments for the years 2005/06, 2006/07, 2008/09 and 2010/11. This 30 day deadline was subsequently extended to 6 June 2012. There were various further exchanges between Mr Khan and HMRC during this period, both by telephone and post. These exchanges included HMRC issuing a further information notice on 27 June 2012.
On 19 October 2012, HMRC (the enquiry having been taken over by a new case officer) wrote to Mr Khan informing him that he had complied with the information notice of 27 June 2012 and that a penalty issued in relation to it was accordingly cancelled. However, this letter also requested further information. Mr Khan wrote to HMRC on 26 October 2012 with various complaints regarding the way HMRC had handled the enquiry; his letter also requested that HMRC issue a closure notice.
On 17 May 2013 (after a further internal HMRC re-organisation had re-instated the previous case officer to the case) HMRC wrote to Mr Khan and stated:
- that the information notice of 27 June 2011 had "still not been fully complied with" (despite their previous confirmation, albeit made by a different case officer, in their letter of 19 October 2012 that it had been complied with); and
- their disappointment that Mr Khan had not responded to their letter of 19 October 2012, whilst at the same time rejecting Mr Khan's request for a closure notice.
There was a further exchange of correspondence, although no substantive progress was made. On 11 June 2013, HMRC wrote to Mr Khan stating that they had received notification from the FTT that he had made an application pursuant to section 28A(4) TMA 1970 for a direction that HMRC issue a closure notice. The letter also referred back to the concerns set out in HMRC's letter of 17 May 2013. As no response was received to this letter and subsequent correspondence from HMRC, a further information notice was issued on 2 September 2013. Mr Khan requested an internal review of this Notice on 27 September 2013, which review remained pending at the time of the hearing before the FTT of his application for the issue of a closure notice.
The parties' positions
In summary, HMRC considered that there remained considerable uncertainties surrounding Mr Kahn's self-assessment return and that he had consistently refused to meet to try and resolve these and he had disclosed the minimum of information after persistent delays. Mr Khan considered that HMRC's enquiry had been seriously inefficient and had put him to unnecessary trouble. He relied upon the fact that five HMRC officers in succession had been involved, and claimed that the deadlines were unrealistically short and the scope of the requests excessive.
In reaching its decision, the FTT was critical of both sides. On the one hand, it considered that the length of the enquiry was in part due to HMRC's poor administration, in particular:
- by it losing the original documents provided by Mr Khan in August 2011;
- by it losing (or failing to take account of) Mr Khan's letter of 26 October 2012; and
- by it failing to include in the hearing bundles a copy of their letter of 11 June 2013.
On the other hand, the FTT considered that Mr Khan's disclosures or responses to HMRC's requests and notices had frequently not been adequate or timely. It also considered that the majority of HMRC's requests were broadly ones which it was reasonable for them to make, albeit they should perhaps have been made in a less formal manner.
The FTT concluded that an enquiry of this nature:
" … ought to be capable of being completed within two years, and the tribunal must guard against it becoming a fishing expedition by the Revenue in the hope of justifying time already spent. That said, it is also the tribunal's task to safeguard the public interest in the payment of the correct amount of tax, which involves detailed calculations and enquiries being undertaken."
Balancing all relevant factors, the FTT considered that nine months from the date of their decision would be "fully adequate" for the enquiry to be concluded properly; accordingly HMRC should issue a closure notice on or before that long stop date.
One of the keenest areas of contention between HMRC and taxpayers is the length of time that enquiries take before they are concluded. It is not uncommon for enquiries to become protracted, and long-running enquiries can be disruptive, time consuming and expensive, particularly if HMRC issue a number of information requests during the course of the enquiry. When HMRC are refusing to conclude their enquiry and the taxpayer is of the view that the enquiry has gone on for long enough, he should give serious consideration to making an application to the FTT for a direction requiring HMRC to issue a closure notice within a specified period. Such applications are becoming increasingly common and often lead to HMRC issuing a closure notice before the application is heard by the FTT. What is interesting about this decision is the FTT's direction that HMRC must close their enquiry within a long stop period of nine months. Given the resources available to HMRC, there is no good reason why they should not, as a general rule, be able to conclude their enquiries within nine months from the date of commencement of their enquiries and it is to be hoped that HMRC will take proper note of this decision.