BCM – Tribunal grants taxpayers' application for closure notices

22 May 2017

In BCM Cayman LP and others v HMRC [2017] UKFTT 0226 (TC), the First-tier Tribunal (FTT) directed HMRC to issue closure notices within specified time periods in respect of its enquiries into certain of the applicants' tax returns, pursuant to section 28B, Taxes Management Act 1970 (TMA) and paragraph 33, Schedule 18, Finance Act 1998 (FA 1998).


Bluecrest conducts a fund management business in the UK with businesses incorporated in the Cayman Islands. HMRC opened tax enquiries into different aspects of the business between 2007/08 and 2013/14. In relation to the Cayman businesses, issues concerned transfer pricing, thin capitalisation, and restriction of tax relief for interest on unallowable purpose loans. HMRC was also investigating a partnership incentive plan (PIP).

The applicants cooperated with HMRC during its enquiries and provided a significant amount of information and documentation. However, some documents were withheld from HMRC on the basis that they attracted legal professional privilege (LPP). HMRC did not accept that all of the withheld documents attracted LPP. 

After a process that had extended over seven years, the applicants felt HMRC had exhausted its enquiries. HMRC had provided precise estimates of the tax it claimed was due and had issued accelerated payment notices. The applicants applied to the FTT for a direction that HMRC issue closure notices within a specified timeframe, pursuant to section 28B(5), TMA and paragraph 33(1), Schedule 18, FA 1998.

The burden of proof was on HMRC to demonstrate, on the balance of probability, that there were reasonable grounds for the FTT to refuse the application (section 28B(7), TMA and paragraph 33(3), Schedule 18, FA 1998). 

FTT's decision 

HMRC argued that the enquiries were factually and legally complex, with significant amounts of tax at stake and denied it had not delayed the progression of the enquiries. HMRC claimed that it needed more time to complete the final stage of the enquiry process.

In reaching its decision, the FTT sought to balance the parties interests by taking into account the following factors:

 complexity of the enquiries;
 length of the enquiries;
 degree of cooperation from the taxpayer;
 information that had been provided to HMRC;
 amount of tax at stake;
 risk of evidence becoming stale, in particular any relevant oral evidence;
 whether HMRC had enough information to reach an "informed judgment"
 whether further enquiries were proportionate.

The FTT was not persuaded by HMRC's arguments. In respect of the Cayman businesses, the application was granted. The FTT was of the view that there was no reason to delay the closure notices. If HMRC wanted to disallow interest then it was perfectly legitimate for it to do so and it should state its reasons in the closure notice. The FTT did not see how further investigation by HMRC was likely to provide any material assistance.   

In relation to the PIP, the application was granted in part. The FTT accepted HMRC would need further time to calculate adjustments for up to 175 partners and also accepted HMRC's estimate that a realistic timeframe for the exercise was three months. In the circumstances, the FTT concluded that the appropriate final date for the issue of the closure notice would be 31 May 2017, approximately three months after the date of the hearing.

One of the keenest areas of contention between HMRC and taxpayers is the length of time enquiries take before they are concluded. Sadly, it is not uncommon for enquiries to become protracted (as appears to have happened in this case) and a long-running enquiry can become commercially disruptive, time consuming and expensive. There will, therefore, be occasions when a taxpayer decides that an enquiry has gone on long enough and wishes to bring it to an end. Increasingly, taxpayers, like the applicants in this case, are adopting a more proactive approach and seeking an appropriate direction from the FTT requiring HMRC to bring its enquiries to an end within a specified time period.  

This decision highlights how effective such a strategy can be and provides useful guidance on the factors the FTT will take into account when  determining whether it is appropriate to direct HMRC to issue a closure notice. 

A copy of the decision can be viewed here.

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