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Eastern Power Networks – Court of Appeal confirms that HMRC does not need to close its enquiries

07 April 2021. Published by Alexis Armitage, Senior Associate

In Eastern Power Networks plc and others v HMRC [2021] EWCA Civ 283, the Court of Appeal (CofA) has upheld the Upper Tribunal's (UT) decision that it was not appropriate to direct HMRC to issue closure notices.


Eastern Power Networks Plc, London Power Networks Plc, Southern Eastern Power Networks Plc and UK Power Networks (Transport) Ltd (the Applicants), were trading subsidiaries of UK Power Networks Holdings Ltd (UK Power). HMRC opened enquiries into the Applicants' corporation tax returns for the periods ending 31 December 2011 to 2013, inclusive. In those returns the Applicants had claimed consortium relief under section 133(2), Corporation Tax Act 2010 (CTA 2010). The tax at stake was £220,000,000.

When first incorporated, UK Power had three shareholders, Devin International Ltd (Devin), Eagle Insight International Ltd and CKI Number 1 Ltd (CKI1), who owned the company in equal shares. The three shareholders had some connection with the Hutchison Whampoa group (HWG) and were part of a consortium. 

Hutchinson 3G UK Holdings Ltd owned Hutchinson 3G UK Ltd (Hutchison 3G), and both companies were also members of the HWG. Hutchinson 3G, provides mobile phone services under the 3 brand.

The surrendering company was Hutchinson 3G, who had sustained substantial losses when developing the 3G network in the UK. The 'link company', for the purposes of section 133(2) was CKI1. CKI1 was owned by CKI2, which was itself owned by CKI3. Devin was owned by an energy company, Hong Kong Electric Holdings (HEH), in which CKI1 also had an interest. 

The consortium subsequently acquired the power transmission business of EDF and underwent a restructure. The articles of UK Power were amended to the effect that: the CKI companies held 74.6% of the voting rights. The voting threshold to pass shareholder resolutions was increased to 75%. CKI3 entered into an agreement with HEH under which it contracted not to exercise its votes in UK Power without the prior written consent of HEH (the Voting Agreement). At this point the consortium comprised CKI1, CKI2 and CKI3, each of which was now also a link company.

As part of its enquiries, HMRC issued information notices to UK Power and CKI3 in November 2015 and August 2016, under Schedule 36, Finance Act 2008. 

The Applicants provided much, but not all, of the information requested by HMRC. HMRC was of the view that it needed all of the requested information in order to establish whether the purpose of the restructuring (pursuant to section 146B, CTA 2010) was to obtain a tax advantage by exploiting the consortium relief rules and to verify the quantum of the relief claimed. 

The Applicants were of the view that the outstanding information requested was not necessary in order to determine the issues between themselves and HMRC and applied to the First-tier Tribunal (FTT) for a direction, pursuant to paragraph 33, Schedule 18, Finance Act 1998 (FA 1998), that HMRC issue closure notices in relation to its enquiries. 

The FTT was of the view that, on the authority of Vodafone 2 v HMRC [2006] EWCA Civ 1132, it had jurisdiction to decide the underlying issue, namely, whether the purpose of the restructuring  was to obtain a tax advantage by exploiting the consortium relief rules and to verify the quantum of the relief claimed, as to do so would determine the application for the closure notices. 

The FTT held, amongst other things, that the request for information in relation to the purpose of the restructuring in relation to section 146B did not constitute reasonable grounds for not issuing a closure notice. This was because the purpose test in section 146B was only relevant if certain criteria were met. The CKI companies could not be prevented from exercising control over the Applicants on consideration of either the Voting Agreement or the increase in the voting threshold to 75%. The criteria were not therefore satisfied and the purpose test did not apply. The FTT therefore directed HMRC to issue a closure notice within 30 days of the date of its decision. 

HMRC appealed to the UT. In allowing HMRC's appeal, the UT concluded that the FTT’s interpretation of section 146B had been too restrictive. 

The Applicants appealed to the CofA. 

CofA judgment 

The appeal was dismissed. 

The Court of Appeal was critical of the FTT's approach. Whilst the Court acknowledged that the jurisdiction to decide an incidental point of law in an application for a closure notice direction is useful (as was demonstrated in the case of Vodafone 2), it commented that the discretion should be exercised "sparingly". 

The Court discouraged the FTT from entertaining similar future applications made by taxpayers and commented that there is a separate route by which taxpayers can challenge information notices issued by HMRC if they are considered to be disproportionate or unfair and that the jurisdiction conferred on the FTT to direct HMRC to issue a closure notice is not generally a suitable way of deciding points of law in the course of an enquiry. 

The Court said that it is often the case that a statutory provision sets a number of cumulative conditions to be satisfied before the provision  applies. Some of those conditions may be relatively straightforward and require little information from the relevant taxpayer and some may require more extensive information. In the view of the Court taxpayers should not be encouraged to "pick and choose" which information they provide and then ask the FTT to decide the applicability of one element in the hope that such a decision will bring the remainder of HMRC's enquiry to a halt. 

The Court commented that the application required the court to apply the statutory provision in the absence of any clear findings of fact about the underlying arrangements and without any agreed statement of facts and noted that any determination made would not, in any event,  resolve the entire dispute between the parties. The Court noted that there seemed to be various scenarios possible at the end of HMRC's enquiry that would mean that HMRC would have other points it could pursue regarding the accuracy of the Applicants' tax returns. This could be contrasted with the position in Vodafone 2 where "the point was so fundamental as to be capable of bringing the enquiry to a halt if decided in a particular way".


It is not uncommon for HMRC to seek to continue with its enquiries notwithstanding that it has been supplied with a great deal of information and documentation. Where  that information and documentation is sufficient to enable it to form a view on the underlying facts and close its enquiries, taxpayers should give serious consideration to making an application to the FTT for a direction, pursuant to paragraph 33, Schedule 18, FA 1998, that HMRC closes its enquiry.  However, any such application must be well-formulated. The Court of Appeal has made it clear that whilst the FTT does have  jurisdiction to determine an incidental point of law in an application for a closure notice direction (as was demonstrated in the case of Vodafone 2), the point of law should be capable of bringing the enquiry to a halt if decided in a particular way (as in Vodafone 2).

The judgment can be viewed here.

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