Section 114 of the Taxes Management Act 1970 provides that an action taken in pursuance of any provision of the tax acts cannot be invalidated on the basis of a mistake or defect. The High Court has used this provision to rule that a Closure Notice which failed to specify the amount of tax due, was still valid if the taxpayer receiving it could have easily calculated the tax payable at the time.
Whether or not a person is able to calculate tax due on their account would be determined according to the ordinary principles of law.
The case
Two infamous tax schemes (RDS/SHIPS) were ruled against by the Court of Appeal in 2009 and 2010. Mr Archer, having utilised these schemes in his 2003 & 2004 tax returns was subsequently investigated by HMRC. After a long delay HMRC closed their audit by issuing a closure notice - stating that the taxpayer was not allowed to deduct losses incurred in those schemes, and that he would be contacted at a later date to settle the matter by an officer of HMRC.
As section 28A of the act provides that a closure notice must amend the return and therefore (logically) state an amount of tax due, the taxpayer appealed straight to the High Court on a point of technicality claiming that (1) the notice was ineffective and (2) the closure notice cannot be withdrawn - therefore the audit is over and the taxpayer is not required to pay the £22m tax bill.
The judgement
HMRC had invoked the principle in section 114 to remedy the situation. In HMRCs view, the closure notice was effective despite the lack of a concrete number in the closure notice. In their view, and with which the judge agreed, the number was well known by both parties.
Turning to the principles of contract law, the judge asked how a reasonable person in that situation would have interpreted the closure notice.
"There are a number of reasons which militate in favour of according section 114(1) a wide range in these circumstances. First of all, let me posit an entirely straightforward case, where the officer gives a clear conclusion on a simple point, fails in his closure notice to amend the return, but the taxpayer may very readily understand how much he ought to be paying. There seems no obvious reason why section 114(1) should not apply to cure the notice on an appeal to the F-tT. In this hypothetical case the defect could in one narrow sense be described as "fundamental", and contrary to "the intent and meaning of the Taxes Acts", inasmuch as a statutory precondition to validity does not exist; although no one has been misled and the error is technical. I prefer an analysis which suggests that the issue is one of fact and degree. Secondly, and relatedly, I should revert to Briggs LJ's point that objective contractual principles should apply. How would a reasonable taxpayer understand the notice? In my example of an entirely straightforward case, the taxpayer would understand the consequences of HMRC's conclusions without the need for expert advice. Yet, if [the taxpayer's] objections were merited, even in this very simple hypothetical case there would be no power under section 114(1) to cure the defect.
I would not be prepared to hold that there could be no circumstances in which section 114(1) may be deployed to save a defective closure notice, even one which omits an essential statutory ingredient such as an assessment. The real question which arises is whether, in the circumstances of the present case, the omission is simply too significant and/or fundamental to be capable of salvation.
The issue is not clear-cut. On the one hand, the Closure Notices make it clear that HMRC are rejecting the whole of the taxpayer's claims for relief. The taxpayer is a sophisticated businessman who has the benefit of high-powered advice. The APNs and the FNs explained HMRC's position very clearly, and the taxpayer did not place any of the amounts (qua figures) in dispute. Even setting to one side the point that I have found that the figures and sufficient of the methodology would have been visible in the "view accounts" section of the website, KPMG could have done the arithmetic for themselves. Instead, they waited until almost the last possible moment before raising their objections on the notices."
In this case, the legalistic way for HMRC to win was to prove that the High Court had no jurisdiction to quash HMRCs debt collection notice - and that the taxpayer was perfectly entitled to appeal the 'valid' notices in the Tribunal - where he would fail because the Court of Appeal has already deemed the schemes illegal:
"Ultimately, I am driven to conclude that [HMRCs] submissions on this issue are well-founded, and that the [Tribunal], on a hypothetical appeal under section 31(1)(b), would and should have deployed section 114(1) to cure the defects in the Closure Notices. It follows – albeit as an end-point in the analysis and not as a starting-point – that the taxpayer should have appealed the conclusions in the notices, and that this application for judicial review cannot proceed, it being an abuse of process. "
Case: http://www.bailii.org/ew/cases/EWHC/Admin/2017/296.html
Paragraphs: From 95 onwards.
No comments:
Post a Comment