Limitations on HMRC's Power to Issue Partial Closure Notices in Domicile Enquiries: Executors of Mrs R W Levy v. Revenue & Customs [2019] UKFTT 418

Introduction

In the case of Executors of Mrs R W Levy v. Revenue & Customs ([2019] UKFTT 418 (TC)), the First-tier Tribunal (Tax) addressed critical procedural aspects concerning HM Revenue and Customs' (HMRC) authority to issue closure notices during enquiries into a taxpayer's domicile status. The case revolved around the assessment of Mrs. Levy's domicile in England and Wales for the tax years 2014-15 and 2015-16, and the implications for her claim to the remittance basis of taxation. The central issues included whether HMRC had reasonable grounds to issue final or partial closure notices without specifying the tax implications and the broader impact of such decisions on tax administration.

Summary of the Judgment

The tribunal examined whether HMRC had the jurisdiction to issue final or partial closure notices in the absence of clear tax determinations. The executors of Mrs. Levy contended that HMRC's prolonged enquiry into her domicile was vexatious and unwarranted, seeking closure without sufficient grounds. HMRC, however, maintained that determining Mrs. Levy's domicile was essential for accurately assessing her tax liabilities under the remittance basis.

The tribunal analyzed relevant statutory provisions, including sections of the Taxes Management Act 1970 (TMA) and precedents such as Vodafone 2 and Archer. It concluded that HMRC did not possess the authority to issue partial closure notices without specifying the tax implications and that there were reasonable grounds for HMRC to continue the enquiry. Consequently, the applications for final and partial closure notices were dismissed, and the appeal against the information notice was rejected.

Analysis

Precedents Cited

The judgment extensively referenced several key precedents that influenced the tribunal's decision:

• Vodafone 2 [2006] EWCA Civ 1132: Established that tribunals could consider mixed questions of fact and law in closure notice applications.
• Embiricos v HMRC [2019] UKFTT 236: Highlighted the potential for partial closure notices in domicile enquiries, though the tribunal in this case later found limitations.
• Archer (Regina (Archer) v HMRC [2017] EWCA Civ 1962): Clarified the requirements for closure notices to state specific tax amounts, emphasizing procedural correctness.
• Michael Hegarty & Flora Hegarty v HMRC [2018] UKFTT 774 (TC): Demonstrated that futile enquiries lacking deliberate conduct by the taxpayer do not justify continued investigations.
• Derrin Brother Properties Ltd v HMRC [2016] EWCA Civ 15: Addressed judicial review of third-party notices, reinforcing the limits of taxpayer consent in HMRC investigations.

Legal Reasoning

The tribunal's legal reasoning was grounded in statutory interpretation and the principles of fair tax administration. It emphasized that partial closure notices should not be used to terminate sections of an enquiry without clear tax outcomes. The reasoning was multifaceted:

• Statutory Interpretation: Section 28A of TMA was scrutinized to determine whether it authorizes partial closure notices without tax quantification.
• Jurisdictional Limits: The tribunal concluded that HMRC's authority under section 28A does not extend to issuing partial closure notices independently of tax assessments.
• Policy Considerations: The judgment underscored the necessity for certainty, finality, and transparency in tax administration, aligning with parliamentary intent as reflected in legislative background documents.
• Protection Against Abuse: It was determined that allowing unilateral partial closure notices could lead to inefficiencies and potential abuse, undermining the integrity of the tax system.

Furthermore, the tribunal addressed HMRC's procedural conduct, finding that their actions were within reasonable bounds and that complaints regarding HMRC's behavior did not substantively undermine their case for continuing the enquiry.

Impact

This judgment has significant implications for HMRC's procedural strategies in tax enquiries:

• Clarification of Closure Notice Powers: Reinforces that HMRC cannot issue partial closure notices without determining the associated tax liabilities.
• Enhanced Taxpayer Protections: Strengthens safeguards against potentially arbitrary or unwarranted termination of tax enquiries.
• Guidance for Future Enquiries: Provides a clear framework for tribunals to assess the reasonableness of HMRC's actions in ongoing enquiries.
• Policy Alignment: Ensures that HMRC's practices are in alignment with the principles of fairness and transparency, as intended by legislative reforms.

Overall, the decision curtails the expansion of HMRC's closure notice powers, maintaining a balance between efficient tax administration and taxpayer rights.

Complex Concepts Simplified

Remittance Basis of Taxation

The remittance basis is a taxation method where non-domiciled individuals in the UK are taxed only on income and gains that are brought (remitted) into the UK. Unlike the arising basis, which taxes worldwide income regardless of remittance, the remittance basis offers tax advantages for those who do not remit foreign income.

Domicile of Choice

A domicile of choice is a legal concept determining an individual's permanent home. It requires both residence in a country and the intention to reside there indefinitely. Establishing domicile of choice affects tax liabilities, particularly concerning global income.

Closure Notices

Closure notices are formal notifications by HMRC to end specific parts of a tax enquiry. A partial closure notice targets only certain aspects of an enquiry, allowing HMRC to continue investigating other areas.

Reasonable Grounds

"Reasonable grounds" refer to the legitimate basis HMRC must present to justify continuing a tax enquiry. This standard prevents arbitrary or unjustified prolongation of investigations.

Conclusion

The judgment in Executors of Mrs R W Levy v. Revenue & Customs [2019] UKFTT 418 (TC) notably delineates the boundaries of HMRC's authority to issue partial closure notices within tax enquiries. By affirming that HMRC cannot unilaterally terminate specific aspects of an enquiry without clear tax implications, the tribunal upholds the principles of fair and transparent tax administration. This decision safeguards taxpayers against potentially biased or premature closures, ensuring that tax assessments are both accurate and just. Consequently, HMRC must continue to demonstrate reasonable grounds when pursuing domicile-related enquiries, reinforcing the integrity of the UK's tax system.