Price v. Revenue & Customs: Reasonable Grounds to Refuse Closure Notice under Section 28A TMA 1970

Introduction

The case of Price v. Revenue & Customs ([2011] UKFTT 624 (TC)) was adjudicated by the First-tier Tribunal (Tax) on September 21, 2011. The appellant, Steven Price, challenged the refusal of Her Majesty's Revenue and Customs (HMRC) to issue a closure notice pertaining to a direct tax enquiry initiated in relation to his 2007 tax return. The central issue revolved around whether HMRC had reasonable grounds under Section 28A of the Taxes Management Act 1970 (TMA) to decline issuing a closure notice for Price's claim of tax loss relief.

Summary of the Judgment

The Tribunal, presided over by Mrs. B Mosedale and Mr. A Hughes, upheld HMRC's decision to refuse the issuance of a closure notice to Mr. Price. The refusal was grounded in HMRC's legitimate need for comprehensive documentation to assess the validity of the claimed tax loss relief. Despite Mr. Price's provision of most requested documents shortly before the hearing, the Tribunal found that HMRC required additional time to review the newly submitted information thoroughly.

Analysis

Precedents Cited

The Tribunal referenced several key cases to support its decision:

Eclipse Film Partners No 35 LLP [2009] STC (SCD) 293: Established that HMRC must demonstrate reasonable grounds when refusing a closure notice, creating a presumption in favor of granting such requests unless HMRC can substantiate its refusal.
D Arcy [2006] STC (SCD) 543 and Vodafone 2 [2005] EWHC: These cases emphasized the taxpayer's protection against protracted and unjustified HMRC enquiries, allowing taxpayers to seek closure if an enquiry is unduly prolonged.
T Haythornthwaite & Sons Ltd CA 1927 11 TC 657: Affirmed HMRC's right to issue estimated assessments in absence of complete information.
Tower MCashback [2011] UKSC 19: Clarified that while HMRC can issue closure notices broadly in complex cases, they must balance fairness to the taxpayer with the public interest in tax recovery.

Legal Reasoning

The Tribunal's decision hinged on the interpretation of Section 28A of the Taxes Management Act 1970 (TMA), which governs the issuance of closure notices. According to this section:

"The Tribunal shall give the direction applied for unless satisfied that there are reasonable grounds for not issuing a closure notice within a specified period."

This places the onus on HMRC to demonstrate reasonable grounds for refusing a closure notice. The Tribunal determined that HMRC had reasonable grounds due to the recent submission of additional documents by Mr. Price merely two days before the hearing, which necessitated further review.

Impact

This judgment reinforces HMRC's authority to request comprehensive documentation before issuing closure notices, especially in complex tax matters involving significant tax relief claims. It underscores the importance of timely and complete disclosure by taxpayers to facilitate efficient tax enquiries and prevent undue delays. Future cases will likely reference this decision to balance the rights of taxpayers to finality in their tax affairs against HMRC's duty to ensure accurate tax assessments.

Complex Concepts Simplified

Closure Notice

A closure notice is a formal communication from HMRC to a taxpayer indicating that HMRC has concluded its enquiry into the taxpayer's return and accepts it as complete. Issuing such a notice provides the taxpayer with finality regarding that tax period.

Section 28A TMA 1970

This section outlines the procedure and conditions under which taxpayers can request HMRC to issue a closure notice. It also delineates the circumstances under which HMRC can deny such requests, primarily based on having reasonable grounds.

DOTAS Number

DOTAS stands for "Disclosure of Tax Avoidance Schemes." A DOTAS number is an identifier assigned to a specific tax avoidance scheme, facilitating HMRC's tracking and analysis of such schemes across different taxpayers.

Conclusion

The Tribunal's decision in Price v. Revenue & Customs underscores the necessity for comprehensive documentation in tax enquiries and affirms HMRC's discretion to require additional information before finalizing a taxpayer's position through a closure notice. This case highlights the delicate balance between a taxpayer's right to resolve their tax affairs conclusively and HMRC's mandate to ensure the accuracy and integrity of tax assessments. As a precedent, it provides clarity on the expectations for both taxpayers and HMRC in the process of managing and concluding tax enquiries.