Introduction

Kothari & Ors v. Revenue & Customs (SDLT), adjudicated on June 26, 2019, by the First-tier Tribunal (Tax) in the UK, addresses critical issues surrounding the issuance and service of Stamp Duty Land Tax (SDLT) assessments by Her Majesty's Revenue and Customs (HMRC). The appellants, including Mitesh Kumar Kothari and others, engaged in SDLT mitigation schemes and subsequently faced SDLT assessments by HMRC. Central to the case were allegations that HMRC's assessments were improperly made and served, rendering them unenforceable.

Summary of the Judgment

The Tribunal found in favor of the appellants, determining that HMRC had failed to properly issue and serve the SDLT assessments within the statutory time limits. Although HMRC initially asserted that assessments were made within the four-year period, the Tribunal concluded that the assessments were either not made or not served correctly. Consequently, the assessments were deemed unenforceable, and the appeals were allowed.

Analysis

Precedents Cited

The judgment extensively referenced seminal cases such as Honig and another v Sarsfield [1986] STC 246, Burford v Durkin [1991] STC 7, and Corbally-Stourton (2008) SPC 692. These cases established that the making of an assessment by HMRC does not inherently include the notification of such an assessment. Instead, notification is a separate procedural step essential for enforceability. The Tribunal also considered recent cases like Lloyd [2017] UKFTT 828 (TC) and Tutty [2019] UKFTT 3 (TC), reinforcing the principle that assessments must be properly served to be valid.

Legal Reasoning

The Tribunal meticulously dissected the statutory framework governing SDLT assessments, particularly focusing on Schedule 10 of the Finance Act 2003, which mirrors provisions from the Taxes Management Act 1970 (TMA). It was emphasized that issuing and serving an assessment is a critical part of the assessing procedure. The failure to serve the assessments within the stipulated time not only breaches procedural requirements but also undermines the enforceability of the assessments. The Tribunal reasoned that while HMRC may enter assessments into their Computer Aided Filing (CAF) system, without proper issuance and service, these assessments remain unenforceable.

Impact

This judgment reinforces the necessity for HMRC to adhere strictly to procedural mandates when issuing and serving SDLT assessments. It underscores that technical compliance with assessment issuance and service is paramount, irrespective of the underlying tax calculations or mitigation strategies employed by taxpayers. Future cases will likely reference this decision to ensure that HMRC's processes are transparent and enforceable, providing taxpayers with clear protections against procedural lapses.

Complex Concepts Simplified

Making vs. Serving an Assessment

Making an assessment refers to HMRC's determination of the tax liability based on the information provided by the taxpayer. Serving an assessment involves formally notifying the taxpayer of this liability. The Tribunal clarified that both steps are distinct yet interdependent; making an assessment without serving it does not render it enforceable.

Discovery Assessments

Discovery assessments are SDLT assessments initiated by HMRC when they suspect discrepancies or avoidances in the SDLT return filed by a taxpayer. These assessments must comply with specific statutory conditions, including being made within a four-year window following the taxable event and being properly served to the taxpayer.

Assessing Procedure

The assessing procedure encompasses the entire process of determining tax liability, from the initial decision to assess to the final notification of this assessment to the taxpayer. Proper adherence to this procedure ensures the legality and enforceability of the assessment.

Conclusion

The Kothari & Ors v. HMRC judgment serves as a pivotal clarification in the realm of SDLT assessments. By firmly establishing that both the making and the proper serving of an assessment are indispensable for its enforceability, the Tribunal provided a clear precedent that safeguards taxpayers against procedural oversights. This decision not only upholds the integrity of the tax assessment process but also ensures that HMRC's powers are exercised within the bounds of statutory requirements, thereby enhancing transparency and fairness in tax administration.