A Tax Return HMRC Couldn’t Enquire Into!

Mark McLaughlin highlights a recent case in which an HMRC enquiry notice into the taxpayer’s tax return and subsequent closure notice were held to be invalid.

Some taxpayers (and agents) seem to automatically assume that HM Revenue and Customs (HMRC) always applies tax law correctly when it comes to procedures such as issuing notices requiring taxpayers to file tax returns. 

However, HMRC is prone to errors. This can have important implications, such as if HMRC later seek to open a tax return enquiry.

For example, in Revell v Revenue & Customs [2016] UKFTT 97 (TC), HMRC’s records indicated a tax underpayment by the taxpayer. HMRC therefore sent the taxpayer a tax return for 2008/09 to what it contended was his last known address. However, the taxpayer no longer lived there, so he did not receive the return. HMRC realised that the normal four-year time limit to send out another tax return filing notice had expired. In the absence of a completed return, HMRC issued a determination of the tax due (under TMA 1970, s 28C). 

The taxpayer submitted a tax return for 2008/09, which displaced the determination. HMRC opened an enquiry into the return (under TMA 1970, s 9A), and subsequently issued a closure notice (under s 28A), amending the return to increase the tax due. The taxpayer appealed, contending that it was not possible for HMRC to open an enquiry because no valid notice to file a tax return had been made (under s 8), and consequently HMRC’s closure notice was also invalid. HMRC argued that the taxpayer’s tax return should be regarded as an ‘unsolicited’ return, and that he should be considered to have waived the requirement for a tax return notice under s 8.

The First-tier Tribunal concluded that HMRC’s original tax return request was not served in compliance with tax law (in TMA 1970, s 115), as it was sent to an address that was no longer the taxpayer’s ‘usual or last known place of residence’ because HMRC had a more up-to-date address for the taxpayer (i.e. on his form P60 for 2011/12). 

There is also a ‘presumption of service’ (in IA 1978, s 7), which provides: ‘Where an Act authorises or requires any document to be served by post…then, unless the contrary intention appears, the service is deemed to be effected by properly addressing, pre-paying and posting a letter containing the document and, unless the contrary is proved to have been effected at the time at which the letter would be delivered in the ordinary course of post.’ However, the tribunal held that the presumption did not apply on the facts of this case.

Furthermore, a determination (under TMA 1970, s 28C) only applies where ‘a notice has been given to any person under s 8’. As no such notice was given to the taxpayer in respect of his tax return for 2008/09, the tribunal held that there could be no valid determination under s 28C. The tribunal characterised the taxpayer’s tax return as a notice of liability to income tax (pursuant to s 7), rather than a tax return. HMRC was unable to give a notice under s 8, as the time limit had expired. The tribunal therefore concluded that both the notice of enquiry and closure notice issued to the taxpayer were invalid, and his appeal was allowed. 

The facts in Revell were unusual. However, there are some messages that could possibly be taken from the case. Firstly, always keep HMRC updated upon changes of address. An administrative error by HMRC in the above case effectively meant that the taxpayer’s ‘unsolicited’ tax return escaped an enquiry. Secondly, always check that HMRC has followed procedures correctly. Do not be afraid to challenge procedural lapses by HMRC, where appropriate.

However, note that for taxpayers with agents, HMRC may be authorised to send copies of certain notices to agent (e.g. enquiry notices). If an agent receives such a copy notice, it may be difficult for the taxpayer to successfully argue that they have not received sufficient notice of the enquiry (see Tinkler v Revenue & Customs [2016] UKFTT 170 (TC)).