Archer, R (on the application of) v HM Revenue and Customs

The Court of Appeal considered whether closure notices issued under section 28A of the Taxes Management Act 1970 had validly amended the appellant's self-assessments so as to give rise to a debt payable under section 59B(5) of the TMA and whether any defect could be cured by section 114. The court held that, as a matter of principle, a closure notice which amends a self-assessment must itself make (or plainly incorporate) the amendment required by section 28A(2)(b); omission to state the amended self-assessed tax is therefore a defect. However, on the facts the omission here was capable of being cured by section 114 because the tax liability could be objectively worked out (having regard to follower notices, accelerated payment notices, the closure notices' clear rejection of the claimed losses, and the on-line amendments). Accordingly section 114 validated the closure notices and a debt exceeding the bankruptcy threshold existed.

Background and parties: The appellant sought judicial review challenging HMRC steps towards bankruptcy, contending that closure notices issued under section 28A of the Taxes Management Act 1970 had not validly amended his self-assessments and so no tax debt was payable under section 59B(5). The respondent was HM Revenue and Customs. The dispute arose from disallowed loss claims in respect of two marketed tax mitigation schemes (referred to as RDS and SHIPS) and associated follower notices and accelerated payment notices.

Procedural history: The matter came on appeal from the Administrative Court (Jay J) where the appellant's judicial review was dismissed. The Court of Appeal (Lewison LJ, with Asplin LJ and Longmore LJ agreeing) heard the appeal.

Nature of the application / relief sought: The appellant challenged the validity and effect of HMRC's closure notices and whether they created a present debt sufficient to support statutory demand and bankruptcy steps; he sought review of HMRC's steps.

Issues framed by the court:

• Did the closure notices comply with section 28A by amending the appellant's self-assessments?
• If not, could the defect be cured by section 114 of the TMA?
• If invalid, was judicial review an appropriate forum or was the First-tier Tribunal the only available remedy?

Facts and findings: HMRC issued follower notices and accelerated payment notices and on 2 February 2016 issued documents purporting to be closure notices. There was factual dispute whether HMRC had in fact amended the on-line returns; the judge found it likely that on-line amendments were made, that the APNs and FNs had informed the taxpayer of HMRC's position and sums, and that KPMG (the taxpayer's advisers) could have calculated the relevant figures. The administrative court had earlier held that the closure notices did not comply with section 28A and that the appellant had not exhausted FTT remedies; this Court reviewed those conclusions.

Court's reasoning and decision: The court agreed that section 28A(2)(b) requires the closure notice itself to make the amendment to a self-assessment (or to do so by clear incorporation). On that point the closure notices were defective in not stating the amended self-assessed tax. Applying section 114, and guided by authority (notably HMRC v Donaldson), the court held that section 114 cures mistakes, defects and omissions that are matters of form rather than substance where the liability can be objectively ascertained and the taxpayer is not misled. On the facts, having regard to APNs/FNs, the closure notices' content and the on-line amendments, the omission was a matter of form and was validated by section 114. The Court therefore held that a debt exceeding the bankruptcy level existed. The appeal was dismissed.

Wider comment: The court treated section 114 as capable of validating defective closure notices irrespective of the forum in which it is invoked and emphasised that, on particular facts, an omission may be cured where the taxpayer can objectively ascertain the liability.

Appeal dismissed. The court held that although a closure notice must itself amend a self-assessment under section 28A(2)(b) (or plainly incorporate such an amendment), the omissions in the closure notices in this case were matters of form and were validated by section 114 of the Taxes Management Act 1970; on the facts a debt exceeding the bankruptcy threshold existed so HMRC could properly pursue statutory demand/bankruptcy steps.

Appeal from the Administrative Court (Jay J) (CO16492016); Jay J's judgment reported at [2017] EWHC 296 (Admin), [2017] 1 WLR 2066. This Court (EWCA Civ) dismissed the appeal on 30 November 2017 ([2017] EWCA Civ 1962).