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

A closure notice under section 28A(2)(b) of the Taxes Management Act 1970 must itself amend the taxpayer’s self-assessment and state the amended tax liability. It may incorporate another document by reference, including an electronically accessible document, if the notice sufficiently identifies it.

An omission from a closure notice may nevertheless be cured by section 114. The objective question is whether, in the circumstances known to the recipient, the omission concerns form rather than substance. Section 114 confers a substantive right and may be invoked in any competent forum.

HMRC issued closure notices rejecting loss-relief claims made through two tax mitigation schemes. The notices stated that the returns were being amended, but did not specify the amended self-assessments or the resulting tax liabilities. HMRC nevertheless amended the online returns, and earlier notices had informed the taxpayer of the sums claimed.

Jay J held that the closure notices did not satisfy section 28A of the Taxes Management Act 1970 and could not be cured by section 114 in judicial review proceedings. He dismissed the claim because the taxpayer should instead have appealed to the First-tier Tribunal: [2017] EWHC 296 (Admin), [2017] 1 WLR 2066.

The appeal concerned whether the notices amended the self-assessments, whether section 114 cured their defects, and whether the taxpayer could challenge bankruptcy-related collection steps outside the tribunal system.

1. Appeal dismissed. The closure notices did not, by themselves, satisfy section 28A(2)(b) of the Taxes Management Act 1970. Where HMRC amend a self-assessment, the closure notice must itself make the amendment and state the resulting amount of tax. It is insufficient that the taxpayer or a skilled adviser can calculate the liability from information elsewhere. The rule applies irrespective of the taxpayer’s sophistication or access to professional advisers.

2. A closure notice may in principle incorporate another document by reference, including an electronically accessible document. These notices did not incorporate the online amendments because they neither mentioned those amendments nor provided a link. Although the notices incorporated the original returns and identified adjustments to the figures within them, they did not amend the self-assessments stating the sums actually payable. Without validation under section 114, no debt would therefore have arisen under section 59B(5).

3. Section 114 cured the omissions. It confers a substantive statutory right to have a qualifying document treated as though it were in the correct form. Its operation does not depend upon whether it is invoked before the tax tribunal, a bankruptcy court or a court exercising judicial review jurisdiction.

4. The distinction between a defect of form and one of substance is determined objectively in the circumstances of the particular case. The reader is attributed with the relevant knowledge possessed by the taxpayer and his advisers. Here, earlier notices had stated the precise sums claimed; the closure notices rejected the entirety of the loss-relief claims; the arithmetic was undisputed and straightforward; and the amended online returns were accessible. The taxpayer could neither have been misled nor left in doubt about HMRC’s asserted liability. The omission was therefore one of form.

5. The validated closure notices created a debt exceeding the bankruptcy threshold. The appeal was dismissed for that reason, rather than because the taxpayer had failed to appeal to the First-tier Tribunal.

6. Obiter: had no debt been created, a challenge to collection or bankruptcy steps would not necessarily have belonged exclusively before the First-tier Tribunal. A dispute about whether a notice actually created a debt, as distinct from the correctness of HMRC’s application of tax law, may be determined by the ordinary civil courts and may also be amenable to judicial review.

1. Court of Appeal (Civil Division): The appeal was dismissed unanimously on different reasoning. The Court held that section 114 of the Taxes Management Act 1970 validated the defective closure notices: [2017] EWCA Civ 1962.
2. High Court, Administrative Court: Jay J held that the notices did not comply with section 28A and that section 114 could not cure them in judicial review proceedings. He dismissed the claim because the taxpayer should have appealed to the First-tier Tribunal: [2017] EWHC 296 (Admin), [2017] 1 WLR 2066.