Archer, R v HM Revenue and Customs

A closure notice under Taxes Management Act 1970, section 28A, must itself make the amendments required to give effect to HMRC’s conclusions, including stating the resulting tax liability. Administrative amendments to an online return do not substitute for the statutory notice. Section 114(1) may nevertheless cure an omission in a closure notice on a statutory appeal where, assessed objectively, the defect is one of form and the taxpayer can understand the liability without difficulty. A taxpayer who could have used the statutory appeal route cannot ordinarily challenge the resulting debt by judicial review. The Administrative Court dismissed the claim because the taxpayer should have appealed the conclusions in the closure notices.

HMRC issued closure notices concerning two tax returns in which the claimant had claimed losses arising from tax avoidance schemes. The notices rejected the claims and stated that HMRC was amending the returns, but did not state the resulting amounts of tax due. HMRC nevertheless amended the claimant’s online records and later pursued the alleged debt, threatening bankruptcy proceedings.

The claimant sought judicial review, arguing that the notices had not amended the returns or created a statutory debt. HMRC argued that the notices were effective, that any defect was curable under section 114(1) of the Taxes Management Act 1970, and that the claimant’s remedy was an appeal under section 31.

1. Closure notices. Section 28A(2)(b) requires the closure notice itself to make the amendments necessary to give effect to HMRC’s conclusions. The notice must therefore state the amount of tax due, or otherwise make the amendment to the self-assessment in the notice. HMRC’s simultaneous alteration of the taxpayer’s computerised return was only administrative implementation and did not satisfy that statutory requirement.
2. The notices were accordingly defective. Section 114(1) could not, in the direct analysis under section 59B(5), create an assessment where none existed. Nor could an Anisminic-type public law challenge bypass the self-contained statutory treatment of errors in section 114(1).
3. That was not the end of the matter. On a hypothetical appeal under section 31(1)(b), a closure notice was an “other proceeding” within section 114(1). The curative question was one of fact and degree. Relevant considerations included whether the taxpayer understood HMRC’s conclusions and liability, whether the amount could readily be inferred, whether the taxpayer was misled, and the relationship between the notice and contemporaneous material.
4. On the facts, HMRC had rejected the losses in full, the claimant had sophisticated professional advice, the relevant figures were available through the online account and related notices, and the omission did not prevent him understanding HMRC’s case. The First-tier Tribunal would therefore have been entitled to cure the defect under section 114(1).
5. It followed that the claimant had an effective statutory appeal which he should have exercised. The judicial review claim was an abuse of process and was dismissed. The interim order was discharged, permission to appeal was refused, and the claimant was ordered to pay HMRC’s costs.

First-instance judicial review decision. The application was dismissed. Permission to appeal to the Court of Appeal was refused.