Amrolia, R (On the Application Of) v Revenue & Customs

A notice to a partner under section 28B(4) of the Taxes Management Act 1970, given after a valid amendment of a partnership return, has a limited and consequential function. It must amend the partner’s return to reflect the partnership amendment, but it is not a closure notice and need not state a final overall figure of tax payable.

The notice may also amend the partner’s self-assessment and found collection under section 59B(5), provided that, read fairly, it identifies the amendments and their effect. It cannot finalise liability on matters requiring the partner’s further choice, such as the allocation of reduced loss relief between sideways and carry-back relief. An open deemed enquiry permits HMRC to adjust a sideways loss claim.

The taxpayers invested in an LLP tax avoidance scheme and claimed trading-loss relief in their personal returns for 2004/05. Following a final closure notice reducing the LLP’s allowable losses by 75%, HMRC served notices under section 28B(4) of the Taxes Management Act 1970 amending their personal returns and seeking recovery of tax relief previously given.

They sought judicial review, contending that the notices were ineffective because they did not state amended self-assessments showing the precise tax payable. Dr Ranjit-Singh also challenged HMRC’s power to recover relief previously obtained by a sideways loss claim. Lewis J dismissed both claims: [2018] EWHC 1688 (Admin). The central issue was the scope and effect of a partner notice under section 28B(4).

1. Appeals allowed in part. The court allowed Dr Ranjit-Singh’s appeal on ground 2, but dismissed Dr Amrolia’s appeal and dismissed Dr Ranjit-Singh’s other grounds. Henderson LJ gave the judgment, with which Mann J and Irwin LJ agreed.

2. A notice under section 28B(4) of the Taxes Management Act 1970 is not a closure notice. Its statutory function is to amend the partner’s return so as to give effect to valid amendments already made to the partnership return. It was therefore sufficient, as a minimum, for the notices to state the reduced share of the LLP loss allocated to each taxpayer. The requirement established for a closure notice under section 28A, that it state the precise tax payable, did not apply to such a consequential notice.

3. Section 59B(5) nevertheless permits tax to be collected following an amendment of a partner’s self-assessment under section 28B(4)(a). A notice which goes beyond the minimum requirement may validly make consequential computational amendments. It must, on a fair reading, make clear the intended amendments to the self-assessment and their effect on liability. Dr Amrolia’s notice met that standard.

4. Dr Ranjit-Singh’s notice was valid in reducing her share of the LLP loss, but invalid insofar as it finalised her self-assessment and demanded tax and interest on the assumption that she would carry back all of the reduced loss. That assumption was not purely consequential on the partnership amendment. She first had to be able to reconsider the options available under sections 380 and 381 of the Income and Corporation Taxes Act 1988. The deemed enquiry into her personal return therefore remained open.

5. Her sideways-relief argument failed. An open enquiry into the return for the year in which the loss arose permitted HMRC to make appropriate adjustments to the sideways element of a mixed sideways and carry-back claim. The availability of recovery machinery for the carry-back element under Schedule 1B did not prevent such an adjustment. The court further held, alternatively, that section 114 could cure a merely formal omission in Dr Amrolia’s notice, but not the substantive defect in Dr Ranjit-Singh’s notice.

• Court of Appeal (Civil Division): Dr Ranjit-Singh’s appeal was allowed on ground 2. Dr Amrolia’s appeal and Dr Ranjit-Singh’s remaining grounds were dismissed: [2020] EWCA Civ 488.
• Administrative Court: Lewis J dismissed both judicial review claims, having granted Dr Ranjit-Singh permission on her amended grounds: [2018] EWHC 1688 (Admin).