Mitchell, R (On the Application Of) v Commissioners for Her Majestys Revenue And Custom

Where an LLP delivers a purported partnership return but does not carry on business with a view to profit, Taxes Management Act 1970, section 12ABZAA, enables HMRC to treat the return as a partnership return for the relevant statutory purposes. HMRC may therefore use the partnership enquiry and closure-notice provisions, including section 28B(4) notices to members.

A High Court judge should ordinarily follow a specialist Upper Tribunal decision on a point of tax law unless satisfied that it is wrong. An argument that the statutory scheme is unworkable is a secondary aid to construction and cannot displace the statutory text and legislative context. A judicial review claim raising no arguable basis for intervention may be refused permission and recorded as bound to fail.

The claimant, a member of Twofold First Services LLP, sought permission to bring judicial review proceedings against HMRC’s decision to issue a notice under section 28B(4) of the Taxes Management Act 1970. The notice amended his self-assessment return by denying loss relief derived from the LLP’s tax avoidance arrangements.

He argued that the LLP was outside the partnership provisions of the 1970 Act, that the relevant statutory code was instead in Schedule 18 to the Finance Act 1998, and that the Upper Tribunal’s decision in HMRC v Inverclyde Property Renovation LLP was wrong. The central issues were whether section 12ABZAA applied retrospectively and whether the 1970 Act authorised HMRC’s enquiry and consequential notice.

1. Permission refused. The application, and the applications of the other case-managed claimants, were unarguable and bound to fail. The claims were recorded as bound to fail under CPR 23.12.
2. Section 12ABZAA of the Taxes Management Act 1970 was a complete answer to Ground 1. It applied retrospectively where an LLP had delivered a purported partnership return but did not carry on business with a view to profit. The provision treated the return as a partnership return for the relevant enactments. HMRC could consequently issue a closure notice to the LLP under section 28B(1) and (2), followed by a section 28B(4) notice to its members.
3. The claimant’s factual challenge could not properly be raised for the first time at the permission hearing. The court accepted HMRC’s assertion that the LLP was not carrying on business with a view to profit. The earlier tribunal findings concerning the commercially inexplicable restrictive-undertaking payments reinforced that conclusion.
4. On Ground 2, the court followed HMRC v Inverclyde Property Renovation LLP as a matter of judicial comity. Unless satisfied that the specialist Upper Tribunal’s decision was wrong, the High Court should follow it. The reasoning in Bartram v HMRC and Spring Salmon & Seafood Ltd, Re Petition for Judicial Review did not require a different result: the former concerned different legislative provisions, while the relevant point in the latter was secondary reasoning.
5. The suggestion that section 28B(4) could not apply to LLP members was rejected. It would be absurd if a closure notice validly issued in respect of a partnership return did not also permit a consequential notice to the persons identified as partners in that return.
6. There was no need to determine HMRC’s alternative delay objection. Permission was refused on the substantive grounds.