Epaminondas Embiricos v The Commissioners for HMRC

A partial closure notice under the Taxes Management Act 1970 is subject to the same substantive requirements as a final closure notice. A matter is an issue which, if it were the only issue under enquiry, could be closed by a valid final closure notice. Where the officer’s conclusion affects the taxpayer’s self-assessment, the notice must make every amendment required to give effect to that conclusion, including calculating the tax brought into charge. Removing an unquantified claim is insufficient. The remittance basis is a basis of assessment, not a relief. Therefore, disallowing a remittance basis claim where foreign income or gains exist requires assessment on the arising basis.

The taxpayer claimed the remittance basis for the 2014/15 and 2015/16 tax years. HMRC opened enquiries limited initially to his non-UK domicile and the validity of those claims. HMRC concluded that he was UK domiciled but sought further information before quantifying the tax payable on the arising basis.

The First-tier Tribunal directed HMRC to issue a partial closure notice without quantifying the tax. The Upper Tribunal reversed that decision in [2020] UKUT 0370 (TCC). The appeal concerned whether HMRC could be required to issue a partial closure notice before the tax consequences of rejecting the remittance basis claim had been calculated.

1. Disposition. The Court of Appeal unanimously dismissed the appeal and agreed with the Upper Tribunal that HMRC could not issue a valid partial closure notice without specifying the increased tax due.
2. Statutory scheme. The 2017 amendments introduced partial closure notices into the existing closure-notice code. They did not create a fundamentally different mechanism. Partial and final closure notices both require the officer to state conclusions and make the amendments required to give effect to them under section 28A(2) of the Taxes Management Act 1970. Both take effect when issued and may create an immediate tax liability. The consultation material confirmed that the regime was intended to secure early resolution, finality and earlier payment of tax.
3. Meaning of matter. In context, a matter under section 28A(1A) is not every question arising during an enquiry. An issue qualifies only if, were it the sole issue under enquiry, HMRC could issue a valid final closure notice in respect of it. This construction avoids fragmenting one dispute into multiple matters and preserves the distinct joint-referral mechanism under section 28ZA, which requires agreement between the taxpayer and HMRC and produces a determination to be taken into account in the later closure notice. R (Archer) v HMRC [2017] EWHC 296 and R (Archer) v HMRC [2017] EWCA Civ 1962 supported this approach.
4. Application. The remittance basis is a basis of assessment. Once the claim was rejected, the taxpayer had to be assessed on the arising basis. Since he had foreign income and gains, deleting the remittance basis claim did not give effect to HMRC’s conclusion. The partial closure notice had to bring the relevant income and gains into charge and assess the resulting income tax and capital gains tax. A calculation is unnecessary where a conclusion has no computational consequences, such as disallowing a loss carried forward without affecting the current year’s assessment. That exception did not apply here. Without the necessary information and calculation, no compliant partial closure notice could be issued.

• Court of Appeal (Civil Division): dismissed the appeal and upheld the Upper Tribunal’s construction of the partial closure notice regime.
• Upper Tribunal Tax and Chancery Chamber: reversed the First-tier Tribunal and held that HMRC could not issue a partial closure notice without stating the tax due, [2020] UKUT 0370 (TCC).
• First-tier Tribunal: directed HMRC to issue a partial closure notice concerning the domicile and remittance basis issues and allowed the taxpayer’s appeal against the information notice.