Nigel Barklem v The Commissioners for HMRC

A challenge to consequential amendments made under Taxes Management Act 1970, s 28B(4), is a public-law challenge to the validity or exercise of HMRC’s statutory power. Where no statutory appeal is available, it should ordinarily be brought by judicial review rather than by a Part 7 claim for declaratory relief.

Where a partnership return has been amended following an enquiry, s 28B(4) requires consequential amendments to the returns of the persons identified as partners. That obligation is not avoided merely because the enquiry concludes that the enterprise was not a partnership or that partnership losses are unavailable. An agreement under s 54 upholding closure notices without variation leaves those notices effective according to their terms.

The claimant invested in Film 2K Partnership and claimed relief for allocated partnership losses. HMRC opened enquiries into Film 2K’s partnership returns and issued closure notices amending the returns to remove trading losses and treat the activity as a non-trading partnership business.

Film 2K appealed, but the appeal was compromised under Taxes Management Act 1970, s 54, by an agreement that the closure notices were upheld without variation. HMRC then issued consequential notices under s 28B(4) amending the claimant’s personal returns.

The claimant sought declarations that the notices were invalid because Film 2K was never a partnership. HMRC applied to strike out the Part 7 claim as an abuse of process or obtain summary judgment. The claimant also sought summary judgment.

1. Disposition. The Part 7 claim was struck out as an abuse of process. The claimant’s summary judgment application was dismissed. If the claim had not been struck out, judgment would have been entered for HMRC.
2. The s 54 agreement had to be construed by its operative provision. The agreement upheld the closure notices without variation. The recitals were not an agreement by HMRC that Film 2K had never been a partnership. The erroneous description in one recital was treated as a falsa demonstratio. The closure notices, read as a whole, proceeded on the basis that Film 2K was a partnership carrying on an investment business but not trading.
3. Under s 28B(4) of the Taxes Management Act 1970, HMRC was required to amend the returns of the persons identified as partners to give effect to amendments made to the partnership return. The obligation applied even if the enquiry concluded that no partnership existed or that no partnership losses were deductible. The reasoning in Inverclyde and the result in Mitchell supported that conclusion.
4. A challenge to the validity or exercise of a s 28B(4) notice is a public-law challenge. In the absence of a statutory appeal, judicial review is the appropriate procedure. The claimant’s declarations were, in substance, an attempt to quash or invalidate the notices and were brought outside the appropriate procedural framework. Knibbs was directly applicable; Archer did not support using a Part 7 claim instead.
5. The court noted that unfairness in failing to make clearly warranted consequential amendments might, in an appropriate case, be challenged by appeal or on Wednesbury grounds. It did not decide that issue. It rejected the argument that such unfairness would make the s 28B(4) notice ultra vires.