The Commissioners of HMRC v Jonathan Hitchins & Ors

Applications for closure notices require a broad evaluative judgment. The tribunal must balance the taxpayer’s protection against prolonged enquiries with HMRC’s public interest in determining the correct tax liability. Relevant considerations include proportionality, the burden on the taxpayer, the complexity and duration of the enquiry, whether HMRC can make an informed judgment, and whether outstanding requests have a reasonable basis.

The guidance is not a mechanical checklist. An appellate tribunal should not interfere with the FTT’s evaluative decision absent a clear error of law, and should avoid a nit-picking reading of its reasons.

HMRC appealed against the FTT’s decision directing closure notices under section 28A of the Taxes Management Act 1970 in relation to enquiries into the respondents’ self-assessment returns. The enquiries concerned possible charges under the transfer of assets abroad provisions in Chapter 2 of Part 13 of the Income Tax Act 2007, including the treatment of a £40 million distribution and possible later benefits or associated operations.

The FTT found that HMRC’s remaining enquiries lacked a reasonable basis, amounted to a fishing expedition, and had continued beyond the point at which an informed judgment could be made. The central issue was whether the FTT had erred in law in directing closure notices.

1. Appeal dismissed. The FTT’s decision disclosed no error of law.
2. Section 28A(6) of the Taxes Management Act 1970 requires a closure notice direction unless HMRC shows reasonable grounds for not issuing one. The burden rests on HMRC.
3. The principles summarised in Beneficial House (Birmingham) Regeneration LLP & Stanley Dock (All Suite) Regeneration LLP v HMRC [2017] UKFTT 801 (TC) are broad principles, not a mechanical checklist. The FTT must make a value judgment and balancing exercise on the evidence and circumstances of the particular case. The relevance and weight of the individual considerations will vary.
4. A closure notice may be appropriate although every line of enquiry has not been pursued to its end, where HMRC can reasonably make an informed judgment. Continued enquiries must be conducted reasonably and proportionately. HMRC may check any taxpayer’s return and use its statutory information-gathering powers, but that entitlement does not justify continuing an enquiry for many years without a reasonable basis for the outstanding questions.
5. The Upper Tribunal should be reluctant to interfere with an evaluative decision by the FTT, particularly where the FTT heard the evidence and the underlying legal principles are undisputed. The FTT need not address every submission or item of evidence. A decision should be read fairly and in the round, without a nit-picking or pernickety approach: Brent v Fuller [2011] ICR 806.
6. The FTT was entitled to find that HMRC’s requests for details of the beneficiary of the distribution and subsequent dealings lacked a reasonable evidential basis. It had considered the history of the enquiry, HMRC’s factual errors, the information already supplied, and the prolonged duration of the enquiries. It was also entitled to take account of the respondents’ advisers’ confirmation concerning the tax returns.
7. The Tribunal declined to determine the competing interpretations of the transfer of assets abroad provisions. Both parties agreed that the appeal should proceed on the basis adopted by the FTT, and the Upper Tribunal could not confidently conclude that approach was wrong.
8. The Tribunal had no fact-finding role on the alleged failure to comply with Schedule 36 information notices. Any costs application was to be made in writing within the period specified by rule 10(5)(a) and (6) of the Tribunal Procedure (Upper Tribunal) Rules 2008.
9. The Tribunal added that grounds of appeal should identify each alleged error of law clearly and separately, explain why it constitutes an error of law, and avoid merely expressing disagreement with the FTT: HMRC v Marlborough DP Limited [2024] UKUT 00098 (TCC).

• Upper Tribunal (Tax and Chancery Chamber): HMRC’s appeal against the FTT decision was dismissed. The direction requiring closure notices was upheld.
• First-tier Tribunal: directed HMRC to issue closure notices within six weeks of release of its decision dated 16 February 2023.