Giovanni Scatola & Ors v The Commissioners for HMRC

A notice of enquiry is valid if, read objectively in its factual and legal context, it leaves a reasonable taxpayer in no reasonable doubt as to the specific return or returns under enquiry. No particular form or reference number is required. Multiple documents may be read together where the recipient would understand that they form one composite communication.

Under Finance Act 2003, a notional land transaction under section 75A is itself a notifiable transaction. A return for an actual scheme transaction is not a return for the disregarded notional transaction merely because the parties, property and conveyance are the same. Failure to file the notional-transaction return engages the 20-year assessment period.

The appellants entered into marketed SDLT arrangements involving the acquisition of residential properties, a sub-sale to a finance vehicle and the grant of long leases back to them. They filed returns for the actual transactions but no separate return for the notional transaction arising under section 75A of the Finance Act 2003.

The First-tier Tribunal upheld HMRC’s enquiry and closure notices but found protective discovery assessments out of time. The appellants appealed against the enquiry decision. HMRC cross-appealed on the assessment issue. The central questions were whether the enquiry notices clearly identified the returns under enquiry and whether the appellants’ return for the actual acquisition satisfied the obligation to file a return for the section 75A notional transaction.

1. Enquiry notices. The appellants’ appeal was dismissed. The proper test was objective: whether a reasonable taxpayer, in the circumstances of the taxpayer concerned and with the relevant factual and legal background, would understand that HMRC intended to enquire into a specific return or returns.
2. No particular form of notice was prescribed. A notice did not require a return reference number, a statement that it was a notice of enquiry or a citation of the statutory provision. Documents sent to the taxpayer and agent could be read together where the reasonable recipient would understand that they were incorporated into a composite communication.
3. The letter to the taxpayers was ambiguous in isolation because it referred to “this return”, while the enclosed letter to the agent referred to the taxpayers’ returns. In context, however, the only realistic interpretation was that HMRC intended to enquire into both Return A and Return C. The arrangements involved two returns concerning the same property, and the agent’s letter was complete and unambiguous on that point. The subsequent correspondence was not needed to resolve the issue.
4. The Upper Tribunal did not decide whether the common-law test differed materially from the test in section 83(2) of the Finance Act 2003, because the enquiry notices were valid without relying on that provision.
5. Discovery assessments. HMRC’s cross-appeal was allowed. Section 77(1)(d) expressly made a section 75A notional transaction notifiable. Section 76 therefore required a return for that notional transaction. The actual scheme transactions were disregarded for these purposes.
6. Return A could not be construed as a return for the notional transaction. It claimed sub-sale relief, self-assessed nil tax and was accompanied by a letter asserting that section 75A did not apply. The 20-year time limit in paragraph 31(2A)(b) Schedule 10 therefore applied. The assessments were valid and the SDLT was lawfully recoverable. The assessment decision of the FTT was set aside and remade accordingly.

• Upper Tribunal (Tax and Chancery Chamber) The appellants’ appeal against [2023] UKFTT 1044 (TC) was dismissed. HMRC’s protective cross-appeal was allowed, the FTT’s assessment decision was set aside and the discovery assessments were confirmed as valid.