This case concerned an application from the taxpayers for the closure of HMRC enquiries into their Stamp Duty Land Tax (SDLT) returns in respect of a marketed tax arrangement which was similar to Project Blue. Due to the large number of clients who had entered into these arrangements, and the homogenous nature of the transactions, HMRC agreed in writing with the promoter that they would only request information and documentation from a sample of the taxpayers involved. If a taxpayer who had not provided information asked for a closure notice, HMRC would go to tribunal to request further time to obtain this information.
Following the First-tier Tribunal (FTT) decision in Project Blue, HMRC wrote to a number of taxpayers with a ‘Settlement Invitation’ that set out HMRC’s view that the tax arrangements in question did not work, and inviting the taxpayers to settle. The letter stated that if they did not settle, then they would need to provide a number of documents to HMRC to allow the case to be taken to tribunal, and gave them 30 days to provide all of the requested documents. The taxpayers in this case did not provide the information requested, and applied for closure notices. HMRC refused to issue closure notices on the basis that the information had not been provided.
The taxpayers took their case to the FTT, setting out their view that the Settlement Invitation letters from HMRC set out HMRC’s position to the point that a closure notice could be issued, and since the enquiries had been open for five years, that HMRC had enough information to close the enquiries without requiring further information from them.
The FTT criticised the letters from HMRC as “ill-drafted”, giving the impression that HMRC had sufficient information to close the enquiries. However, given that the taxpayers were being advised by the promoter and therefore would be aware of the agreement made at the sampling stage, they concluded that the taxpayers would be aware that they had not provided sufficient information to close the enquiries, and therefore their application for closure notices were rejected. The FTT also said that they had “no jurisdiction to set a time frame for closure pending the requested disclosure”. What this means is not entirely clear, but it appears to suggest that the Tribunal can only set a fixed period (under Sch 18 para 33(1), not a period which is conditional or dependent on the provision of information by the taxpayer.
We have seen a number of cases recently which consider what constitutes a closure notice. HMRC began using ‘nudge’ techniques in 2012, trying to persuade taxpayers to drop their tax avoidance schemes by issuing Settlement Invitation letters like the one in this case. HMRC did not foresee the risk that these would damage their position and we would therefore expect HMRC to more carefully word their correspondence with taxpayers in the future.
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