In Mabbutt v HMRC [2017] UKUT 0289 the Upper Tribunal (UT) concluded that a drafting error on a closure notice was not enough to invalidate it. This saved HMRC £653,000.
- Mr Mabbutt had taken part in a tax-avoidance scheme.
- HMRC issued a letter to Mr Mabbutt thanking him for his Tax Return for the year ended 6 April 2009 (instead of 5 April 2009) and telling him of their intention to enquire into this Return.
- HMRC issued a closure notice for additional tax due of £653,000 in July 2014.
- The taxpayer appealed against the closure notice on the basis that as no valid enquiry notice was given, no enquiry had been opened and the closure notice could not be valid.
HMRC argued that
- The error was minor.
- The taxpayer must have known which return was under enquiry.
- TMA 1970 s114, “Want of form or errors not to invalidate assessments” could be used to correct the error.
TMA 1970 s114 says that:
“An assessment, warrant or other proceeding which purports to be made in pursuance of any provision of the Taxes Acts shall not be quashed, or deemed to be void or voidable, for want of form, or be affected by reason of a mistake, defect or omission therein, if the same is in substance and effect in conformity with or according to the intent and meaning of the Taxes Acts, and if the person or property charged or intended to be charged or affected thereby is designated therein according to common intent and understanding.”
The FTT found that
- An enquiry notice does not have to take a specific format but it does have to specify the relevant return.
- The return described in the letter was for a tax year that did not exist.
- The error was the date, 6 April, but equally it could have been the word “ended” that was incorrect and which should have been “beginning”.
- Whether the taxpayer understood which Return the letter related to or not is irrelevant if the notice is not worded correctly.
- The disputed notice did not “in substance and effect” conform with the intent and meaning of the Taxes Acts.
- The letter did not constitute a valid notice of enquiry, s114 could not be used to correct the mistake, and the closure notice was therefore not valid.
- HMRC were out of time to make a discovery assessment and Mr Mabbutt’s liability therefore had to be settled on the basis of the submitted Return.
On appeal the UT found that:
- Certain enclosures with the enquiry letter (which clarified the year) formed part of the Notice.
- The test is objective: would a reasonable taxpayer have understood which period the enquiry related to, not the subjective test of whether this taxpayer understood.
Comment
In X-Wind Power Limited v HMRC [2016] a company made a SEIS compliance application on the wrong form and HMRC refused to accept that the error was minor and disallowed the claim. Perhaps we should have legislation that allows the correction of clerical errors across the taxes.
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