In Towers Watson Limited v HMRC [2017] TC06241, the First Tier Tribunal (FTT) decided HMRC could not raise matters not covered in their closure notice in response to the taxpayer’s appeal.

This verdict only relates to the procedural aspect of HMRC’s response to the appeal and does not cover the substantive point on how much amortisation should be claimed in the year of acquisition.

The law regarding closure notices is found in Sch 18 Finance Act 1998, and the key points are found in Paragraph 34, which requires a closure notice to “make the amendments of that return that are required (i) to give effect to the conclusions stated in the notice” and permits an appeal to made against such amendments.

In their accounting period ended 30 June 2011, Towers Watson acquired two LLPs generating substantial goodwill. The goodwill was thought to have a useful economic life of 5 years and amortisation was charged in line with this. However, the company’s accountants decided to charge a full year’s amortisation in the year of acquisition.

HMRC opened an aspect enquiry, challenging this treatment and arguing that only 5 months’ amortisation should be included in the year of acquisition. Following discussions, a closure notice was issued stating that:

“It is the view of our Accountants that charging a full year’s amortisation in the year of acquisition and none in the final year is not appropriate as it represents neither the period in which the goodwill is depleted nor the period over which the company can expect to derive economic benefit, FRS10 refers.

Given our view is that the accounts are not GAAP-compliant in respect of the amortisation charge, they should be adjusted for tax to reflect our view of how the amortisation should have been treated if GAAP compliant accounts had been drawn up.

As a result, it is appropriate for the amortisation charge to be restricted to the five months period the goodwill was owned, depleted and during which the company derived economic benefit. It therefore follows that the amortisation charge should be reduced by the excess seven months charge of £5,968,666

(£10,232,000 x 7/12).

To give effect to this, I have issued a formal closure notice reducing the amortisation charge to £4,263,333, by adding £5,968,666 to the trading profits for APE June 2011.”

(the omitted part simply quotes goes into more detail of the acquisition and the legislation involved)

The Towers Watson appealed this decision, and the tribunal set a deadline for the parties to produce expert opinion prior to a joint meeting.

HMRC’s expert opinion did not only address whether a full year’s amortisation could be claimed; it sought to raise the valuation of goodwill.

The key case law is found in Towers MCashback LLP1 v HMRC [2011] UKSC 19, and was summarised in Fidex Ltd v HMRC [2016] EWCA Civ 385:

  1. The scope and subject matter of an appeal are defined by the conclusions stated in the closure notice and by the amendments required to give effect to those conclusions.
  2. What matters are the conclusions set out in the closure notice, not the process of reasoning by which HMRC reached those conclusions.
  3. The closure notice must be read in context in order properly to understand its meaning.
  4. Subject always to the requirements of fairness and proper case management, HMRC can advance new arguments before the FTT to support the conclusions set out in the closure notice.

The judgement also stated “while there must be respect for the principle that the appeal does not provide an opportunity for a new roving enquiry into a company’s tax return, the FTT is not deprived of jurisdiction where it reasonably concludes that a new issue raised on an appeal represents an alternative or an additional ground for supporting a conclusion in the closure notice”.

The FTT held:

  • A reasonable recipient of the closure notice would not have understood the conclusion to encompass a challenge to the valuation of the goodwill
  • The construction of a closure notice should not be narrow, but it should not be stretched in the way HMRC sought
  • Hence, the closure notice did not extend to the valuation of goodwill.


The substantive issue remains outstanding and we await the verdict on this with interest as although no relief is available on new purchases, many clients will still have allowable goodwill from purchases in earlier years.

The FTT did also note that the appeal itself had offered two alternatives to the tribunal (a full year’s or 5 months’ amortisation charge) but it was open to the FTT to find a third way.

HMRC ran an argument that the conclusion in the closure notice was that the accounts were not compliant with UK GAAP. As this would give leave to challenge any aspect of the accounts and thus return, it is unlikely that any court would support this interpretation. However, they did narrow their argument to the suggestion that the closure notice was broad enough to encompass any aspect of the calculation of amortisation, including the value of the underlying goodwill, and, while this was rejected, HMRC may appeal on this point.


Towers Watson Limited v HMRC [2017] TC06241

Closure Notices

Goodwill and the intangibles regime

UK GAAP & FRS: changes from 2015

Cited cases:

Tower MCashback LLP1 v HMRC  [2011] UKSC 19 

Fidex Ltd v HMRC [2016] EWCA Civ 385