Closure Notice defects: no reasonable excuse

In William Archer v HMRC [2022] UKUT 00061, the Upper Tribunal (UT) dismissed an appeal by Mr Archer against the penalty surcharge notice issued by HMRC for £1.4 million in relation to unpaid tax of approximately £14 million. There was no evidence to show that the belief that the Closure Notices were invalid was the reason for the non-payment of tax.

• Following enquiries into Mr Archer's use of tax avoidance schemes, HMRC issued Closure Notices in 2016  with respect to Self Assessment tax returns for 2001/02 and 2002/03. The tax due was approximately £14 million. 
• Mr Archer disputed the fact that the notices amended his returns as they failed to state the new liability. He argued that on this basis, no tax was payable.
• HMRC threatened to start bankruptcy proceedings for non-payment.
• Mr Archer, through his advisers KPMG, applied for a judicial review of the bankruptcy proceedings on the basis of procedural invalidity of the notices. It was argued that as the Closure Notice failed to state the amount of tax due, it was incapable of amending the Self Assessment tax return. 
• The judicial review was finally dismissed by the Court of Appeal (November 2017) on the basis that the lack of tax stated on the Notice was a matter of form over substance. Both Mr Archer and KPMG were aware of what HMRC contended the tax liability was. The liability was also included on Accelerated Payment Notices (APNs) previously issued to Mr Archer.
• Mr Archer paid the total outstanding sum after the Supreme Court refused permission to appeal (June 2018).
• HMRC then issued tax geared surcharge notices for £1.4 million, which Mr Archer appealed against to the First Tier Tribunal (FTT) on the basis that he had a Reasonable Excuse for non-payment of the underlying tax due. 

The UT found that the FTT had erred in law in concluding that Mr Archer should have proceeded with an appeal to the FTT against the notices instead of seeking a judicial review. The FTT had also wrongly concluded that the tax and interest would have remained payable despite an appeal. These errors meant the FTT could not have safely concluded that there was no reasonable excuse. As a result, the UT remade the decision.

Upon examining the facts, the UT found that:

• A procedural invalidity of a notice could give rise to an objectively reasonable excuse for non-payment.
• Despite the potential procedural invalidity, the courts still required evidence that the reason put forward as a reasonable excuse for non-payment actually caused the non-payment. 
• No such evidence was provided. Without evidence as to why, the UT could not conclude whether there was a reasonable excuse.
• Even if there was an objectively reasonable excuse based on the reasonable likelihood of success of the procedural invalidity claim in the judicial review and Mr Archer had relied upon this as a reason for non-payment, this stopped when the Court of Appeal upheld the validity of the notices in November 2017. There was no evidence of any further reasonable excuse lasting until June 2018. 

The appeal was dismissed.

Useful guides on this topic

Closure Notices
When does HMRC issue a Closure Notice? Can a taxpayer demand one? Are there appeal rights? 

How to appeal a tax penalty
What are the steps in making an appeal? What should your appeal cover? What does recent case law say on this topic?

Grounds for Appeal: Reasonable excuse
What is considered to be a 'reasonable excuse' when a taxpayer makes an appeal against a tax compliance failure?

External links

R (oao William Archer) v HMRC [2017] EWCA Civ 1962

William Archer v HMRC [2020] TC0288 

William Archer v HMRC [2022] UKUT 00061