UT (Tax & Chancery) UT-2024-000024 - [2025] UKUT 00156 (TCC)

Ground 1 is that the FTT erred in its approach to the validity of the notices. In particular, it wrongly held that a notice could be valid even if it contained ambiguities that could not be resolved. Mr Chacko did not press this ground in his written or oral argument. Rather, he focussed on the way in which the FTT purported to apply the objective test described above, which is Ground 2.

In relation to the proper approach, we were taken to the line of authorities beginning with Baylis (Inspector of Taxes) v Gregory (“Baylis”) [1987] STC 297. The Court of Appeal held that an assessment to capital gains tax which identified the tax year 1974-75 could not be construed as an assessment for 1975-76. This was despite the fact that no-one could reasonably have believed that the assessment was intended to relate to any year other than 1975-76.

The Court of Appeal also considered s114(1) Taxes Management Act 1970, which permits mistakes or defects in direct tax assessments to be cured in certain circumstances. It was held that the provision did not assist the Inland Revenue in allowing an assessment for the wrong year to be read as if it had been issued for the correct tax year. That was because the relevant year was a fundamental part of the assessment itself and s114 was not wide enough to cure such a defect.

In Baylis, the Court of Appeal was considering the validity of an assessment, and not a notice of enquiry. It was distinguished by the UT in GDF Suez Teesside Limited v HMRC [2017] UKUT 68 (TCC) where a notice of enquiry stating an incorrect financial period was upheld as valid:

“117.

… The recipient of HMRC’s letter cannot reasonably have understood it to mean that the writer had no wish to enquire into the return which had been made, but wanted to enquire instead into some other, hitherto unmade, return. On the contrary, despite the error there is no arguable ambiguity about what was meant: the writer intended to enquire into the return whose receipt he was acknowledging. Ernst & Young plainly understood that to be the message. The requirement that the taxpayer be informed of the opening of an enquiry was accordingly met and for that reason, in our view, this issue can be resolved without resort to section 114. If such resort is nevertheless necessary it seems to us clear that, despite the error, the letter was “in substance and effect in conformity with or according to the intent and meaning of the Taxes Acts”, as section 114(1) puts it, and its defect is cured.

118.

We do not consider that what was said in Baylis v Gregory or in Sokoya leads to a different conclusion. The former concerned the validity of a formal demand, for which there is a prescriptive statutory framework, by which a taxpayer is made liable, subject to appeal, to make a payment to the state. One can well understand why protection of the taxpayer demands formality and complete absence of ambiguity in such a case. The latter concerned a penal provision: the taxpayer was said to be liable to a penalty for his alleged failure to comply with an information notice by a date which had been incorrectly identified. In other words, he was said to be liable to a penalty for failing to do something which he could not lawfully have been required to do; moreover, it is well established that in a penal context any ambiguity must be construed in favour of the person penalised. We see no true parallel between those cases and this.”

Mr Chacko referred us to Mannai Investment Co. Limited v Eagle Star Life Assurance Co. Limited [1997] AC 749 (“Mannai”), Barclays Bank Plc v Bee [2002] 1 WLR 332 (“Barclays”), and Bristol & West Plc v HMRC [2016] EWCA Civ 397 (“Bristol & West”) which had been considered by the FTT. He emphasised that there was a real difference between cases where there is only one possible action that the giver of a notice was intending to effect and cases where the recipient would be in genuine doubt because there were two or more realistic possibilities as to the effect of the notice. Mannai and Mabbutt were examples of the former. Barclays was an example of the latter.

As noted by the FTT, Mannai was concerned with the validity of a break notice under a lease. It is authority for the well established proposition that the test is objective and depends on how the reasonable recipient would have understood the notices. In considering that question, the relevant objective context in which the notice was given has to be taken into account. The question is how a reasonable person, in the circumstances of the actual recipient, would have understood the notice. The purpose of the notice is relevant to the construction and validity of the notice. If a notice contains an error, it may be valid if it is sufficiently clear and unambiguous to leave a recipient in no reasonable doubt as to how and when it is to operate. Possible interpretations of a notice which are too improbable will be rejected (see Lord Steyn at p767E to 769A and Lord Hoffmann at p774D to 775A).

In Barclays, as the FTT noted at [83], contradictory notices were given under the Landlord and Tenant Act 1954. One notice terminated the lease and stated that the landlord would oppose the grant of a new lease. The other notice terminated the lease and stated that the landlord would not oppose the grant of a new lease. Each notice could have been effective on its face. The Court of Appeal held that both notices were invalid because a reasonable recipient would be in doubt as to the landlord’s intentions. At [45], Arden LJ as she then was stated:

“45.

The function of a notice is to make a statement on which another party can act. It is of great importance that it is reasonably clear to a reasonable person in the position of the recipient. He should not have to take legal advice or start proceedings to find out if the notice is valid.”

In Bristol & West, HMRC was not bound by a closure notice which was issued in error where HMRC, having realised its mistake, informed the taxpayer in advance that it would receive a notice which had been issued in error. The Court of Appeal stated at [30] that the earlier email was clearly part of the relevant factual context in which the disputed closure notice was received.

The FTT accepted the Appellants’ submission that a notice of enquiry had to be unambiguous and leave the recipient in no reasonable doubt as to its meaning. Before the FTT, Mr Elliott had submitted that authorities from outside a tax context should be treated with caution. However, the FTT rejected that submission at [85] and had regard to those authorities:

“85.

… I do not accept that submission. It seems to me that the principles derived from those cases are of equal relevance in the present context. All the cases concern whether a notice should be regarded as ineffective where the reasonable recipient of the relevant communication would have some doubt about its effect. In any event, the non-tax cases (principally Mannai and Barclays) are regarded as good authority by the Upper Tribunal in GDF Suez and Mabbutt and by the Court of Appeal in Bristol & West. I can see no good reason to diverge from that approach.”

Mr Elliott did not maintain his submission before us, but reserved the right to renew the submission if the appeals were to go further. Aside from that, we do not understand that any of the applicable principles were in dispute before the FTT, nor were they in dispute before us.

Given the FTT’s express acceptance of the Appellants’ submission as to the correct test, and its statements confirming the correct approach, any argument that the FTT made an error of law in adopting the wrong approach is not sustainable.

Accordingly, there was no error of law by the FTT and this ground is dismissed.