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

The Appellants’ case was that the enquiry notices were invalid and therefore the closure notices must also be invalid. The FTT considered the validity of the enquiry notices at [66] – [102]. It recorded at [79] that the test to be applied in determining the validity of the enquiry notices was agreed by the parties:

“79.

The parties also agree that the relevant test is an objective one, namely whether a reasonable taxpayer, in the circumstances of the taxpayer in question, would have understood that HMRC intended to open an enquiry into the particular return. As the Upper Tribunal in Mabbutt describes (Mabbutt [45]):

The question whether the disputed notice sufficiently makes a taxpayer aware of HMRC's intention to open an enquiry into a particular tax return is an objective one. The test is whether a reasonable taxpayer, in the circumstances of the taxpayer in question, would have understood that HMRC intended to open an enquiry into a particular tax return. It is not a matter of the parties' intentions or actual knowledge. We consider that this objective test applies as much to the question whether certain documents could be said to form part of the notice as it does to the question whether the notice itself sufficiently informed the taxpayer of the intended enquiry to be a valid section 9A TMA notice.”

The FTT summarised the relevant principles for the validity of an enquiry notice at [78]-[84] & [91]. It recorded at [78] that there is no particular form of notice prescribed by the legislation: see R (Sword Services Ltd) v HMRC [2016] EWHC 1473 (Admin); [2016] 4 WLR 113 at [71]) and Flaxmode v HMRC [2008] STC (SCD) 666 (“Flaxmode”). The position was described in Mabbutt v HMRC [2017] UKUT 289 (TCC) (“Mabbutt”) at [44] in the context of equivalent provisions governing direct tax enquiries:

“[44] It was common ground between the parties that a s 9A TMA notice did not have to observe any particular formality and that all that was required was a document in writing informing the taxpayer of HMRC's intention to open an enquiry into a particular tax return: see Flaxmode…”

On the facts of Mabbutt, there were two possible interpretations of what was obviously mistaken wording in HMRC’s enquiry notice. The notice stated that HMRC intended to enquire into the tax return ‘for the year ended 6 April 2009’: it either meant the tax year ending 5 April 2009 or the tax year beginning 6 April 2009. The UT decided that the reasonable recipient would understand the intention was to enquire into the return for the tax year ended 5 April 2009. This was partly because the only tax return that the taxpayer had filed had been his return for that year. Applying the objective test, the reasonable recipient would be placed in all the factual circumstances and context of the taxpayer in question.

The FTT adopted non-tax case law which illustrates the objective test being applied by reference to the context in which the taxpayer received the disputed notice. The FTT explained at [81]-[83]:

“81.

That objective test must be applied by reference to the context in which the taxpayer received the disputed notice.

82.

For example, in [Mannai Investment Co. Limited v Eagle Star Life Assurance Co. Limited [1997] AC 749], the House Lords found that an error in a notice to exercise a break clause under a lease, which referred to 12 January when the applicable break day was 13 January, did not invalidate the notice. Lord Steyn said this (at Mannai, p772H):

“The question is not whether 12 January can mean 13 January: it self-evidently cannot. The real question is a different one: does the notice construed against its contextual setting unambiguously inform a reasonable recipient how and when the notice is to operate under the right reserved?”’

83.

The context may also cause an otherwise valid notice to be treated as invalid. In [BarclaysBank Plc v Bee [2002] 1 WLR 332], a case concerning notices under the Landlord and Tenant Act 1954, a tenant received an otherwise valid notice agreeing to a new tenancy at the same time as an invalid notice opposing the grant of a new tenancy. The Court of Appeal found that the otherwise valid notice was invalid. This was because the invalid notice opposing the new tenancy was part of the relevant factual context. A reasonable recipient in receipt of the two notices would have been left in reasonable doubt as to whether or not the landlord intended to oppose the new tenancy (Barclays [28]-[34]).’

The FTT concluded at [92] – [94] and [101] that the letters sent to the Appellants constituted valid notices of enquiry into both returns for the purposes of paragraph 12 Schedule 10 FA 2003:

“92.

Although the communication with the first appellants, which included the copy of HMRC’s letter to the agents, was on its face inconsistent (in referring in the letter to the first appellants to “this return” and in the letter to the agents to “their… returns”), that communication must, as the cases demonstrate, be read in its context. To my mind, that context must include the following facts of which the reasonable recipient must be taken to have been aware:

(1)

the recipient had purchased a particular property which was clearly identified in the letters from HMRC;

(2)

in relation to the purchase of that property, the recipient had entered into a scheme involving the same pre-planned steps undertaken by the first appellants that are designed to secure a particular tax advantage;

(3)

that scheme involved more than one land transaction and required the submission of two SDLT returns by the taxpayer (Return A and Return C).

93.

Against that background, a reasonable taxpayer in receipt of the communication from HMRC would, it seems to me, assume that HMRC intended to enquire into arrangements for the acquisition of the property as a whole and its SDLT treatment. The acquisition of the property was made under a scheme involving pre-planned steps, of which the reasonable recipient would have been aware, and involving the submission of two returns. This is not a case like Barclays where the tenant received two separate communications that were entirely inconsistent. On receipt of the two notices, the reasonable recipient would assume that the letter to the agent was correct in referring to “returns” in the plural and that any error was in the letter to the taxpayer in referring to a return in the singular. For those reasons, a reasonable taxpayer would have been informed of the intention of HMRC to enquire into both returns.

94.

As I have mentioned above, the test is an objective one. I am fortified in my conclusion by the fact that the first appellants and their agents clearly understood the letters in the same way. Although they disputed whether or not the letters constituted a valid notice for other reasons, which have not been pursued, the first appellants and their agents clearly treated the letters as a notice of an intention to enquire into both Return A and Return C for many years. It was only when prompted to amend their grounds of appeal following the decision of the Supreme Court in Project Blue, that the first appellants indicated that they intended to challenge the validity of the disputed notice on this ground (in their Amended Grounds of Appeal filed on 24 May 2022).

…

101.

For the reasons that I have given, the letter of 8 June 2011 to the first appellants together with the enclosed copy of the letter to the agents provided sufficient notice to the first appellants of HMRC’s intention to enquire into both Return A and Return C for the purposes of paragraph 12 Schedule 10 FA 2003.”