Overview Of Closing An HMRC Tax Enquiry
Assertion does not close an HMRC tax enquiry as seemingly shown when a taxpayer’s application for a closure notice was refused in the case of Paul Bryan v HMRC [2023] UKFTT 33 (TC).
This case was in essence about how to close an HMRC tax investigation. In a nutshell, where information is needed by HMRC or it is entitled to the same the passage of time will not make a case for an HMRC tax closure notice really any more compelling.
The taxpayer, Mr Bryan was a solicitor in private practice. A prior request by the taxpayer to the Tax Tribunal for an HMRC Tax closure notice had been refused in respect of his 2016-17 tax return. HMRC also opened an enquiry into his tax return for 2018-19.
This application for the closure notice related to 2016-2017 and 2017-18.
An enquiry into the taxpayer’s returns started under Section 9A of the Taxes Management Act 1970, which enables HMRC to open an enquiry within usually 12 months of the date of a tax return being filed.
HMRC tax enquiries are completed when a Final Closure Notice is issued under Section 28A of the Taxes Management Act 1970.
The HMRC Tax Enquiry
The 2016-17 HMRC tax enquiry dealt with various matters such as the valuation of work in progress, seeking production of statutory records, income recognition and other matters such as the size of accountancy fees.
Paragraph 62 of Schedule 36 of the Finance Act 2008 defined statutory records as those that must be kept due to any tax legislation. A document that is a statutory record is one where an HMRC Information Tax Notice to produce such information cannot be appealed. HMRC have no need to demonstrate to the Tax Tribunal that such a document is reasonably required. It is a matter of right; it is not a matter for justification.
The previous Tax Tribunal that considered and rejected the prior closure notice request from Mr Bryan for 2016-17 was in the matter of Bryan v Revenue & Customs [2020] UKFTT 239 (TC). One of the reasons for that dismissal was because certain statutory records had not been produced and it was determined there were reasonable grounds for not closing down the tax enquiry.
The taxpayer then did produce further documents to HMRC and thereafter HMRC issued information notices for further information and documentation. However, HMRC did not consider this to be the end of the matter, seeking to unscramble greater transparency as to how the numbers had been arrived at by asking for information for the tax year 2017-18. The taxpayer did not supply all the information sought, some of which was statutory records according to HMRC. One notable point was highlighted by HMRC’s letter dated 17 August 2021:
I still require to establish precisely how your SA turnover was arrived at. I am sorry, but your explanation it not satisfactory. You have stated that the figure was produced by your accountants without giving any information as to their methodology or even as to what information they were provided with. This does not help me further my enquiry and it does not fulfil the request that I put to you and you have provided no supporting sales reconciliation on this point. A sales reconciliation is vital to produce any accounts and is certainly a record keeping requirement. It is crucial to my enquiry that I can establish how this turnover figure was arrived at, and it is your responsibility to keep the statutory records to support this figure.
The position of the taxpayer was notably articulated by the Tribunal which appears to an assertion everything was properly accounted for:
Mr Bryan said that every penny piece he received went through his firm’s books. He explained that his firm held client monies and, therefore, had to maintain client ledger cards which were subject to an independent audit by appropriately qualified accountants every year. They prepared a written report for the Solicitors Regulation Authority (“SRA”). These audits were, Mr Bryan said, very thorough. The reports had all been unqualified. The client ledger cards had all been audited and reported on to the SRA accordingly.
The Tax Tribunal for reasons similar to the previous one that heard the prior HMRC tax closure notice application by Mr Bryan dismissed his latest request for closure of the enquiry. Statutory records had not been produced which were held to be required by HMRC.
The taxpayer complained the HMRC tax enquiry was unreasonable, disproportionate and oppressive. However, by virtue of HMRC’s tax enquiry entitlement, this argument was rejected.
Oliver Elliot Observation
HMRC tax enquiries often can become protracted affairs. Where information can be supplied that is reasonably required or is statutory records, then producing the same as quickly as possible, assembled in an organised and comprehensive fashion may enable HMRC less able to resist an application for closure.
Crucially in this case a seemingly conspicuous feature was the taxpayer’s apparent inability to resist the production of statutory records and how this can hold open a tax enquiry. Even though the Tax Tribunal was sympathetic to Mr Bryan it notably said:
I recognise that the relationship between Mr Bryan and Mr Sinclair is strained and, as Judge Herrington observed, HMRC’s earlier failings have caused a degree of resentment on Mr Bryan’s part. I trust that HMRC will bear this in mind as regards staffing and the scope of their demands as they continue their enquiries and, bearing in mind the relatively small amounts of tax at stake, will seek to bring these enquiries to a swift conclusion once Mr Bryan has produced the required information and documents.
Are you a UK company Director?
If you are a Director of an insolvent company or a bankruptcy, Oliver Elliot can help you. We Know Insolvency Inside Out.
Share This Page!
What Next?
Expert Advice Is Just A Click Away
If you have any questions in relation to Assertion Does Not Close HMRC Tax Enquiry then contact us as soon as possible for advice. Oliver Elliot offers a fresh approach to insolvency and the liquidation of a company by offering specialist advice and services across a wide range of insolvency procedures.
Our expertise is at your fingertips.
Disclaimer: Assertion Does Not Close HMRC Tax Enquiry
This page is not legal advice and should not be relied upon as such. This article Assertion Does Not Close HMRC Tax Enquiry is provided for information purposes only. You can contact us on the specific facts of your case to obtain relevant advice via a Free Initial Consultation.
Recent Posts / View All Posts
