In the recent case of Bristol & West PLC v HMRC  the Upper Tier Tax Tribunal (“UTT”) held that a closure notice sent by HMRC to the taxpayer was valid despite HMRC’s claim that the closure notice was sent to the taxpayer by mistake. The UTT overturned the First Tier Tax Tribunal’s (“FTT”) decision by stating that a valid notice had been issued. As a result, the notice was valid and HMRC were unable to collect the relevant tax which was otherwise due.
Factual Background: Bristol & West PLC v HMRC
On 22 November 2005, HMRC gave notice of enquiry to Bristol & West PLC (“B&W”) in relation to the tax period ending 31 March 2004.
On or around 30 October 2007, Mr Howard, the HMRC officer which had conduct of B&W’s tax returns placed a document on the desk of his colleague, Mr Gill. Mr Gill was responsible for issuing closure notices to taxpayers.
In accordance with Mr Howard’s instructions Mr Gill inputted information into a computer database which issued two closure notices to B&W in respect to the relevant tax periods. This would ultimately lead to the printing of B&W’s closure notices.
It transpired that this was a mistake and the closure notices should not been issued. The closure notices did not show any tax charge in respect to the relevant tax periods.
On the same day Mr Howard realised this error and attempted to rectify it. Mr Howard attempted to change the taxpayers address to HMRC’s address so that the closure notices would come back to HMRC. However, the closure notices were received by B&W’s legal representatives on 3 November 2007.
On 8 November 2007, HMRC wrote to the taxpayer’s legal representatives stating that the present position is that (albeit sent in error) the closure notices are effective.
Closure Notices under Paragraph 32(1), Schedule 18, Finance Act 1998
Closure notices are governed by Paragraph 32(1), Schedule 10, Finance Act 1998 which provides that “an enquiry is completed when HMRC by notice (“a Closure Notice”) inform the company that they have completed their enquiry and state their conclusions.”
There is no statutory form for issuing closure notices and the notice takes effect when issued. HMRC may within 30 days following the issue of the closure notice make amendments. In April 2008, have received legal advice that closure notices could be withdrawn, HMRC sought to do the same.
The FTT ruled that the closure notice was not effective since it was sent in error to the taxpayer. The FTT concluded that on 1st November 2007 B&W were fully aware (via email) that the closure notice has been issued in error.
The UTT overruled the FTT’s decision and held that the closure notice was issued when posted.The UTT was heavily influenced by HMRC’s letter to the taxpayer dated 8 November 2007 which effectively lifted the agreed suspension and so the closure notices became effective.
At paragraph 63 of the judgment, Mr Justice Peter Smith stated:
“…It is clear that when one looks at the 8th November 2007 letter that HMRC via Mr Howard considered that the Closure Notices were valid in the sense that it intended for them to operate. I do not see how the letter can be given any other construction.”
The Implications of UTT’s Decision:
The decision of the UTT clearly demonstrates that closure notices issued in error are effective when the notice is posted. Despite the fact that the notice was issued in error the taxpayers were successful in persuading the UTT that the notice remains valid and therefore the relevant tax enquiry should come to an end.