The First-tier Tribunal (FTT) granted the taxpayer’s request for a direction requiring HMRC to issue a closure notice in the case of Newpier Charity Ltd v. HMRC [2022] UKFTT 373 (TC) on the basis that there were no justifiable grounds to continue HMRC’s investigation into the taxpayer’s claim to charity tax relief.
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Newpier Charity’s history and problems with HMRC
Newpier Charity Ltd (NCL) is a registered charity that in 1988 purchased shares in Berisford International plc using a loan from Citibank NA. When the loan was called in, the Berisford shares were sold for less than the amount owed, and the difference was settled by third-party guarantors. In June 2018, NCL filed its corporation tax return for the accounting period ended 30 June 2017, which included payments made to one of the guarantors, Ambertown Ltd, that NCL’s trustees viewed as being made for charitable purposes and therefore eligible for tax relief.
In June 2019, HMRC opened an enquiry into the return and requested information about the payments and the nature of the expenditure. NCL claimed that the requested information was unavailable or irrelevant, arguing that it was unreasonable for HMRC to expect information and documentation from more than 20 years earlier to be available and that, as HMRC had no power to assess for such periods, the documents and information could not be reasonably required.
As a result, in February 2022, NCL submitted an application to the FTT seeking a directive under section 28A(4) of the Taxes Management Act 1970 for HMRC to stop its inquiry.
What did the FTT decide?
The FTT accepted that HMRC had concerns about the legitimacy of NCL’s claim to charity tax relief and that some of those concerns were reasonable. However, the FTT also noted NCL’s contention that the further information and documentation requested was not available and applied the balancing exercise referred to in Frosh & Another v HMRC [2017] UKUT 320 (TCC) to determine that there were no reasonable grounds to maintain the enquiry. The FTT directed that HMRC issue a closure notice within four weeks and commented that if HMRC considered, in the absence of the further information and documentation, that its concerns justified a conclusion that the payments were not eligible for charity tax relief, it could close the enquiry on that basis.
What did the case highlight?
This case highlights the importance of a taxpayer being able to provide requested information and documentation to HMRC during an enquiry and shows that if a taxpayer can demonstrate that the information is unavailable, the FTT may find that there are no reasonable grounds to maintain the enquiry.
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