In Beneficial House (Birmingham) Regeneration LLP and Stanley Dock (All Suite) Regeneration LLP v HMRC  UKFTT 0801 (TC), the First-tier Tribunal (FTT) directed HMRC to issue closure notices in respect of HMRC's ongoing enquires into the taxpayers' returns in which they had claimed Business Premises Renovation Allowance (BPRA) in respect of certain hotel conversions.
Beneficial House (Birmingham) Regeneration LLP and Stanley Dock (All Suite) Regeneration LLP (the taxpayers) were property developers. The taxpayers claimed BPRA in respect of hotel conversions carried out in Birmingham and Liverpool.
The arrangements were the subject of notifications to HMRC under the Disclosure of Tax Avoidance Schemes (DOTAS) regime, contained in Part 7, Finance Act 2004.
Stanley Dock submitted its partnership return for 2011/12, claiming BPRA in the sum of £26,109,339. HMRC opened an enquiry into the return in March 2013. Beneficial House submitted its partnership return for 2012/13, claiming BPRA in the amount of £14,651,000. HMRC’s enquiry into its return was opened in January 2014.
HMRC's enquiries proceeded slowly and investors in both Stanley Dock and Beneficial House received Partner Payment Notices under the Accelerated Payment Notice legislation contained in Part 4 and Schedule 32, Finance Act 2014.
The taxpayers applied to the FTT, pursuant to section 28B(7), Taxes Management Act 1970 (TMA), for a direction that HMRC be directed to close its enquiries within three months (the Application).
The Application was granted.
In coming to its decision, the FTT sought to balance the need for HMRC to be in a position to make an informed judgment of the extent of any disallowance of the claims and any other adjustments to the returns with other factors, such as the length of the enquiry and the significance of the outstanding requests for information.
The FTT noted that enquiries in both cases were relatively lengthy, which in principle increased the burden on HMRC to demonstrate why the FTT should not direct that closure notices be issued. The fact that HMRC considered tax avoidance arrangements had been implemented did not, of itself, justify an extension of its enquiries.
With regard to the outstanding information requests, as a result of agreement reached between the parties at the hearing in relation to the provision of further documents, the FTT noted that it should be the case that all outstanding information requests would be met. The dates set by the FTT for the issue of closure notices would allow all outstanding information requests to be dealt with.
The FTT commented that there is a distinction between obtaining information and documents which should, if possible, be dealt with during the enquiry stage, and undertaking all the detailed analysis that HMRC would like to undertake. The judge said:
"Whilst it is clearly desirable that HMRC develop a clear position which can be expressed both in the closure notices and in their Statements of Case, that needs to be balanced with the need to avoid the enquiries being unnecessarily protracted. I have endeavoured to ensure that HMRC are given adequate time to review the responses to express an informed judgment, even if they have not fully completed their analysis. I also do not think that it is reasonable for the closure of the enquiries to be delayed for reasons that are wholly related to HMRC’s internal working practices, for example in respect of the time said to be required to obtain valuation input".
This decision will be welcomed by taxpayers. HMRC enquiries can be long and drawn out, often lasting many years. In circumstances where HMRC is able to issue APNs to taxpayers (as in this case) there is little incentive for HMRC to conclude its enquiries. When a taxpayer considers HMRC has sufficient information to close its enquiry but HMRC is refusing to do so, consideration should be given to whether it is appropriate to apply to the FTT for a direction requiring HMRC to close its enquiry within a specified period of time.
A copy of the decision can be viewed here.