In Portland Gas Storage Limited v The Commissioners for HMRC5, the Upper Tribunal (UT) considered two important questions: what is an enquiry? and what is a decision? Mercifully, the UT has confirmed that the answer requires little linguistic acrobatics and the application of a moderate amount of common sense.
Portland Gas Storage Limited (Portland) entered into an agreement for the grant of a lease on 11 April 2008, however, before the lease was formally granted Portland took possession and began to pay rent. For the purposes of the relevant taxing statutes, this was an act of “substantial performance” and Portland became liable to file a return and account for SDLT. It did so, and paid SDLT of £168,122.
The original lease was never completed and a deed of variation was entered into on 1 June 2012, which reduced the amount of land to be leased and, accordingly, the rent from £1.5m plus VAT, to £706,400 plus VAT. Following this, Portland attempted to amend its return in order to reclaim £68,408 of the SDLT it had paid.
The amendment to the return and claim for repayment was contained in a letter dated 18 July 2012. HMRC rejected the claim in a letter dated 15 August 2012, on the grounds that: (1) the amendment to the return had been made more than 12 months after the filing date and was therefore out of time, and (2) paragraph12A(4), Schedule 17A, Finance Act 2003 (FA 2003), which relates to the repayment of tax where an agreements is to any extent annulled or rescinded, did not apply.
There followed correspondence between the parties including, on 6 September 2012, a letter from HMRC which stated:
“I note you wish to proceed with your claim under Schedule 17A paragraph 12A FA 2003. Would you please note that I am seeking advice from our policy team regarding the time limit for making a claim under this legislation. On receipt of their advice I will issue a full response to your letter.”
Subsequently, HMRC wrote to Portland confirming that it maintained its position and that a claim could not be permitted. There was a further exchange of correspondence, which ended with a letter from HMRC dated 23 November 2012, in which it was stated by the HMRC officer: “I therefore do not agree that the SDLT1 return should be amended in accordance with your letter of 18 July 2012.”
On 20 November 2012, before receiving HMRC’s final letter, Portland submitted a notice of appeal against HMRC’s decision.
Portland’s appeal came before the First-tier Tribunal (FTT). Its decision appears not to have been published, however, it is apparent from the UT’s judgment that the FTT struck-out Portland’s appeal on the basis that HMRC had made no appealable decision and, consequently, it had no jurisdiction to adjudicate the dispute. Portland appealed to the UT.
Before the UT, HMRC maintained its position that it had not opened an enquiry; had issued no closure notice; and that, therefore, there was no right of appeal within the jurisdiction of the tax tribunals.
The UT was of the opinion that the term “enquiry’ should be construed broadly, noting that the FTT is the primary body intended to determine disputes between HMRC and taxpayers. It concluded that ‘enquiry” should take its ordinary meaning and is synonymous with “examining”, “investigating” and “scrutinising”.
In the view of the UT, there had been no enquiry when HMRC sent its first letter of 15 August 2012, which simply rejected the claim for amendment and repayment. It commented:
“All that took place was to ascertain that the original return in respect of which an amendment was sought was more than 12 months before the claim was made. In other words, HMRC did not have to go beyond the face of the letter that they were sent to respond to it and in our view that is insufficient to amount to an enquiry in the context of paragraph 12 of Schedule 10 FA 2003.”
However, this was not the case in respect of the second letter dated 6 September 2012. The UT said:
“… HMRC had determined to examine the claim in further detail … In essence, the question is one of degree and in our view the further steps taken indicate the undertaking of an “examination”, “investigation” or “scrutiny” of the return.”
The UT concluded that the letter of 6 September 2012, and HMRC’s subsequent actions in seeking advice, constituted an enquiry and the letter also constituted notice of an intention to enquire into Portland’s return. The UT was of the view that no particular form of notice was required: the only requirement being that its intended effect is reasonably ascertainable by the recipient6.
With regard to the question whether HMRC had issued a closure notice, the UT was of the opinion that the letter of 23 November 2012 was capable of constituting a closure notice. The letter stated that HMRC had taken advice and was maintaining its position. In the view of the UT: “The letter … was clearly intended to be a final expression of HMRC’s views”. Again, the UT indicated that a closure notice did not need to be in a particular form.
The matter will now return to the FTT for determination of the substantive SDLT appeal.
HMRC argued before the UT that a finding in favour of Portland would mean that on every occasion in which HMRC responded to an enquiry on a land transaction return it would be deemed to have opened an enquiry and that it was critical that there must be a clear intention shown on the part of HMRC before it could be deemed to have opened an enquiry. The UT, sensibly, rejected this submission and ruled that the question was “one of degree”. Where it is necessary for HMRC to go beyond a mechanistic reply; where it seeks advice; or otherwise examines, investigates or scrutinises a return, it will be the case that it has chosen to enquire.
This is an unusual case in that it was the taxpayer (rather than HMRC) who successfully argued that substance should prevail over form. The UT’s findings on the meaning of the term ‘enquiry’, and on the requirements for an enquiry to have been opened and closed, should ensure that taxpayers are not prevented from challenging HMRC’s decisions on the basis that such decisions have not been conveyed in a particular form.
To read the decision click here.