The procedural requirements for issuing a valid closure notice in relation to an HMRC enquiry have been considered by a higher court for the first time in CRC v Bristol and West plc [2016] EWCA Civ 397. But it raises a number of intriguing questions, some of which remain unanswered. 

The Court of Appeal exhaustively analysed the process within the meaning of FA 1998, Sch 18 para 32. Faced with a dearth of direct judicial authority on the subject, the court found assistance from case law on contractual and statutory notices to distil a set of principles governing the validity of closure notices issued by HMRC.


On 29 August 2003, the company novated a portfolio of interest rate swaps to another company in the same group for a premium of £91m. In its self-assessment corporation tax return for the accounting period ended 31 March 2004, the company did not bring the £91m premium into account, having claimed the benefit of a form of disregard (or rollover) under FA 2002, Sch 26 para 28. 

HMRC gave notice on 22 November 2005 of its intention to enquire into the return. 

On 30 October 2007, a tax specialist at HMRC mistakenly took the requisite steps to issue closure notices in relation to the enquiry. Recognising his mistake, and powerless to prevent the notices being printed and posted by HMRC’s contractor, the next morning he emailed the head of UK tax at the taxpayer’s parent company to tell him about the error and notify him that the position would be confirmed soon by HMRC. The notices, dated 31 October 2007, were in conventional form for the purposes of notifying the completion of the enquiry and stated that no amendment needed to be made to the return. 

Oddly, on 8 November 2007, HMRC wrote to the company confirming that the notices issued in error had in fact been validly issued. It was only in February 2010 that HMRC asserted that the notices issued on 31 October 2007 were not valid.


The appeal raised two issues. The first was whether the novation was a transaction to which FA 2002, Sch 26 para 28 applied. Both the First-tier Tribunal and Upper Tribunal (Tax and Chancery Chamber) held that it was not. 

The second was, whether in correspondence between HMRC and the company in October and November 2007, the department validly issued a closure notice within the meaning of FA 1998, Sch 18 para 32. The First-tier Tribunal held not but the Upper Tribunal reached the opposite conclusion. 

The Court of Appeal considered the second issue first since, even if the novation was not a transaction to which the disregard applied, no corporation tax liability would attach to the company if the closure notices were validly issued. The judges unanimously reversed the decision of the Upper Tribunal on the closure notice issue. On the novation, the court affirmed the decisions of the tribunals.

Validly issued closure notice

Lord Justice Briggs’s judgment contained detailed analysis of what constitutes a validly issued closure notice within the meaning of FA 1998, Sch 18 para 32(1). This provides: 

‘An enquiry is completed when an officer of Revenue and Customs by notice (a “closure notice”) informs the company they have completed their enquiry and state their conclusions. The notice takes effect when it is issued.’ 

‘Notice’ means one in writing, although there is no prescribed form. It is essential to the validity of a closure notice that the document or documents relied on should state that HMRC has completed its enquiry and include its conclusions.  HMRC must undertake these steps:

  • decide whether to close, meaning to complete, its enquiry;
  • form a concluded view as to whether amendments need to be made to the self-assessment return to which the enquiry relates and, if so, what they should be; and
  • communicate both the completion of the enquiry and HMRC’s conclusions to the taxpayer.

Crucially, the judge held that a closure notice, once issued, cannot be withdrawn unilaterally by HMRC. Under FA 1998, Sch 18 para 34(2)(b), once a notice has been issued, HMRC has no power to amend the tax return other than to give effect to the conclusions stated in the notice. 

Reversing the Upper Tribunal’s finding that HMRC’s email of 31 October 2007 had the effect of placing the closure notices into ‘suspension’ by stating that the department would confirm the position in writing within a few days, the judge said that a closure notice took effect when issued. The legislation left no scope for HMRC to issue one when it had yet to make up its mind either whether the enquiry was complete or about its conclusions arising from it. 

It follows that, under para 32(1), the department does not have the power to issue a closure notice on a suspended basis so that it becomes validly issued on a later date that HMRC specifies. Briggs LJ could not have been more unequivocal in stating that a ‘closure notice takes effect when it is issued, neither earlier nor later’. 

The court held that the notices dated 31 October 2007 were invalidated by the email of the same date highlighting the error. This was because the latter formed part of the relevant factual context for the purposes of interpreting the notices. The letter of 8 November 2007 did not constitute a valid closure notice in its own right because it failed to state HMRC’s conclusions. 

Closure marks an important stage at which the enquiry and HMRC’s associated powers and duties end. It does not represent ‘a mere procedural pause’. If the department had a unilateral power to deliver a suspended closure notice intended to come into effect on some date in the future not specified in the notice, the procedural certainty and time limits intended to be created by the legislation would be profoundly undermined. 

Nonetheless, by issuing a closure notice, HMRC is not left in a straitjacket. The Court of Appeal recognised that the end of an enquiry and the expression of HMRC’s conclusions in a closure notice still leave open for further debate, negotiation and settlement the outcome as to the extent of a taxpayer’s liability. 

Indeed, the issue of a closure notice marks the beginning of a series of precisely timed stages, as follows:

  • the taxpayer is permitted to amend its own self-assessment return;
  • HMRC, if dissatisfied, is empowered to amend any such taxpayer amendments made at stage one; and
  • the taxpayer is permitted to appeal against any amendments made by HMRC.

More questions

Although the Court of Appeal’s decision in Bristol and West provides much needed clarity on several key aspects of the procedural requirements for validly issuing a closure notice, it raised more questions than it sought to answer. 

Rather surprisingly, given the emphasis placed by Briggs LJ’s decision on the need for procedural certainty, the court left open the possibility that a valid closure notice may be constituted by two documents, whereby ‘one is incorporated by reference to the other’. It is unclear from the judgment what is meant by this. Perhaps it covers a situation in which a ‘closure notice’ is purportedly issued with reference to a separate letter containing HMRC’s conclusions. 

It would have been easy for the court to dismiss this possibility in the absence of any suggestion in the legislative framework that a closure notice could comprise two documents. It also begs the question whether a notice could be more than two documents. Some difficult questions follow, such as whether the documents that make up the closure notice have to be issued contemporaneously. If not, will the relevant time limits begin to run when the first document is received or when the final document constituting the closure notice is received? 

The court’s reluctance to answer the question of whether the issue date of a closure notice is the date of posting or the date of receipt only compounds the uncertainty that surrounds this possibility. By contrast, it is worth observing that commercial contracts usually make clear when a document takes effect. 

The judge also left open the possibility that HMRC and a taxpayer could agree ‘to vary the provisions of the closure notice regime’. This suggests that the legislative regime governing closure notices is optional either in whole or in part. 

Worse, it could in the future tempt HMRC and taxpayers to try to agree variations to the regime. The extent to which either or both parties would then be bound by such an agreement is uncertain and could lead to complex litigation, especially if any variations agreed between HMRC and a taxpayer were found to be invalid.

The significance of closure notices to the enquiry process might call for a prescribed form to be sanctioned by legislation, which would go a long way in setting aside any remaining uncertainties surrounding the procedural requirements for issuing a valid closure notice.

This article first appeared in Taxation on 26 May 2016.