A recent tax case involving a Mr Bloomfield* is a good example of what can sometimes happen in a tax enquiry, and what to do about it.
Mr Bloomfield’s 2007/08 self-assessment included income from property. In January 2010, HMRC opened an enquiry into the return alleging that Mr Bloomfield owned three other properties that were not included in his rental income on the return.
The case dragged on until October 2013. HMRC became increasingly heavy handed in their approach until finally the First-tier Tribunal directed that a closure notice should be issued. It had been proved that Mr Bloomfield did not own two of the three properties HMRC said he did, and that the third property was his own home – the fact that it was the home address shown on his tax return should have been a clue!
What is a ‘closure notice?’
When HMRC come to the end of an enquiry into a tax return, they issue a formal document called a ‘closure notice’. This either states that no amendments are required to the return they have been investigating, or it sets out the amendments that HMRC believe are required. The taxpayer has 30 days to appeal against the closure notice, and if he does not, it becomes final and any additional tax it produces must be paid.
Normally, closure notices are issued after the taxpayer and the tax inspector have reached agreement on the correct figures. If an agreement is not reached, HMRC can issue a notice anyway, and the taxpayer’s appeal against it provides the opportunity for the disagreement to be resolved by the First-tier Tribunal.
Sauce for the goose...
It is also open to the taxpayer to make an application to the First-tier Tribunal asking them to direct HMRC to issue a closure notice within a specified period of time – typically, 30 days. The commonest reasons for such applications are where HMRC have been provided with all the information they have asked for, but they persist in asking more and more questions without good reason, or they take an unreasonably long time to deal with the information provided.
Unfortunately, some tax inspectors seem unable to admit they have found nothing wrong with a return, and persist in asking for more and more (often irrelevant) information as a way of postponing the time when they have to issue a closure notice and thus admit they were mistaken.
I was asked to advise on a case a year or so ago where the inspector had looked into the sale of a business and had begun by asking to see the sale agreement. The inspector had then gone on to ask for more and more information, including correspondence between the seller and his accountants and lawyers, but had failed to explain the reasons for needing this information. I believe he did not find whatever he expected to find in the sale agreement, but was unwilling to close the enquiry down until he found something – anything – to justify the time he had spent on the case.
Making the application
The solution in such cases is to apply to the First-tier Tribunal, using this downloadable form:
Before actually sending in the form, it is worth telling the inspector that this is what you intend to do. This is often sufficient to get the enquiry closed down without having to resort to the Tribunal.
Practical Tip :
If you have provided the inspector with the information he has asked for, and he either fails to do anything with it or starts making unreasonable requests for more information on irrelevant matters, you should seriously consider applying to the Tribunal for a direction to issue a closure notice.