Case: HMRC rejection of repayment claim as out of time not an enquiry and closure notice which could be appealed
A3/2016/0670 & A3/2015/4210
Lord Justice David Richards & Lady Justice Arden
Judgment released 18 April 2018
Income tax – Whether provisions on notices of enquiry and closure notices in TMA 1970, Sch. 1A enabled notice of enquiry and closure to be issued in immediate succession and in one document - Whether deeming provision in the TMA 1970, s. 118(2) could apply to deem an out of time claim for repayment of income tax under TMA 1970, Sch. 1AB to have been in time where taxpayer had reasonable excuse.
R & C Commrs v Raftopoulou  EWCA Civ 818
The appeal arose from a claim for repayment of income tax. Dr Vasiliki Raftopoulou (‘R’) submitted her self-assessment return for the 2006-07 tax year on 14 January 2008, which showed a liability to tax of about £18,000, which she duly paid. Believing that her income had been overstated and her deductible expenses understated, R submitted a claim for repayment on 13 October 2011. The appellant, HMRC, rejected the claim as out of time by letter of 9 November 2011.
R had lodged an appeal with the First-tier Tribunal. HMRC applied to strike out the appeal, on the grounds that the FTT had no jurisdiction to consider it. Following a hearing at which the taxpayer represented herself and HMRC was represented by a hearing officer, the FTT acceded to HMRC’s application and struck out the appeal. On appeal, the Upper Tribunal (Judge Berner and Judge Raghavan) (‘the UT’) allowed R’s appeal on the basis that the claim was potentially within time, and remitted the matter to the FTT to determine whether or not the taxpayer had a reasonable excuse for submitting her claim out of time. HMRC appealed to the Court of Appeal, with permission granted by the UT.
The Court said that two issues arose:
(1)The first was whether HMRC’s rejection of the repayment claim gave rise to a right of appeal to the FTT under para. 9(1) of Schedule 1A to the Taxes Management Act 1970 (TMA 1970). This turned on whether HMRC’s letter rejecting the claim constituted a closure notice under paragraph 7(2) of Schedule 1A.
(2)The second was whether TMA 1970, s. 118(2) was capable of applying to a repayment claim made out of time, so as to permit the extension of the statutory time limit of four years for the making of such claims.
The taxpayer had to succeed on both issues in order to pursue her appeal to the FTT, and the UT had held in her favour on both.
Dealing with the first issue, the Court said that para. 3(1) of Schedule 1AB TMA 1970 provided that a claim could not be made more than four years after the end of the relevant tax year. It was common ground that in this case the period of four years expired on 5 April 2011.
The taxpayer’s case, which was accepted by the UT, was that HMRC’s letter dated 9 November 2011 constituted both notice of an enquiry under paragraph 5 of Schedule 1A (an enquiry notice) and a closure notice under paragraph 7. The taxpayer was therefore entitled to appeal to the FTT against the rejection of her claim as made out of time. Otherwise, it was agreed, her remedy to challenge the rejection would be by way of judicial review (and, also, it was suggested on behalf of the taxpayer, by a civil claim but this alternative was not developed in argument).
The UT had started their consideration of this issue by referring to the decision of the UT in Portland Gas Storage Ltd v Revenue and Customs Commissioners  BTC 520, which concerned very similar provisions relating to a claim for repayment of stamp duty land tax and whether an enquiry notice and closure notice could be dealt with in a single letter.
The correct starting point for determining whether an enquiry into a claim had been opened was a consideration of the terms, context and purpose of the provisions of Schedule 1A. Those provisions suggested a procedure with some degree of formality and suggested also a procedure with a beginning, a middle and an end.
In the Court’s judgment, the letter dated 9 November 2011 did not demonstrate that HMRC had conducted an enquiry into the taxpayer’s claim under Schedule 1A, or had ever intended to do so. A reasonable person in the position of the taxpayer would not read the letter as stating that her claim had been reduced to zero but that, rather than considering the substance of the claim, it had been rejected as out of time.
A rejection by HMRC of a claim on the grounds that it was out of time, by reference to no more than the claim itself and a calculation of the applicable time limit, did not involve any use by HMRC of their statutory powers to enquire into the claim nor did it constitute notice of an intention to do so. On the facts of this case, it was unnecessary to go further and consider what additional actions on the part of HMRC would constitute an enquiry.
The Court concluded therefore that HMRC’s letter in this case could not serve both as a notice under para. 5 and as a closure notice under para. 7. It found it difficult to think that the same document could ever serve as both.
The Court accordingly reversed the decision of the UT, holding that there was no enquiry and no closure notice in this case, with the result that no appeal to the FTT lay against the rejection of the claim as out of time, and that the FTT had been right to strike out the appeal.
It was appropriate nonetheless that the Court should consider the second issue, arising under TMA 1970, s. 118(2) which provided “that a person shall be deemed not to have failed to do anything required to be done within a limited time if he did it within such further time, if any, as the Board or the tribunal or officer concerned may have allowed; and where a person had a reasonable excuse for not doing anything required to be done he shall be deemed not to have failed to do it unless the excuse ceased and, after the excuse ceased, he shall be deemed not to have failed to do it if he did it without unreasonable delay after the excuse had ceased.”
The deeming effect of the second part of this provision was of central importance. It did not deem anything to have been done, either within a time limit or at all. It provided only that the person in question shall be deemed “not to have failed to do it”. It relieved the person of the consequences of failing to do the thing, which in the context of the TMA 1970 was a financial penalty, but did not go further and provide the benefits of having in fact done the thing which the person has failed to do.
The FTT had been right to decide that it lacked jurisdiction to hear the taxpayer’s appeal, which should therefore be struck out. There were two grounds for this conclusion. First, the claim was made out of time, and accordingly could not be the subject of an enquiry leading to a closure notice against which an appeal to the FTT would lie. Second, there was in any event no enquiry into the claim and therefore no appealable closure notice.
The Court therefore allowed HMRC’s appeal, setting aside the UT’s order and reinstating the FTT’s order striking out the taxpayer’s appeal.
The UT decision had accepted that HMRC’s single letter rejecting the taxpayer’s claim as out of time could constitute an opening and closing of an enquiry, but that decision has been overturned in this judgment. The UT had also indicated that a reasonable excuse could apply to a delay in making a claim; this has also been rejected in this judgment.
For commentary on late appeals, see the Direct Tax Reporter at ¶188-800.