The Wool House Ltd v The Commissioners for HMRC

Ms Lutzuver has been an HMRC officer for 26 years and a compliance officer for the SDLT compliance team since June 2017.

She opened the check into the Appellant’s MDR claim and determined that the relief was not available as it could only be claimed in a return or an amendment to such a return and had to be claimed within 12 months of the filing date of the return. She explained the position to the Appellant in her letter of 27 October 2021 and advised the Appellant that if it disagreed it should write to her within 30 days with further representations.

After receiving no response from the Appellant, she took the decision to issue the Closure Notice.

The Closure Notice was issued and the assessment underpinning it was raised at the same time by Ms Lutzuver, each by entry into the HMRC computer system.

The internal computer systems for raising the assessment and issuing the Closure Notice were different:

Ms Lutzuver drafted the Closure Notice and entered it into the system on 11 January 2022, the system then automatically dated this the next day - 12 January 2022, which was the date on which it was posted to the Appellant. A screen shot of this entry was included in the hearing bundle.

Ms Lutzuver also entered the assessments for the SDLT charge and interest for the Appellant’s account into the system on 11 January 2002. A screen shot was included in the hearing bundle of a page headed “Account Display: Basic List” for The Wool House Ltd which contained several columns, including one headed “charge ref”. and one headed “charge type”. On the “charge type” column entries headed “SDLT Assessment Char[ge] and “SDLT Interest” were shown. A net “receivable” was shown of £13,567 – being the total of the SDLT interest and assessment charge.

The standard approach for SDLT refunds during Ms Lutzuver’s time in the SDLT compliance team was for HMRC to process relief claims immediately and to check them subsequently. She said that legislation allowed HMRC to do so and HMRC had 9 months to check the position after the payments had been made. HMRC’s guidance also made clear the fact that relief was given on a provisional basis and could be clawed back.

Ms Lutzuver pointed out that the Closure Notice referred to the applicable legislation, explained how and why her decision was reached and gave details of how much SDLT was due and how it could be paid.

She acknowledged that the term “assessment” was not used in the Closure Notice – but emphasised her view that it made clear that additional tax was due. She also stated that there would ordinarily be no letter headed “assessment” – the Closure Notice would be treated as incorporating a notice of the assessment.

Ms Ellis is a director and shareholder of the Appellant.

Ms Ellis is used to dealing with HMRC, although she had no previous experience of dealing with HMRC in relation to SDLT.

In Ms Ellis’ experience, when tax was payable, she would usually receive a notification from HMRC together with a “slip” showing how much she needed to pay to HMRC. She expected the procedure to be similar in relation to SDLT.

Ms Ellis did not consider the Closure Notice to be an “assessment” as it was not described as an assessment, nor did it enclose a slip for payment as had been the case in respect of previous notifications by HMRC of a tax liability.

Ms Ellis was of the view that a closure notice and an assessment were two separate items. She did not understand that a Closure Notice could also be an assessment. In her view it could not reasonably be interpreted by an ordinary recipient as also functioning as an assessment without a notice explaining that it was intended to do so.

Ms Ellis’ confusion was compounded by the fact that a refund had been received and HMRC was asking for that refund to be repaid.

Ms Ellis called HMRC twice (on 8/9/21 and 26/10/21) to check on the position but did not manage to get through to anyone that could assist and the advisors that she spoke to did not call her back.

Ms Elliss agreed that the Closure Notice was correctly addressed. She also agreed that the “What you need to do now” section made clear that it referred to two sums.

The key parts of the Closure Notice were as follows:

The Appellant’s grounds of appeal as stated in its two Notices of Appeal are as follows:

Notwithstanding the Grounds of Appeal, Mr Cannon in his skeleton argument and submissions made during the hearing, appeared to concede that an assessment had in fact been made. His primary submission then became that the assessment had not been issued within the time period required by Para.13(1)(a).

For the sake of completeness and the avoidance of doubt we have however considered all the Appellant’s grounds of appeal as outlined in its notices of appeal.

It is common ground that:

The burden of proof in this appeal lies with HMRC, the standard of proof being the ordinary civil standard which is the balance of probabilities.

We set out below the legislation relevant to the points in issue.

Sched.11A applies to claims which are not included in returns and so applies to claims for SDLT overpayment relief made under para.34, sched.10.

Para 6, Schedule 11A provides as follows:

Para 11, Schedule 11A outlines what happens when an enquiry into an overpayment relief claim is completed and provides as follows:

Para.13, sched.11A deals with giving effect to amendments under para.11 and provides:

The Discovery Assessment was issued pursuant to para.29, sched.10 which provides as follows:

Para.30 provides as follows:

The Appellant’s Notice of Appeal referred to the “confusing and contradictory effect of HMRC issuing the SDLT refund on the same day as they issued the Closure Notice”.

It claimed that this led the Appellant to understand that “HMRC had agreed to the refund by making the repayment and that any details in the Closure Notice were a mistake and in effect countermanded by the repayment”.

Ms Jeewon, submitted that this was incorrect, drawing attention, in her skeleton argument, to the distinction between money provisionally repaid to the Appellant and a liability that arose as a result of the Closure Notice and assessment. She pointed out that claims could be given effect to provisionally during the course of an enquiry but once the enquiry was concluded a Closure Notice could reject the claim and request that money repaid to the taxpayer be paid back via assessment.

The legislation operates in a very mechanical way.

The refund was authorised (on 7 January 2023) whilst the refund claim was being considered.

This was because HMRC gave effect to the Appellant’s claim on a provisional basis as it was entitled do in its discretion under para.6(2)(b), sched.11A which provides that:

“[HMRC] may at any time before then give effect to the claim … on a provisional basis, to such extent as it thinks fit.”

The reference to “before then” (which we have italicised) is a reference to para.6(1), sched.11A which is the provision requiring HMRC to give “final effect” to the claim.

By opening an enquiry into the claim, “final effect” to the claim could only be given once a closure notice was issued as per para.6(2)(a), sched.11A.

Ms Lutzuver acknowledged in her witness evidence that refunding an overpayment claim before determining whether the refund was actually due might appear confusing to a taxpayer – a point made expressly by Ms Ellis.

In this regard Ms Jeewon referred in her skeleton argument to published guidance on HMRC’s website (Stamp Duty Land Tax online and paper returns – under the sub-heading “How to apply for a refund”) which sets out the position as follows:

“To process refunds quickly, HMRC will ordinarily make the payment without checking eligibility. We reserve the right not to do so for revenue protection reasons,

This means that even after a repayment has been made, we have not agreed that the refund is due. We have up to 9 months to make a compliance check on your amended return or claim.

If you receive a payment where the amount you claimed was not due, you must pay it back along with any interest due. If penalties apply, you must also pay them.”

We agree that refunding tax before processing the relevant refund claim is potentially confusing for an ordinary taxpayer who might not understand the way that such relief claims work.

However, it is also clear that this is the way in which the legislation operates – and that a refund is not a discharge of the claim it is instead HMRC giving effect to the claim “on a provisional basis”.

Ms Lutzuver also explained the position to the Appellant in the Closure Notice itself in the “What you need to do now” section which referred to the refund of SDLT plus interest having been processed, describing it as an “error” as no refund was due. Although there was no “error” – as it was a permitted provisional payment as per para.6(2), sched.11A, it was made clear to the Appellant that there was no entitlement to the refund and that it was to be repaid.

We find accordingly that the refund of SDLT did not “countermand” the tax stated as payable under the Closure Notice.

This ground requires us to consider whether the requirements of Para.13 were satisfied.

Para.13 requires HMRC to give effect to the amendment contained in a Closure Notice by making the necessary adjustments by way of assessment on the Appellant

Mr Cannon submitted that the Closure Notice was not an “assessment” for the purposes of Para.13(1)(a).

He contended that the requirements of Para.13 were not, therefore, satisfied as HMRC did not, in accordance with Para.13(1)(a), give effect to the amendment required by the Closure notice “by way of assessment on the claimant” made within the requisite statutory period – that period being within 30 days of the Closure Notice.

Ms Jeewon submitted that the requirements of Para.13 were fully satisfied and that an assessment had been made within the requisite period. She acknowledged however that the assessment and Closure Notice were not the same thing.

There are a number of issues contained within Mr Cannon’s submission. First, was the Closure Notice an assessment? Second, if the Closure Notice was not an assessment was there an assessment made on the Appellant and when? Third, was the assessment made within the required timeframe?

Both parties agreed at the hearing that there is a distinction between an assessment and a closure notice. We agree.

That distinction is clear from paras.11 and 13, sched 11A. Specifically:

Para.11(1) is a mechanical provision which determines that an enquiry is closed by a closure notice. It states that a closure notice is a notice by which [HMRC]:

“inform the purchaser that they have completed their enquiries and state their conclusions”.

Para.11(2) (b) requires that closure notice (where a claim is insufficient or excessive) to:

“… amend the claim so as to make good or eliminate the deficiency or excess”

Para. 13 then provides that “within 30 days after the date of issue” of the closure notice, HMRC

“shall give effect to the amendment by making such adjustment as may be necessary”

These provisions make it clear that the closure notice is, accordingly, the instrument which ends the enquiry and amends the return and the assessment is the instrument which then “gives effect to” the amendment made by that closure notice.

Having established that the Closure Notice is not the assessment required for Para.13, it is necessary to consider whether in fact an assessment had been made.

Mr Cannon acknowledged at the hearing and in his skeleton argument that an assessment had in fact been made, his argument focussing on the fact that the assessment had not been issued within the time period required by Para. 13.

Ms Jeewon submitted that an assessment had been made when Ms Lutzuver entered the charge on to the HMRC internal system.

We were directed by both parties to the Court of Appeal decision in Honig and Other v Sarsfield [1986] BTC 205 and to the Special Commissioner’s decision in Courbally-Stourton v R&C Commrs [2008] SpC 692.

In Honig, the Court of Appeal had to consider when an assessment had been made for the purpose of s.29 of the Taxes Management Act 1970. It considered the evidence available as to the Inland Revenue’s (as it then was) internal processes.

Here the evidence provided to the Special Commissioners included physical “assessment books” for the Tax District of Walworth for the relevant year (1970). Each assessment book contained individually numbered originals of the assessments corresponding to the notices of assessment issued to the appellant, each original stating the date on which it was issued. The evidence also included a certificate signed by an inspector of taxes confirming that he had made a set number of assessments on a specific date – those numbers covering the assessments in question. [p.208]

Fox LJ found that the assessment had been made when the inspector who was authorised to make the assessments signed the certificate.

Honig addressed the position prior to the advent of computerisation. In Corbally-Stourton, it was explained to the Special Commissioner that HMRC’s practice as outlined in Honig had changed. The Special Commissioner described the position presented as follows:

“91.Dr Brannigan told me that no longer is an assessment book maintained, HMRC’s practice now is that the relevant officer will write to the taxpayer indicating that an assessment is to be made and will key into HMRC’s computers the amount of the assessment. That was what had happened with the Appellant. Once keyed into the computer the amount appears a record maintained by the computer (and capable of being printed out) of the taxpayer’s statement. I was shown a printout of the Appellant's statement which showed an entry for an ‘adjustment from [self-assessment] return 18 October 2004’ recording the entries made when the Appellant was notified that she would be assessed.

92.

Mr Barnett put the Respondents to proof that the Appellant had been assessed.

93.

It seems to me that Dr Branigan made the assessment when, having decided to make it, he authorised the entry of its amount into the computer. I find that the assessment was made.”

The description of HMRC’s processes in Courbally corresponds closely to those described by Ms Lutzuver. As her evidence shows, she entered what she regarded as the assessment into the HMRC computer system on 11 January 2022, the same day as she entered the Closure Notice on to the system.

We have also seen, in our hearing bundle, a screen shot of the system showing the Appellant’s account and the entries for the SDLT assessment together with the separate entry for interest.

We find, accordingly, that an assessment was made and that it was made on the date on which it was entered into the HMRC system by Officer Lutzuver which in this case was 11 January, the day before the Closure Notice was issued to the Appellant.

We also find that the assessment was made “on” the Appellant – given that it imposed a charge which was recorded on the Appellant’s HMRC account.

Mr Cannon contended that as the assessment was issued either on or before the date of issue of the Closure Notice, the requirements of Para.13(1) were not satisfied.

He placed emphasis on the following words in Para.13(1) which we have italicised:

“(1)

Within 30 days after the date of issue of a notice under paragraph 11(2)(b) (closure notice that amends claim), the Inland Revenue shall give effect to the amendment by making such adjustment as may be necessary, whether-

(a)

by way of assessment on the claimant, or

…

Mr Cannon submitted that sched.11A contained a “closely articulated and highly particularised form of wording” for dealing with overpayment relief claims made outside of a return. In his view there was therefore little or no room for a purposive construction when interpreting the provisions of the schedule.

On this basis he said that Para.13 had to be seen as setting out a very precise window within which the assessment on the Appellant had to be made. As this window was expressed to start within 30 days after the date of issue of the Closure Notice, and as the assessment was at best made on or before the date of issue of the Closure Notice this requirement was simply not met.

Ms Jeewon argued that this was not the case. She submitted that Para.13 simply set a deadline for issue of an assessment – that deadline being 30 days after issue of the related closure notice. The purpose of the deadline was to give a backstop to the date on which an amendment made in a closure notice could be implemented by the issue of an assessment. Its purpose was, to put it another way, not to preclude an earlier assessment – but to prevent a late one.

Ms Jeewon also explained that logically the process would be for an assessment to be made at or before the time at which the notice was given to the taxpayer. This was because at the time an HMRC officer was in a position to issue a closure notice, he or she would have had to quantify the insufficiency or excess in order to outline it in that closure notice. It would not make sense to delay entering that assessment into the HMRC computer and, as Ms Lutzuver’s evidence had shown, it was the practice of the SDLT compliance team to enter the associated assessment at the same time as entering the closure notice into the system.

The question for us to determine is whether the requirement for HMRC to

“within [30 days] after the date of issue of a [closure notice]”

The Explanatory Notes to Finance Act 2004 which introduced the relevant provisions in FA 03 are not particularly helpful – they simply explain the mechanical operation of the provisions.

In our view, the purpose of Para.13 is to give taxpayers who are the subject of an enquiry, certainty as to when their tax position will be determined finally – i.e. when, in the case of payments due from them, they will receive an assessment. This is a necessary part of sched. 11A as there is no underlying tax return that can be amended and so the general legislative time limits for amending returns are inapplicable.

We prefer therefore Ms Jeewon’s interpretation of Para.13(1) – which accords with what we see as its purpose. Under that interpretation, it provides a backstop for the issue of an assessment and does not preclude assessments made either before or at the same time as issuance of a closure notice.

This is a common-sense interpretation that does not strain the language of the provision and in support of this approach we note the following:

On this basis we find that the requirements of Para.13 were satisfied and that a valid assessment was issued to the Appellant.

Given this finding we do not consider HMRC’s alternative argument as to the application of s.83 FA 03. There is also no need for us to consider Ground 2 which is contingent on Ground 1 succeeding.

For the reasons given the Appellant’s appeal is dismissed.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.