William Andrew Tinkler v The Commissioners For HMRC

Mr Tinkler completed his self-assessment (“SA”) tax returns for 2010-11 to 2016-17 (“the relevant years”) on the basis that he had carried on a trade (“the Trade” or “the Combined Trade”) which consisted both of breeding horses (“the Breeding Activities”) and training/ racing horses (“the Racing Activities”).

In his SA returns for all but one of the relevant years, Mr Tinkler offset losses arising from the Trade against his other income and carried forward any balance. In one of the years, the Trade made a profit.

HM Revenue & Customs (“HMRC”) opened enquiries into Mr Tinkler’s SA returns, and on 16 August 2022, issued him with closure notices (“the Closure Notices”) and related amendments for each year. The total amount of extra tax charged in relation to the Trade was approximately £2.7m.

Mr Tinkler appealed to HMRC on the basis that the Trade had been treated correctly in his SA returns. The Closure Notices were upheld on statutory review, and Mr Tinkler filed a Notice of Appeal at the Tribunal. On 20 January 2025, HMRC filed and served a Statement of Case (“SoC”) drafted by Mr Waldegrave.

On 28 February 2025, on behalf of Mr Tinkler, Mr Gordon applied for the Tribunal to determine various matters in order to clarify the scope of the appeal at the Tribunal (“the Application”). Mr Waldegrave responded on 11 April 2025 on behalf of HMRC (“the Response”), and Mr Gordon replied on 14 April 2025 (“the Reply”).

The Tribunal was provided with a Bundle of Documents, which contained:

The morning before the hearing, Mr Waldegrave provided the Tribunal and Mr Gordon with a copy of an HMRC letter to Mr Tinkler dated 20 November 2019. On the day of the hearing, he emailed:

Mr Gordon did not object to those documents being considered by the Tribunal and I admitted them into evidence.

All the Closure Notices included a conclusion relating to the Trade. Some also included conclusions relating to other issues, but none of those conclusions was appealed by Mr Tinkler. In this decision, a reference to a “Closure Notice” or an “amendment” therefore applies only to the Trade.

Under the heading “self-employment-horse breeding and racing”, the Closure Notice for 2010-11 said that HMRC’s “conclusion” was “your trade loss has been overstated”.

Under the heading “reasons for our conclusion”, it said:

“HMRC’s view is that you are carrying on a trade as a bloodstock owner and breeder, the activities of which are chargeable under Section 5 ITTOIA 2005.

HMRC don’t consider horse racing as a trade or that it is likely to form part of the activities of a wider trade Racing and training are treated as non-business activities and should not be included in your tax return.”

Under the heading “how this notice amends your Self Assessment tax return”, the Closure Notice said that Mr Tinkler’s net loss from his self-employment had decreased from £1,872,428 to £70,992, and the loss set against other income of the same year had decreased by the same amount. The notice also directed Mr Tinkler to “the attached schedule” which provided “full details of the figures amended including stock valuations”.

That schedule set out a comparison of the original figures returned by Mr Tinkler with (a) those which resulted from splitting out the income and costs from the Racing Activity, and (b) the figures calculated on the Wholly and Exclusively basis. The schedule was supported by a profit and loss account produced by HMRC which related only to the Breeding Activity; it included opening and closing stock valuations for each of the horses which HMRC considered fell within that Activity.

The covering letter to the Closure Notice said:

“…please find enclosed the closure notice which reflects our conclusion that the income and expenses relating to horse racing are not part of your trade and as such, the profits/and or losses that you’ve declared from your self-employed business are overstated.

There are other arguments as to the possible tax consequences that relate to the income and expenditure relating to horse racing. These are properly not part of the closure notice as they are not our conclusions, but, we thought it proper to note that if you disagreed with the enclosed closure notice and refer that disagreement to a Tax Tribunal, HMRC reserve the right to refer to alternative arguments which may lead to a different amendment to your tax return.

We may argue that the income arising from horse racing is chargeable on you under Section 5 ITTOIA 2005, but the expense relating to horse racing would not be an allowable deduction of the business as they are not incurred wholly and exclusively for the purposes of trade [“the Wholly and Exclusively Issue”].

The consequence of this amendment would be that your losses would be reduced to £239,043. This would result in additional income tax due of £628,362.85.”

The Closure Notice for 2011-12 had the same “conclusion” as that for the previous year, but after the paragraphs set out at §11 above, it included the words:

“You should note that, depending on the exact nature of any convention put forward on behalf of you [sic] to the contrary, HMRC may wish to advance additional or alternative grounds in support of an amendment being made to your personal return.”

Under the heading “how this notice amends your Self Assessment tax return”, the Closure Notice said that Mr Tinkler’s net loss from his self-employment had decreased from £2,664,640 to £508,356, and the loss set against other income of the same year had decreased by the same amount.

As in 2010-11, the Closure Notice directed Mr Tinkler to the “schedule” which provided “full details of the figures amended including stock valuations”. The attached documents were of the same nature as in 2010-11, and the covering letter was identical, other than in relation to the amounts.

Both the Closure Notice and the covering letter were the same as those for the previous year, other than in relation to quantum. Mr Tinkler’s reported net loss from the Trade of £1,045,910 was amended to a profit of £229,512, and the loss set against other income of the same year similarly decreased by £1,045,910 to £nil.

The conclusion on the 2013-14 Closure Notice was that “your trade profit has been overstated”. Under the heading “how your return has been amended”; the Closure Notice said that Mr Tinkler’s business income had reduced from £6,051,929 to £1,429,425; that business expenses had also reduced, and that net profit had decreased from £649,923 to £403,717. The Closure Notice also included the wording at §15. Similar documents were attached as in the earlier years, and the covering letter was identical.

The Closure Notice, attachments and covering letters for both years were the same as in 2011-12, other than in respect of quantum. In 2014-15, Mr Tinkler’s net loss from his self-employment decreased from £1,775,646 to £315,804 and the loss set against other income of the same year decreased by the same amount. In 2015-16, Mr Tinkler’s net loss from his self-employment decreased from £1,788,070 to £333,373 and the loss set against other income of the same year decreased by the same amount.

In the SoC, Mr Waldegrave summarised HMRC’s “primary case” as follows:

“…the Racing Activities did not form part of a trade consisting of the Combined Activities, and also did not themselves constitute a separate trade carried on by the Appellant. Accordingly, in calculating the Appellant’s trading profits or losses for the Relevant Years, both the income and the expenses associated with the Racing Activities should be left out of account.”

The SoC added that:

“HMRC further contends that the Racing Activities did not constitute a free-standing trade. This is essentially because one of the characteristics of a ‘trade’ is that it is carried on a commercial basis. HMRC’s position is that activities consisting of the training and racing of racehorses are inherently unlikely to be commercial.”

The SoC also included the following passages:

“[29] If HMRC is correct that the Racing Activities did not form part of the Appellant’s trade, then it follows that when a horse involved in the Breeding Activities was used for the Racing Activities, the market value of the horse should have been brought into account as a receipt of the trade in accordance with [section] 172B of the ITTOIA 2005.

[30] Correspondingly, when a horse ceased to be used for the Racing Activities and came to be held for the Breeding Activities, the market value of the horse should have been treated as a cost of the Appellant’s trading stock in accordance with section 172C of the ITTOIA 2005.

[31] HMRC also notes that the profits of the Appellant’s trade were required to be calculated in accordance with generally accepted accounting practice (“GAAP”) by virtue of section 25 of the ITTOIA 2005. GAAP required the valuation of the Appellant’s trading stock at the beginning and end of each accounting period.

[32] To the extent necessary HMRC will adduce expert valuation evidence for the purposes of the requirements of GAAP and the rules found in Chapter 11A of the ITTOIA 2005.”

Under the heading “HMRC’s Alternative Arguments”, the SoC continued:

“[33] If, contrary to the submissions set out above, the FTT concludes that the Appellant’s trade encompassed both the Breeding Activities and the Racing Activities, then HMRC will argue that the expenses associated with the Racing Activities were not incurred wholly and exclusively for the purposes of the Appellant’s trade in terms of section 34 of the ITTOIA 2005. Accordingly, in calculating the Appellant’s trading profits/losses no deduction is available for the expenses associated with the Racing Activities.

[34] Further or alternatively, if the Appellant’s trade consisted of the Combined Activities, then HMRC will argue:

(1)

Relief under section 64 of the ITA 2007 for trade losses is restricted on the basis that the trade was not carried on on a commercial basis and with a view to profit in terms of section 66 of the ITA 2007.

(2)

Further or alternatively, and to the extent that the Appellant’s trade constitutes ‘farming’ in terms of section 996 of the ITA 2007, relief under section 64 of the ITA 2007 for trade losses is restricted on the basis that the ‘reasonable expectation of profit’ test in section 68 of the ITA 2007 was not satisfied.”

In summary, on the basis of the SoC:

The SoC also raised two valuation issues:

By the Application, Mr Gordon accepted that in the light of the case law (considered below) HMRC were entitled to raise the Wholly and Exclusively Issue; he also confirmed that Mr Tinkler was not seeking to argue that he was carrying on a trade of farming, so the Farming Issue did not arise.

Mr Gordon went on to ask the Tribunal to decide as follows:

By the Response, Mr Waldegrave said that:

The day before the hearing, Mr Gordon emailed the Tribunal to say that the parties had agreed that the substantive hearing should proceed on an “in principle” basis, so that any quantification of stock values required by the Sharkey v Werner Issue would be deferred, as would any quantification of costs relating to the Wholly and Exclusively Issue. As a result, the focus of the hearing was on whether HMRC was entitled to run the Section 66 Issue and the GAAP Issue, or whether they were precluded from doing so by the scope of the Closure Notices.

At the beginning of the hearing, I asked both Counsel to address me on the principles established by the case law about the hearing of preliminary issues, and as to whether, in the light of that case law, the determination of the scope of the Closure Notices should be left to the Tribunal hearing the substantive case. Mr Waldegrave had raised that case law in the Response, but in a different context (Footnote: ¹).

Neither Counsel addressed those principles directly, but both made it clear that they wanted the scope of the Closure Notices to be decided at this hearing. Mr Gordon said Mr Tinkler should know before the substantive hearing whether the Section 66 Issue and the GAAP Issue were in scope, as he might otherwise incur the unnecessary cost of preparing for both Issues. Mr Waldegrave said HMRC would prefer the scope to be decided as the result of this hearing.

In my judgment, the scope of the Closure Notices is a preliminary issue. In Wrottesley v. HMRC [2015] UKUT 637 (TCC); [2016] STC 1123 (“Wrottesley”), the UT (Judge Herrington and Judge Falk, as she then was) set out at [28] the approach the Tribunal should take when asked to determine preliminary issues:

“(1)

The matter should be approached on the basis that the power to deal
with matters separately at a preliminary hearing should be exercised with
caution and used sparingly.

(2)

The power should only be exercised where there is a ‘succinct, knockout point’ which will dispose of the case or an aspect of the case. In this context an aspect of the case would normally mean a separate issue rather than a point which is a step in the analysis in arriving at a conclusion on a single issue. In addition, if there is a risk that determination of the preliminary issue may prove to be irrelevant then the point is unlikely to be a ‘knockout’ one.

(3)

An aspect of the requirement that the point must be a succinct one is that it must be capable of being decided after a relatively short hearing (as compared to the rest of the case) and without significant delay. This is unlikely if (a) the issue cannot be entirely divorced from the evidence and submissions relevant to the rest of the case, or (b) if a substantial body of evidence will require to be considered. This point explains why preliminary questions will usually be points of law. The tribunal should be particularly cautious on matters of mixed fact and law.

(4)

Regard should be had to whether there is any risk that determination of the preliminary issue could hinder the tribunal in arriving at a just result at a subsequent hearing of the remainder of the case. This is clearly more likely if the issues overlap in some way—see (3)(a), above.

(5)

Account should be taken of any potential for overall delay, making
allowance for the possibility of a separate appeal on the preliminary issue.

(6)

The possibility that determination of the preliminary issue may result
in there being no need for a further hearing should be considered.

(7)

Consideration should be given to whether determination of the preliminary issue would significantly cut down the cost and time required for pre-trial preparation or for the trial itself, or whether it could in fact increase costs overall.

(8)

The tribunal should at all times have in mind the overall objective of
the tribunal rules, namely to enable the tribunal to deal with cases fairly
and justly.”

In relation to each of those points:

Taxes Management Act 1970 (“TMA”) s 28A is headed “Completion of enquiry into personal or trustee return” and so far as relevant reads:

“(1)

This section applies in relation to an enquiry under section 9A(1) of this Act.

(1A) …

(1B) The enquiry is completed when an officer of Revenue and Customs informs the taxpayer by notice (a "final closure notice")—

(a)

in a case where no partial closure notice has been given, that the officer has completed his enquiries…

(2)

A…final closure notice must state the officer's conclusions and

(a)

state that in the officer's opinion no amendment of the return is required, or

(b)

make the amendments of the return required to give effect to his conclusions.

(3)

A…final closure notice takes effect when it is issued.”

TMA s 28B sets out essentially similar provisions about partnership returns; although not relevant to Mr Tinkler’s appeal, they are referred to in some of the case law discussed below.

TMA s 31(1)(b) provides that an appeal may be brought against “any conclusion stated or amendment made by a closure notice under section 28A or 28B of this Act (amendment by Revenue on completion of enquiry into return)”.

TMA s 49G applies where (as here) HMRC have carried out a statutory review. So far as relevant, it reads:

“(1)

This section applies if

(a)

HMRC have given notice of the conclusions of a review in accordance with section 49E…

(2)

The appellant may notify the appeal to the tribunal within the post-review period.

(3)

…

(4)

If the appellant notifies the appeal to the tribunal, the tribunal is to determine the matter in question.”

The “matter in question” is defined by TMA s 49I(1) as “the matter to which an appeal relates”.

TMA s 50 includes the following provisions:

“(6)

If, on an appeal notified to the tribunal, the tribunal decides

(a)

that, the appellant is overcharged by a self-assessment;

(b)-(c)…

the assessment or amounts shall be reduced accordingly, but otherwise the assessment or statement shall stand good.

(7)

If, on an appeal notified to the tribunal, the tribunal decides

(a)

that the appellant is undercharged to tax by a self-assessment

(b)-(c)…

the assessment or amounts shall be increased accordingly.”

There was no dispute about the relevant case law, although Mr Gordon and Mr Waldegrave emphasised different passages within the authorities.

In Tower MCashback LLP v HMRC [2011] UKSC 19; [2011] STC 1143, the Supreme Court considered a closure notice issued by an HMRC Officer, Mr Frost, which was worded as follows, see [13] of the judgment (emphasis in the judgment):

“I have now concluded my enquiries into the Partnership Tax Return for the year ended 5 April 2005. As previously indicated, my conclusion is: The claim for relief under section 45 CAA 2001 is excessive. The partnership returns for the year ended 5 April 2005 is amended as follows.

Capital Allowances £Nil

Allowable Loss £Nil.”

Officer Frost’s previous correspondence had referred to the Capital Allowances Act 2001 (“CAA”) s 45(4), and the letter attached to the closure notice also referred only to s 45(4). However, HMRC abandoned reliance on s 45(4) during the hearing before the Special Commissioners, but continued to rely on s 45 more generally.

At [15] of the judgment, Lord Walker quoted with approval the words of Henderson J (as he then was) when the case was decided by the High Court:

“There is a venerable principle of tax law to the general effect that there is a public interest in taxpayers paying the correct amount of tax, and it is one of the duties of the commissioners [the predecessors of the FTT] in exercise of their statutory functions to have regard to that public interest…For present purposes, however, it is enough to say that the principle still has at least some residual vitality in the context of section 50, and if the commissioners [the FTT] are to fulfil their statutory duty under that section they must in my judgment be free in principle to entertain legal arguments which played no part in reaching the conclusions set out in the closure notice. Subject always to the requirements of fairness and proper case management, such fresh arguments may be advanced by either side, or may be introduced by the commissioners on their own initiative.”

At [17] he endorsed the following words from Moses LJ’s judgment in the Court of Appeal, which said in relation to the closure notice:

“…Whilst it did refer to previous correspondence which clearly focussed on s 45(4), the closure notice itself was, in plain terms, a refusal of the claim for relief under s 45 CAA 2001. That was the conclusion stated pursuant to s 28B(1). There is neither statutory warrant nor any need to look further.”

Lord Hope said this:

In Fidex Ltd v HMRC [2016] EWCA Civ 385 (“Fidex”), Kitchen LJ gave the only judgment with which Arden LJ and Sir Stephen Richards both agreed. The issue concerned the scope of a closure notice which had included the following passage:

“The derecognition of the listed bonds and preference shares should not have occurred on transition to IFRS. Therefore the sum of €83,849,399 representing the value of the derecognised listed bonds should not have been included in the change in basis adjustments following the adoption of IFRS.”

The closure notice thus did not make explicit reference to a statutory provision, but in correspondence HMRC had concentrated on whether Fidex had satisfied para 19A of the loan relationship provisions. Before the FTT, HMRC relied on para 13 (the unallowable purpose provision). In his judgment, Sir Stephen Oliver held that this was within the scope of the closure notice, finding (as summarised by Kitchen LJ at [48]):

“…the HMRC enquiry was directed at whether a scheme designed to produce a loss through the operation of the loan relationship provisions in Schedule 9 was successful in achieving that result. He considered that the stated effect of the closure notice was that it did not, and that to confine the Tribunal to an analysis of one provision in the statutory code would be to impose an unacceptable restriction on its judicial function.”

At [45], Kitchen LJ summarised the principles established in Tower as follows:

“(i)

The scope and subject matter of an appeal are defined by the conclusions stated in the closure notice and by the amendments required to give effect to those conclusions.

(ii)

What matters are the conclusions set out in the closure notice, not the process of reasoning by which HMRC reached those conclusions.

(iii)

The closure notice must be read in context in order properly to understand its meaning.

(iv)

Subject always to the requirements of fairness and proper case management, HMRC can advance new arguments before the FTT to support the conclusions set out in the closure notice.”

He also referred to the UT’s judgment in the case:

“[51] The UT went on to express the view, with which I agree, that it is not appropriate to construe a closure notice as if it is a statute or as though its conclusions, grounds and amendments are necessarily contained in watertight compartments, labelled accordingly. It also emphasised, again rightly in my judgment, that while there must be respect for the principle that the appeal does not provide an opportunity for a new roving enquiry into a company’s tax return, the FTT is not deprived of jurisdiction where it reasonably concludes that a new issue raised on an appeal represents an alternative or an additional ground for supporting a conclusion in the closure notice.

[52] The UT recognised there were certain differences between the Tower MCashback case and the present, but it considered there were striking similarities too. In Tower MCashback the legal ground of challenge changed but the subject matter of the enquiry and of the conclusion remained the same, namely whether the LLP was entitled to the capital allowance. So too in the present case, the legal ground of challenge changed but the essential subject matter of the enquiry and of the conclusion again remained the same, namely whether Fidex was entitled to claim the benefit of the debit…”

Kitchen LJ went on to conclude at [67] that the FTT had jurisdiction to hear and decide HMRC’s arguments on the unallowable purposes issue.

In Investec v HMRC [2017] UKFTT 0356 (TC) (“Investec FTT”), the FTT (Judge Nowland and Mrs Bridge) considered the above case law, and then said at [117]:

“It is for the First-tier Tribunal to decide what the subject matter of the closure notice happens to be; that the circumstances may demonstrate that the subject matter is slightly broader than the particular conclusion and adjustments addressed in the closure notice and that it is open to HMRC to mount different arguments in any appeal, even for instance occasioning greater adjustments to the taxable profits, provided of course that the different arguments all deal with the same identified or obvious subject matter.”

When the case reached the Court of Appeal, Rose LJ (as she then was) gave the only judgment, with which Jackson LJ and Sir Timothy Lloyd both agreed, see Investec v HMRC [202] EWCA Civ 579 (Civ) (“Investec”). The third issue to be determined was the scope of the closure notice. Rose LJ said:

“70.

I accept the point made by the Appellants that this case is different from the Tower MCashback and Fidex cases because Issue 4 is not a different argument in support of the adjustments made to their tax returns to implement the conclusion set out in the closure notices. I would also go part of the way with the Appellants in accepting that the FTT does not have an unlimited discretion when determining what is “the matter to which an appeal relates” for the purposes of section 49I(1)(a) TMA or “the matter in question” for the purposes of section 49G(4) TMA. In their covering letter HMRC could have indicated that they might open up entirely different areas of the Appellants’ tax returns if the closure notice were appealed to the tribunal. The fact that the Appellants had been warned about those potential challenges being raised would not, in my view, empower the FTT to treat those issues as within the scope of the appeal…It seems to me that “the matter to which the appeal relates” for the purposes of section 49I(1)(a) must be that amendment and the amendment is therefore the “matter in question” which the tribunal is required to determine by section 49G(4) TMA. That then restricts the ambit of the appeal at the conclusion of which the tribunal may decide that there has been an overcharge or an undercharge and so make a reduction or an increase in the assessment pursuant to section 50(6) or (7) as appropriate. There is a limit on the jurisdiction of the FTT which is not simply a matter of ensuring procedural fairness. Any purported exercise by the FTT of a broader power to consider matters beyond that would be an error of law.

71.

The authorities do not support a narrow construction of those key phrases in sections 49I and 49G and they establish that the FTT is the appropriate stage at which the scope of the matter in question in the appeal is to be determined…

72.

The possibility of HMRC putting forward a case on appeal seeking a greater tax liability than that set out in the closure notice does not create an unfair imbalance between the interests of the Revenue and the taxpayer… There are other checks and balances in the scheme here designed to protect the taxpayer. Those protections are the time limit imposed on HMRC in opening an enquiry, the fact that only one enquiry can be opened into any one tax return and the ability of the taxpayer to seek a direction for the issue of a closure notice. A narrow confinement of the subject matter of the appeal is not intended to be one of the protections conferred on the taxpayer. The “venerable principle” is also an important underlying factor in any tax matter. I accept HMRC’s submission that proceedings before the FTT are not simply a dispute between two private parties and the venerable principle has a role to play here as the courts have found in the three cases which were cited to us.

73 I would conclude that the description of the scope of the matter in question in para. 117 of the FTT’s decision is a useful and practical one. It is for the First-tier Tribunal to decide what the subject matter of the closure notice is within the bounds I have described. They are best placed to determine whether the context of the closure notice and the surrounding circumstances demonstrate that the subject matter is broader than the particular conclusion and adjustments addressed in the closure notice. If that is the case, it should be open to HMRC to put forward arguments in any appeal even if they result in a larger amount of tax being due, provided that the different arguments all deal with the same matters in question identified in the closure notice. Although it is accepted that this case goes beyond the point decided in Tower
MCashback and Fidex, I do not regard those cases as requiring a bright line to be drawn. I would therefore dismiss the Appellants’ appeal on Issue 3.”

I deal first with all relevant years except 2013-14; that year is considered separately at §78ff. I begin by summarising the parties’ submissions, and then explain my conclusions.

Mr Gordon submitted that the Section 66 Issue was not contained within the conclusion stated in the Closure Notices, and thus, following Investec, it would be an error of law for the Tribunal to consider and decide that Issue.

Mr Waldegrave’s position was that the Section 66 Issue was within the conclusion stated by the Closure Notices, because that conclusion was that Mr Tinkler’s “trade loss has been overstated”. Mr Waldegrave said in the Response:

“Read in context, this must be understood as a conclusion that the Appellant’s claim for ‘trade loss relief’ (i.e. under section 64 of ITA 2007) had been overstated. This was the subject matter of the Closure Notices, and is accordingly the subject matter of the appeal. The Section 66 Issue is clearly relevant to that subject matter; indeed section 66 forms an integral part of the code which governs trade loss relief. In other words, HMRC’s argument based on section 66 constitutes a reason why the conclusion stated in the Closure Notices was correct.”

Mr Gordon disagreed, saying that HMRC’s “true conclusion” was in the covering letters, all of which read (see for example that for 2010-11 at §14):

“Please find enclosed the closure notice which reflects our conclusion that the income and expenses relating to horse racing are not part of your trade and as such, the profits/and or losses that you’ve declared from your self-employed business are overstated.”

In other words, said Mr Gordon, “HMRC’s conclusion was that there was not a single trade but a trade being carried on in parallel with a non-taxable activity”. Moreover, in contrast to the position in Tower and Fidex, HMRC had not raised the Section 66 Issue during the enquiries. Neither was it mentioned in the covering letters; Mr Gordon referred Rose LJ statement in Investec that“in their covering letter HMRC could have indicated that they might open up entirely different areas of the Appellants’ tax returns if the closure notice were appealed to the tribunal”.

Mr Waldegrave accepted that the Section 66 Issue was not referred to in the text of the Closure Notices or in the covering letters. However, he said that:

Mr Gordon’s position was that section 66 is not about whether a trade is commercial, but is instead a consequential restriction on losses, and what Mr Tinkler had said in the appeal letter could not be used to expand the conclusion in the Closure Notices. He also relied on Investec; I discuss his main submissions on that case below.

It is clear from Tower and Fidex that the scope of Mr Tinkler’s appeal is defined by “the conclusions stated in the closure notice” and “what matters are the conclusions set out in the closure notice”. The focus must thus be on the Closure Notices.

The closure notice in Tower was that “the claim for relief under s 45 CAA was excessive” and HMRC could thus raise arguments based on s 45 generally, even though the covering letter made reference to earlier correspondence which related only to s 45(3). Moses LJ said, in words approved by Lord Walker:

“the closure notice itself was, in plain terms, a refusal of the claim for relief under s 45 CAA 2001. That was the conclusion stated pursuant to s 28B(1). There is neither statutory warrant nor any need to look further.”

In Mr Tinkler’s case, the Closure Notices for all years except 2013-14 state that “[Mr Tinkler’s] trade loss has been overstated”. They were therefore broadly drafted, like that in Tower. As Mr Gordon rightly accepted, HMRC could seek to support the same conclusion by arguing that the expenses relating to the Racing Activity were not wholly and exclusively for the purpose of the trade, on the basis that the inclusion of those expenses caused the losses to be overstated (although the consequential amendments would be different).

I considered whether the position was the same in relation to the Section 66 Issue. Mr Gordon had submitted that this section is not about whether a trade is being conducted with a view to the realisation of profits, but instead provides that “trade loss relief against general income for a loss made in a trade in a tax year is not available unless the trade is commercial”. Mr Gordon relied on the passage from Investec in which Rose LJ said that:

“the FTT does not have an unlimited discretion when determining what is ‘the matter to which an appeal relates’ for the purposes of section 49I(1)(a) TMA or ‘the matter in question’ for the purposes of section 49G(4) TMA…There is a limit on the jurisdiction of the FTT which is not simply a matter of ensuring procedural fairness. Any purported exercise by the FTT of a broader power to consider matters beyond that would be an error of law.”

However, Rose LJ went on to endorse the passage at [17] of Investec FTT, in which Judge Nowlan had said (my emphasis) “it is open to HMRC to mount different arguments in any appeal provided of course that the different arguments all deal with the same identified or obvious subject matter”. Mr Tinkler had claimed loss relief under s 64; the Closure Notice reduced the value of that claim on the basis that it was “overstated”, and s 66 provides that loss relief cannot be claimed if the trade was not commercial. The section therefore relates to “the same identified or obvious subject matter”, namely whether the claimed loss has been overstated. Moreover, as Lord Hope said at [84] of Tower, the Tribunal is not tied “to the precise wording of the closure notice when hearing the appeal”.

Mr Gordon also emphasised the part of the same paragraph of Tower where Lord Hope had said that closure notices must be read in context, in other words, by reference to the matters considered in the course of the enquiry. However, it is clear from the notes of Mr Tinkler’s meeting with HMRC on 30 April 2014 that he was aware HMRC were challenging the commerciality of the Trade, and his letter of appeal explicitly refers to section 66.

Although not raised by Mr Gordon, I noted that if HMRC were right on the Section 66 Issue, Mr Tinkler’s losses would not be “overstated” but would be “eliminated”. However, I decided that this made no difference: as Kitchen LJ said in Investec, it is not appropriate to construe a closure notice as if it is a statute.

I therefore conclude that the wording of the Closure Notices that “your trade loss has been overstated” allows HMRC to raise the Section 66 Issue as part of its case before the Tribunal in relation to all of the relevant years except 2013-14 (as to which, see §78ff below).

As noted above, attached to all Closure Notices were profit and loss accounts for the Breeding Activity; these included opening and closing stock valuations for each of the horses which HMRC considered fell within that Activity.

HMRC’s position was that Mr Tinkler had incorrectly valued his opening and closing stock when calculating his trading profits; that this GAAP Issue was within the scope of the Closure Notices and should be decided by the Tribunal at the substantive hearing. Mr Waldegrave expanded the points made in the SoC as follows:

Mr Gordon began by pointing out that some of the valuations used in HMRC’s profit and loss accounts appeared to be on a mark-to-market basis. He said that GAAP requires that stock be valued at the lower of cost and net realisable value (“NRV”): on other words, if the value of a horse decreased below cost over the accounting period, that decrease is taken into account, but if it increased above cost, accounts are compiled on the basis of cost.

Mr Waldegrave accepted that GAAP requires stock to be valued at the lower of cost and NRV. However, he said that where (a) the value of a horse had been reduced (“impaired”) in one period, but (b) the impairment was reversed in a subsequent period so that the horse’s value increased again, then (c) that increase in value should be taken into account for GAAP as long as it was not above cost.

Mr Gordon did not disagree in principle, but drew attention by way of example to a particular foal born in 2011 which Mr Tinkler had valued at £70,000 in his 2011-12 accounts. HMRC’s profit and loss account for the following year had included the foal at the increased value of £72,700. Mr Gordon said there was plainly no impairment here, and that instead the foal appeared to have been revalued on a mark-to-market basis.

Having taken instructions, Mr Waldegrave confirmed that HMRC would review the stock adjustments made in the profit and loss accounts, and revert to Mr Tinkler or his representative as appropriate if there were errors. The following part of this decision is thus relevant only if HMRC maintain their position that the opening and closing stock values had been incorrectly calculated by Mr Tinkler.

Mr Gordon submitted that as the GAAP Issue was not mentioned in the Closure Notices (or even in the covering letters), HMRC could not rely on it when defending the Closure Notices at the Tribunal. Mr Waldegrave’s position was that the GAAP Issue came within the wording of the conclusions and was also reflected in the amendments.

In relation to all the relevant years except 2013-14, I find as follows:

I thus find that HMRC can rely on the GAAP Issue before the Tribunal because it both comes within the wording of the Closure Notices for all years except 2013-14, and it also underpins the amendments they made to those the returns. I consider the 2013-14 year separately below.

Neither party made separate submissions on the 2013-14 Closure Notice, but the wording is different and I considered it after the end of the hearing.

The conclusion stated in that Closure Notice was that “your trade profit has been overstated”. As a result, HMRC reduced Mr Tinkler’s self-employment profit from £649,923 to £403,717. Mr Tinkler nevertheless appealed that Closure Notice.

In defending the Closure Notice, HMRC can clearly rely on their primary argument that the Racing Activities are a hobby and not part of the Trade. If HMRC were to succeed, the 2013-14 Closure Notice would be confirmed.

However, the same would not be true were HMRC to lose on their primary case but succeed on the Section 66 Issue because:

In relation to the GAAP Issue, HMRC calculated the figures used in the amendments to the 2013-14 return on the same basis, ie that Mr Tinkler had used incorrect stock values. The GAAP Issue is thus an integral part of the amendments made by that Closure Notice. It can thus form part of HMRC’s case at the hearing in relation to 2013-14 Closure Notice.

Mr Tinkler’s grounds of appeal refer only to HMRC’s primary case, and not to the Wholly and Exclusively Issue, presumably because he did not consider it necessary to respond to that alternative case.

Mr Tinkler’s grounds also do not refer to the Section 66 Issue or the GAAP Issue. That is unsurprising, as neither is not explicitly identified in the Closure Notices or the covering letters. In relation to the GAAP Issue, Mr Waldegrave referred to HMRC’s letter of 20 November 2019, but that letter does not say that HMRC disagree with the valuations used in his accounts or tax returns; instead it confirms that HMRC will use the lower of cost or NRV when calculating the profit or loss of the Breeding Activity.

Mr Gordon submitted hat if he were to be wrong on the Section 66 Issue and/or the GAAP Issue, it would be in the interests of justice to give Mr Tinkler permission to amend his grounds of appeal; he also asked for permission to amend those grounds to include the Wholly and Exclusively Issue. Mr Waldegrave did not put forward any objection, and I find that it is in the interests of justice for allow Mr Tinkler to amend his appeal grounds to include all three Issues.

For the reasons set out above:

In Tower, Lord Walker emphasised “the requirements of “fairness and proper case management”. I therefore issue the following Directions:

This document contains full findings of fact and reasons for the decision about the scope of the Closure Notices. Mr Tinkler has a right to apply for permission to appeal against the decision pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (“the Tribunal Rules”), but the time limit for that application is deferred so as to be the same as any right of appeal he may have following the Tribunal’s decision in the substantive appeal.

HMRC has a right to apply for permission to appeal against the decision in so far as it relates to the Section 66 Issue as it applies to the 2013-14 year, and any such application is to be made within 28 days of the date of issue of this decision notice.

This document also contains full findings of fact and reasons for (a) the case management decision to grant Mr Tinkler permission to appeal on further grounds, and (b) the Directions. Any application for permission to appeal that case management decision and/or the Directions must be received by this Tribunal not later than 28 days after this decision is sent to that party.

The compliance dates for applying for permission to appeal have been changed from those in the Tribunal Rules for the reasons given in §34(5)(c)(i) and because it is in the interests of justice for the case to proceed without unnecessary further delays.

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.