Kinross Estate Company v The Commissioners for HMRC

With the consent of the parties, the form of the hearing was V (video) held on Teams. The documents to which we were referred were a hearing bundle of 453 pages and a Disposition dating from 1926.

Prior notice of the hearing had been published on the gov.uk website, with information about how representatives of the media or members of the public could apply to join the hearing remotely in order to observe the proceedings. As such, the hearing was held in public.

This was an application by the Appellant for permission to make a late appeal against a closure notice dated 25 March 2019 as upheld by a review conclusion letter dated 15 November 2019.

HMRC originally opened an enquiry into the Appellant’s tax return for the period ended 30 September 2010, by letter dated 10 May 2012. Further enquiries were opened in relation to the periods ended 30 September 2011 (on 30 August 2013), 30 September 2014 (on 24 July 2017), 30 September 2015 (on 24 July 2017) and 30 September 2016 (on 12 September 2018).

HMRC issued a closure notice in relation to all the above enquiries on 25 March 2019.

The Appellant appealed against this closure notice on 24 April 2019.

On 30 April 2019 HMRC responded explaining that the Appellant’s options, if it did not have further information or evidence to submit, were to request a review by HMRC or appeal to the Tribunal. The letter also explained that, given the high level of involvement of HMRC’s policy unit in reaching the decision outlined in the notice, it was extremely unlikely that a review would result in a different decision and so an appeal to the Tribunal would be most appropriate.

The Appellant requested a review (after a further chaser from HMRC on 30 May 2019) on 15 July 2019 and HMRC issued a comprehensive View of the Matter letter on 16 August 2019, including the option of a further review or appeal to the Tribunal within 30 days.

The Appellant requested a review on 13 September 2019. A review conclusion letter was issued on 15 November 2019, upholding the decision.

There was then something of a hiatus while HMRC waited to see if the Appellant was appealing to the Tribunal, then whether it was applying for permission to appeal late, and then while HMRC suspended compliance activities on the outbreak of the coronavirus pandemic.

HMRC wrote comprehensively to the Appellant on 4 August 2020, having resumed compliance activities and written to the Appellant’s agent to this effect on 22 June 2020, stating that if it did not hear anything further regarding a late appeal by 1 September 2020 it would release for collection the repayment due under its decision.

On 17 July 2023 the Appellant’s new agent (Suttons) wrote to HMRC to claim special relief in respect of the year ending 30 September 2011. HMRC replied on 9 August 2023 that special relief was not appropriate in this instance. The agent responded on 17 August 2023 accepting that the claim for special relief could not be considered and requesting instead that HMRC consider a late appeal on the grounds of reasonable excuse. HMRC replied on 18 August 2023 that it had already received an appeal on 15 July 2019 which had been treated as settled and so could not consider further appeals, so the Appellant’s only option was to apply to the Tribunal for permission to make a late appeal, as HMRC had previously set out in correspondence.

The Appellant appealed to the Tribunal on 18 August 2023, specifically in respect of the year ending 30 September 2011.

HMRC objected to the late appeal and made an application to strike out the claim (27 November 2023).

The matters before the Tribunal were the application for permission to appeal late and, if permission were granted, the strike out application by HMRC.

The appeal in question was against HMRC’s decision upheld in its review conclusion letter of 15 November 2019. The time limit for making an appeal was 30 days from that letter.

The reason for the appeal being late was that the grounds for appeal had only recently been identified by the Appellant’s new advisor, the Appellant had acted reasonably in relying on its previous advisors in all the circumstances, the Appellant had been badly advised by its former advisors, and the situation was extremely complicated for anyone other than a tax professional or lawyer.

The grounds for the appeal were that the sale of a house should never have been brought into the Appellant’s tax computations because it did not then (and never had) owned the house. It was in fact owned by an individual, who occupied the house as his main residence and therefore should have benefitted from principal private residence relief (PPR) on its disposal, resulting in no charge to capital gains tax.

The approach to be taken by the Tribunal in considering an application for permission to appeal late was set out in the case of William Martland v The Commissioners for HM Revenue and Customs [2018] UKUT 0178 (TCC) (Martland)and can be summarised as follows.

The statutory time limit applies unless the applicant can satisfy the Tribunal that permission for late appeal should be granted.

In considering the application the Tribunal must:

It is accepted that the delay in this case is serious and significant: it should have been made within 30 days of 15 November 2019 and was made on 18 August 2023.

The reasons for the delay are summarised in paragraph 17 above.

Allowing the appeal to proceed so late would go against the principles of consistency and certainty. Not allowing it would potentially result in the payment of tax by the Appellant on its reported gain on the sale of the house, whereas, in light of the newly discovered alleged mistake as to ownership, the gain should perhaps have been attributed to the actual owner (who might have benefitted from PPR resulting in no tax being payable).

Whilst not required to undertake a detailed review of the merits of the appeal itself, the Tribunal should take into account any obvious strengths or weaknesses of the appeal since this may affect the balance of considerations in the overall evaluation. It would not be in the interests of justice to grant permission for an appeal that is obviously doomed to fail (Martland).

The framework under which this appeal is made is contained in Schedule 18 of the Finance Act 1998 (Schedule 18), paragraph 34 of which provides that:

“…where a partial or final closure notice is given to a company by an officer…the…notice must…make the amendments of that return that are required to give effect to the conclusions stated in the notice…[and]…an appeal may be brought against [such] an amendment of a company’s return…”.

The Appellant referred us to the discussion in Investec Asset Finance Plc v HMRC [2020] EWCA Civ 579of how the Tribunal should identify the matter to which an appeal relates. It is clear from that decision that the matter to which an appeal relates must be the amendment required to give effect to the conclusions stated in the notice and that this is a limitation on the jurisdiction of the Tribunal (“Any purported exercise by the FTT of a broader power to consider matters beyond that would be an error of law”, para 71). However, the decision also states clearly that the matter in question should not be construed too narrowly and it was this point that the Appellant wished to stress.

The review conclusion letter upheld the final closure notice issued on 25 March 2019 for all the periods under enquiry. It follows that it upheld the amendments required to give effect to the conclusions of those final closure notice and therefore it is against those amendments that an appeal might be brought, namely, those amendments necessary to give effect to the assessments made for the periods in question.

The main issue in point in the closure notice amendments and in the review was the availability or not of relief for impairment of a loan. The Appellant claimed such relief. HMRC concluded that it was not in fact available. The amendment to the returns was effectively the removal of the relief. However, for the period ending 30 September 2011, there was also an agreed adjustment for chargeable gain arising from a house valuation of 1982 which had been questioned.

This appeal is not against the refusal of relief for impairment or against the valuation of the house.

The basis of this appeal is that the Appellant made a mistake in its tax return (and presumably numerous other records and documents, from its annual accounts to its financial arrangements).

The Appellant sought to link this mistake to the subject matter of the HMRC decision in order to make this appeal.

This is an unusual appeal and the Tribunal found that whilst it would not be appropriate to consider in detail the merits of all the arguments that would form the substance of the appeal, it was necessary to consider the basis on which the appeal was made as a key preliminary issue.

The Tribunal is of the view that an appeal must be against an amendment to a tax return following a decision made by HMRC. In this case, HMRC’s decision and the consequent amendments related mainly to the availability of impairment relief, but also included an agreed change to the valuation of the house. This is what could be appealed under Schedule 18.

Although the chargeable gain was the subject of a revaluation which was at the time agreed between the parties, the inclusion of the gain per se in the Appellant’s return is not the result of any amendment or decision by HMRC and cannot therefore be appealed under Schedule 18.

What the Appellant is seeking to do is use the appeal framework to correct its own alleged error. (We say ‘alleged’ error because we cannot assess the actual ownership position, which is a matter of Scottish land law and outside our jurisdiction.)

The requisite basis for an appeal is missing and this appeal is therefore doomed to fail.

Having weighed the arguments and considered the evidence put before it, the Tribunal considers that in this case the reasons given for the decision and the potential prejudice to the Appellant in paying the tax assessed are not sufficient to justify granting permission to appeal late, which would be contrary to the principles of consistency and certainty required for the good administration of justice, in circumstances where the delay is extremely lengthy and the appeal is doomed to fail.

The application for permission to appeal late is refused.

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.