Michael Kelly v The Commissioners for HMRC

This decision deals with HMRC’s application to strike out the appellant’s appeal on the basis that the tribunal has no jurisdiction.

The basis of this application is that the consequential amendments made to the appellant’s tax returns for three tax years following the closure of an enquiry into a film partnership of which the appellant was a member, are not appealable decisions within the ambit of section 31 Taxes Management Act 1970 (“TMA”).

Following the hearing I sought submissions on whether, amongst other things, the appellant’s appeal could be construed as an appeal under the provisions of section 32 TMA.

I am grateful to the appellant and to Mr Riaz for their oral and written submissions at the hearing and their subsequent written submissions thereafter. I have considered these in detail even though I have not found it necessary to refer to each and every one of them in reaching my conclusions.

For the reasons given later in this decision I have decided that HMRC are correct and the tribunal does not have jurisdiction in relation to these proceedings. I have therefore struck them out.

I have set out the relevant provisions of the TMA in the Appendix.

The relevant Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (as amended) (the “Rules”) are Rules 2 and 8:

Rule 2(3) requires us to give effect to the over-riding objective when exercising any power under the Rules. The over-riding objective, as set out in Rule 2(1), is as follows:

“The overriding objective of these Rules is to enable the Tribunal to deal with cases fairly and justly”.

Rule 8 deals with strike out. Under Rule 8(2)(a):

“The Tribunal must strike out the whole or part of the proceedings if the Tribunal-

(a)

does not have jurisdiction in relation to the preceding or that part of them;…”.

I was provided for the hearing with two bundles of documents, one of which included authorities. I was subsequently provided with a further bundle of documents, including authorities, as part of HMRC’s post hearing submissions. Mr Kelly tendered a witness statement and gave oral evidence. From this evidence I find as follows:

Mr Kelly was a member of two film partnerships, Invicta and Echo.

He returned income from both partnerships on his tax returns.

On 28 February 2017 HMRC issued closure notices to Invicta for the tax years 2002/2003 to 2005/2006 (“the relevant tax years”).

On 18 August 2023, HMRC issued a “consequential amendment notice” (i.e. a notice under section 28B(4) TMA). These made consequential amendments to the appellant’s self-assessment tax returns for the relevant tax years.

On 8 September 2023, HMRC wrote to the appellant regarding an underutilised loss for the tax year 2003/2004 which arose because of the consequential amendments.

The appellant did not respond to this so on 29 September 2023 HMRC sent a further letter to the appellant explaining that they had now used the loss in the most beneficial way for him and sent him a self-assessment statement dated 29 September 2023 showing that the net amount due from him was £6,577.41.

On 11 October the appellant appealed to the tribunal against the adjustments made to his tax returns for the relevant tax years. The amount against which he appealed was £6,581.16.

On 20 December 2023 the appellant made an application to HMRC for his dispute to be admitted into the ADR programme. That application was rejected on 29 January 2024 on the basis that the appellant had no right of appeal against the consequential amendment notice.

In summary Mr Riaz submitted as follows:

In order for the tribunal to have jurisdiction, the appeal must fall within the ambit of section 31 TMA. The appellant’s appeal is against the consequential amendment notice. This does not fall within the ambit of section 31 TMA. It is not itself a closure notice.

There is considerable case law supporting this analysis including Knibbs v HMRC [2019] EWCA Civ 1719 (“Knibbs”).

It is not an assessment of tax which is not a self-assessment.

Furthermore, there is no evidence that the appellant made a valid claim under section 32 TMA which was considered and refused by HMRC, thus giving the appellant a right of appeal under that section.

Mr Kelly’s remedy to his assertion that he does not owe this tax is to make a claim for overpayment relief. HMRC have advised him of this.

In summary Mr Kelly submitted as follows:

HMRC have made two amendments. The first is reflected in the consequential amendment notice which he does not seriously dispute. However, he is appealing against an amendment which is very different.

He was a member of two partnerships, Invicta and Echo, and he returned his partnership income to HMRC. However, HMRC recorded that income as if it was received from only a single partnership. This is clear from HMRC’s records.

So for example, his income in a particular year might have been 5 from Invicta and 5 from Echo. This was recorded as a single sum of 10 by HMRC.

Following the consequential amendment, his Invicta income was increased from (using the above example) 5 to 6.

What should therefore have happened was that his total income for that year should have been increased from 10 to 11. But HMRC increased it from 10 to 16. This is recorded in HMRC’s documents and indeed is accepted as having happened by HMRC itself.

And it is against this conclusion that he is appealing.

In his submission the consequential amendment notice can comprise a free-standing assessment which gives him a right of appeal under section 31 TMA.

Alternatively, he has made a claim to HMRC under section 32 TMA which HMRC have refused and which gives a right of appeal under that section.

By seeking to strike out his appeal, HMRC are also denying him the opportunity of having this matter heard and resolved.

This tribunal is, as is often said, a creature of statute. Its jurisdiction is therefore circumscribed by statute and if the tribunal does not have jurisdiction, then neither party can confer such jurisdiction on it. And I must strike out an appeal where the tribunal has no jurisdiction.

The relevant statutory provisions are section 31 and section 32 TMA

Under section 31, an appeal may be brought against any conclusion stated in a partnership closure notice.

HMRC submits that the consequential amendment notice is not a partnership closure notice. The appellant appears to accept this. And rightly so. It is clearly not a partnership closure notice and so is outside the ambit of section 31(1)(b) TMA on the face of the legislation.

This interpretation has been endorsed by a number of tribunal decisions and most authoritatively by the Court of Appeal in Knibbs at [23]:

“Upon completion of the enquiry, HMRC issue closure notice to the partnership and, if the partnership return is amended by the closure notice, HMRC must give each partner a notice and mending the partners return: section 28B(4). The partnership can appeal against the conclusions in or amendments made by the closure notice, but the individual partners have neither that right nor a right to appeal the notice given to them under section 28B (4)”.

Mr Kelly, therefore, has no right of appeal against the consequential amendment notice.

It occurred to me during the hearing that it might be arguable that he had a right of appeal under section 31(1)(d) TMA based on the consequential amendment notice comprising an assessment of tax which is not a self-assessment. Both Mr Riaz and Mr Kelly provided written submissions on this point.

It is clear from section 30A TMA that an assessment must be made by an officer of HMRC. It seems also clear to me from the cases cited by Mr Riaz that the officer cannot (to use my terminology) “sleepwalk” into an assessment. The process of assessment requires a conscious decision to be made to assess the taxpayer, by the officer, and the subsequent recording of that assessment, originally by way of endorsing or signing a paper certificate, but currently entering the assessment into HMRC’s computer system, with the intention that that document (or its electronic equivalent) should take effect as an assessment (see Burford v Durkin [1991] BTC 9 and Corbally-Stourton v HMRC [2008] SpC 692.

There is no evidence that any such process was undertaken by an HMRC officer in respect of the consequential amendment notice. It was simply a letter, written by an HMRC officer, explaining to the appellant that HMRC had closed their enquiry into the Invicta returns for the relevant tax years, and the consequences for the appellant. It explained that his tax returns for the relevant tax years would be amended. Subsequent correspondence explained the way in which losses would be used against the appellants consequential additional income.

In my view neither the consequential amendment notice, nor any subsequent correspondence comprises an assessment which brings with it an appeal right under section 31(1)(d) TMA.

I had also thought, at the hearing, that the appellant’s appeal might fall within the ambit of section 32 TMA which brings with it a freestanding appeal right separate from the appeal rights under section 31 TMA. However, to fall within this provision, the appellant must have made a claim to HMRC that he has been assessed to tax more than once for the same “cause” and for the same chargeable period.

If, having made that claim, it is refused by HMRC, then the appeal right arises.

I sought, and was provided with, written submissions by both parties, on this point.

It is self-evident that before the appeal right arises, the appellant must have made a claim in the first place, and that claim must have been refused by HMRC.

Mr Kelly submitted that he has been in constant communications with HMRC explaining to them why, in his view, he has been overtaxed.

Having been through the documents, it seems to me that Mr Kelly's email to HMRC dated 23 March 2022 (a copy of which is embedded in his witness statement) might be construed as a formal claim that he has been assessed to tax more than once for the same cause and for the same chargeable period. And HMRC's email (the document on page 86 of the hearing bundle which I think was sent on 4 January 2024) could be construed as a refusal of that claim.

However, I was not taken to either document at the hearing, nor did either party refer to them in their submissions regarding the application of section 32 TMA. I am not, therefore, prepared to come to any conclusion as to whether there has been a claim and a refusal as is required by section 32 TMA.

But in any case, Mr Kelly’s appeal was made on 11 October 2023 and thus could not have been an appeal against any such refusal. And so cannot not be construed as an appeal made under the provisions of section 32 TMA.

Regrettably for Mr Kelly, therefore, I am forced to conclude that I have no jurisdiction to consider his appeal and therefore must strike it out. The consequential amendment notice falls outside the ambit of section 31 TMA, and his appeal could not have been made under the provisions of section 32 TMA for the reasons given above.

I therefore allow HMRC’s application and strike out the appellant’s appeal.

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.