Sovereign Corporate Ltd v The Commissioners for HMRC

For the reasons set out more fully below, the appeal is dismissed.

This appeal was brought by way of a Notice of Appeal dated 15 March 2022. There remains uncertainty as to whether this appeal was notified to the Tribunal out of time, and, if so, by how long. On one view, it was filed only a matter of days late. HMRC originally objected to the notification of this appeal, but that objection had fallen away by December 2022 (leading to the cancellation of a hearing which was to consider the point in January 2023). In the absence of objection, coupled with the likelihood that the period of delay is short, and insofar as not already (even if impliedly) dealt with, we consider that it is appropriate to extend time to notify the appeal, to the extent that any extension of time is required, to 15 March 2022. The appeal is therefore in time.

In its Notice of Appeal, one Mr Gary Clarkson, described as a tax agent, was named as the Appellant's representative. Mr Clarkson had been involved with the appeal, corresponding both with HMRC and the Tribunal, since September 2016, latterly on the headed notepaper of a firm known as F4TAX Ltd ('F4Tax'). Mr Clarkson described himself as a consultant with F4Tax.

This appeal was originally listed to be heard, for two days, in February 2025. On that occasion, Mr Clarkson sought an adjournment on the basis of ill-health. In reliance on what the Tribunal had been told, an adjournment was granted. HMRC had asked for some medical evidence to be provided (following the well-known guidance in Levy v Ellis-Carr [2012] EWHC 63 (Ch)) but, by the time that application came to be dealt with, the hearing date had already passed, and the Tribunal did not make any order.

The appeal was re-listed, on a face-to-face basis, on 8 and 9 July 2025, with the morning of 8 July being reading time.

On 30 June 2025, HMRC sent (in fact, re-sent, having already done so in advance of February's hearing) the hearing bundle and its skeleton argument to Mr Clarkson.

On the afternoon immediately before the hearing, HMRC wrote to Mr Clarkson (copied to the Tribunal), at his email address given on the Notice of Appeal, asking whether he intended to attend the hearing. There was no response to that email; but it did not bounce back to HMRC. It was therefore received.

When the Tribunal convened, at 2pm on 8 July, there was no appearance by or on behalf of the Appellant.

At the Tribunal's direction, HMRC's representative, Ms Gray, phoned the mobile number which she had for Mr Clarkson. She told us that her call was answered, by someone saying that it was Mr Clarkson's phone, but that he was in a meeting. Ms Gray told the person she was speaking to that she was phoning from a Tribunal hearing in London. That person said that the message would be passed on to Mr Clarkson, and that he would phone Ms Gray back. We stood the matter down for a further 20 minutes to see whether any such call was made. It was not. In the meanwhile, Ms Gray phoned Mr Clarkson's phone again, and spoke to the same person, who told her that she had passed the message on to Mr Clarkson.

Rule 33 of the Tribunal's Rules ("Hearings in a party's absence") provides that, if a party fails to attend a hearing, the Tribunal may proceed with the hearing if the Tribunal (a) is satisfied that the party has been notified of the hearing or that reasonable steps have been taken to notify the party of the hearing; and (b) considers that it is in the interests of justice to proceed with the hearing.

We were satisfied that the conditions in Rule 33 were met. Although the Hearing Notices were not in the bundle placed before us, we were satisfied that reasonable steps - being those set out above - had been taken to notify the Appellant (through Mr Clarkson) of the hearing; and that it was in the interests of justice to proceed with the hearing.

After the hearing, the panel requested, and was provided by the Tribunal's administration with, the Notice of Hearing (and other documents) sent by the Tribunal to Mr Clarkson, to his correct email address, on 30 May 2025; and also, on the same day, to the partnership at its correct postal address in Jersey. Hence, and even if the above steps had not been taken by Ms Gray, Mr Clarkson, being the Appellant's representative, as well as the Appellant, had been formally notified by the Tribunal of the hearing.

At 6pm on 8 July - that is to say, after the hearing had concluded - the Tribunal received the following email from a Mr Kevin Farley, who is a director of F4Tax. He wrote:

We remark as follows:

As to the interests of justice:

It was in the interests of justice to proceed.

On 31 March 2011, a Mr Andreas Roald, a director of Sovereign Film Investments Ltd, as a promoter, gave notice to HMRC's Anti-Avoidance Group of its intention to offer individuals the opportunity to undertake a trade of exploiting film rights via an LLP structure. It was stated that it was anticipated that a loss may arise during the first accounting period.

Coronation Film Partners LLP was incorporated under the Limited Liability Partnerships Act 2000 on 4 April 2011.

The Partnership had six partners; five natural persons (Messrs Attwood; Costello; Cowan; Devlin; and Dr Khurana) and a legal person - Sovereign Corporate Ltd ('SCL').

SCL's registered office was at 38 Esplanade, St Helier, Jersey.

The Partnership's self-assessment tax return for the accounting period from 4 April 2011 to 5 April 2011 (ie, one day) was signed and filed by SCL on 12 October 2011. The enquiry window was therefore open until 12 October 2012.

A net loss of £1,804,315 was declared. SCL was identified as the nominated partner.

On 11 May 2012, HMRC's Specialist Investigations office sent several letters, including:

Correspondence between HMRC and Malde and Co, and (from February 2013) PWC ensued.

On 13 September 2016, Mr Clarkson, then of Trident Tax Ltd, and writing on behalf of Coronation Film Partners LLP, wrote to HMRC informing them that he had been appointed by the partnership, and all its partners, to review its tax affairs. He wrote as follows:

That obviously refers to what we have described as 'the Defective Letter'. It makes no reference to any other letter; in particular, it makes no reference to the Company Secretary Letter.

On 21 August 2017, Mr Clarkson, on behalf of the Partnership, applied to the Tribunal for an order that HMRC close its enquiry. That application was on the footing that no valid enquiry had been opened. That application does not seem to have reached a hearing. It seems to have been overtaken by the issue of the Closure Notice in dispute.

On 8 May 2018, Mr Roald, on behalf of SCL, authorised Mr Clarkson to act on the Partnership's behalf in respect of all open enquiries, assessments and appeals.

On 27 September 2018, HMRC issued a Closure Notice to SCL under section 28B Taxes Management Act 1970 ('TMA 1970') for the tax year ending 5 April 2011.

The Closure Notice concluded that losses reported in the Appellant's Partnership return for that year were overstated by £1,804,315; and the Partnership's loss figure was amended to £zero.

Mr Clarkson challenged the Closure Notice, in time; it was upheld at departmental review on 3 September 2021, but that letter was sent by HMRC to the wrong address.

The sole and narrow ground of appeal is that no notice of enquiry was issued to the nominated partner - ie, to SCL - in accordance with TMA 1970 section 12AC(1)(a); and hence no valid inquiry had been opened.

It is important to note that there is no challenge to the timing of the notice of enquiry; nor any appeal against the conclusions expressed in the Closure Notice; the disallowance of the loss; or the Revenue amendment.

HMRC bears the burden of establishing that a compliant notice of enquiry was given. The standard of proof is the civil standard - namely, the balance of probabilities.

All the Appellant's focus has been on the Defective Letter. HMRC accepts that it was addressed to the wrong entity: it was not addressed to SCL. This is put down to a 'simple clerical error' (sic).

In our view, the Appellant's exclusive focus on the Defective Letter is (and always was) fundamentally misconceived because the Company Secretary Letter:

It includes the following:

TMA 1970 section 12AC provides that an officer may enquire into a partnership return if he gives notice of his intention to do so ("notice of enquiry") (a) "to the partner who made and delivered the return". That was SCL. Absent a compliant notice of enquiry, there is no valid enquiry; and hence no enquiry to be closed by way of closure notice.

A notice of enquiry does not need to observe any particular formality: see Flaxmode Ltd [2008] SpC 670 (Charles Hellier); all that is required is that notice be given to the taxpayer that HMRC intends to enquire into a return. This is assessed objectively.

This statement of the law has recently (25 May 2025) been approved by the Upper Tribunal (Upper Tribunal Judges Jonathan Cannan and Rupert Jones) in Scatola and others v HMRC [2025] UKUT 156 (TCC). The document giving notice must enable the reasonable recipient in the position of the taxpayer to understand which return HMRC are intending to enquire into. We consider this test to have been met in this case.

Hence, the nominated partner - SCL - was given notice of enquiry, on 11 May 2012.

In our view, the Defective Letter does not matter. No one has ever sought to argue that the receipt of two letters at the same address, one addressed to the right entity, and one to the wrong entity, means that the correctly addressed letter should be disregarded.

Given our conclusion on this point, we do not need to deal with HMRC's other arguments, which are either focussed on remediation of the Defective Notice using section 114 of the Taxes Management Act 1970; or which seek to argue that engagement with the Appellant's previous agent, PWC, who did not challenge the notice of enquiry for want of compliance with section 12AC, raised an estoppel by convention operating so as to prevent the Appellant raising the point about a defective notice: see Tinkler v HMRC [2021] UKSC 39.

Given the basis on which the appeal was brought, it is perhaps ironic that the Notice of Appeal itself names the wrong entity as the appellant: "Coronation Film Partners Ltd" (as opposed to LLP).

Coronation Film Partners Ltd is not the same as Coronation Film Partners LLP; and could not be, because a Limited Company is not a Limited Liability Partnership.

On one view, the absence of a competent appellant means that there was never any justiciable appeal; which would simply mean that the appeal would be struck out.

However, it seems to us that would be too astringent an approach to take in the circumstances of this appeal, especially given that it reached a hearing. As the Tribunal's Registrar identified in correspondence in October 2023, the better approach is, of the Tribunal's own initiative, and pursuant to Rule 9, to substitute the name of the Partnership; which is what we do.

The Appellant seized upon a poor point; pursued it for several years; and then failed - on the face of it, without any good reason - to appear or be represented at the final hearing of its appeal.

Rule 10(1) makes provision for orders for costs. Relevantly, the Tribunal may only make an order in respect of costs (a) under section 29(4) of the 2007 Act (wasted costs) or (b) if the Tribunal considers that a party or their representative has acted unreasonably in bringing, defending or conducting the proceedings. The Tribunal may make an order on an application or of its own initiative.

Section 29(4) of the Tribunals Courts and Enforcement Act 2007 describes “wasted costs” as any costs incurred by a party "(a) as a result of any improper, unreasonable or negligent act or omission on the part of any legal or other representative or any employee of such a representative, or(b) which, in the light of any such act or omission occurring after they were incurred, the relevant Tribunal considers it is unreasonable to expect that party to pay."

At the hearing, HMRC invited us to make an order for costs.

We are minded to make such an order. In accordance with Rule 10(5) we give the Appellant - SCL, as the nominated partner of Coronation Film Partners LLP - the opportunity to make representations as to whether a costs order should be made against it, including anything it wishes to say as to its financial means.

Any such representations should be received within 42 days of the date of release of this decision.

F4TAX Ltd is directed to bring this decision to the attention of SCL, and to inform the Tribunal that it has done so.

Any application to set aside this decision in accordance with Rule 38 is to be made in writing so that it is received by the Tribunal no later than 28 days after the date on which the Tribunal sent notice of this decision to the party.

Any such application is reserved to Judge McNall.

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.