Constructive confinement

Home Comment Constructive confinement

The tendency of the Courts, in tax cases, to take the narrowest possible view of the protections conferred by statute contrasts oddly with the Court’s approach in such areas of law as Crime, Employment, Discrimination and Immigration.  The Court of Appeal’s decision in Epaminondas Embiricos v. HMRC [2022] is a recent example of this tendency.

The case involved enquiries by HMRC into Mr Embiricos’ claim that the Remittance Basis should apply to him in various years on the basis that, in those years, he was not domiciled in a country of the UK. 

As we have observed in a previous point on this blog (‘Power Without Responsibility’ July 2021) HMRC routinely requests large shopping lists of information from taxpayers in the course of enquiries in which the taxpayer’s domicile is at issue; often where it has no sufficient reason to suspect that the taxpayer’s assertions as to his domicile status are incorrect.  This nuisance is often increased by HMRC asking, before it has come to a conclusion on the taxpayer’s residence and domicile status, for equally burdensome information about his overseas income and gains which will only prove to be relevant if the taxpayer’s residence or domicile status is not as he has claimed.  It would seem reasonable that, before it exercises its power to require the provision of this latter class of information, HMRC should be required first to come to a conclusion on the antecedent questions of the taxpayer’s residence and domicile status. 

Mr Embiricos thought, not unreasonably, that it should be possible to determine in which country he was domiciled before he was required to expend substantial time and money in providing large amounts of information about his unremitted income and gains which would only become relevant to his fiscal affairs if he were indeed domiciled in a country of the UK. 

There is a statutory procedure under which this can be done.  The procedure is found in TMA 1970 s.28ZA which provides that:

‘At any time when an enquiry is in progress under section 9A(1) or 12AC(1) of this Act in relation to any matter, any question arising in connection with the subject-matter of the enquiry may be referred to the tribunal for its determination.’

Such a referral, however, can only be made jointly by the taxpayer and HMRC and as the report of the decision of the FtT explains, HMRC refused to refer the question of Mr Embiricos’ domicile to the Tribunal.  It claimed that:

‘ … the reason HMRC do not consider this appropriate is that a joint referral under s 28ZA should be approached in the same way as a consideration as to whether a particular aspect of an appeal should be heard as a preliminary issue. This, he says, would normally be a short point of law where no significant findings of fact are required.’

So Mr Embiricos concentrated, in the FtT, on an alternative argument and advanced that argument alone in the Upper Tribunal and the Court of Appeal.

The F(No. 2)A 2017 Sch. 15 amended s.28A to make provision for  partial closure notices (‘PCNs’) which allows HMRC to partially close an enquiry to the extent that it relates to a particular matter.  As with final closure notices (‘FCNs’), which close an enquiry completely, the taxpayer may apply to the Tribunal to direct that a partial or final closure notice be issued:

               ‘28A Completion of enquiry into personal or trustee return

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

(1A) Any matter to which the enquiry relates is completed when an officer of Revenue and Customs informs the taxpayer by notice (a “partial closure notice”) that the officer has completed his enquiries into that matter.

(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, or

(b)        in a case where one or more partial closure notices have been given, that the officer has completed his remaining enquiries.


(2) A partial or 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,

(b)        make the amendments of the return required to give effect to his

(3) A partial or final closure notice takes effect when it is issued.

(4) The taxpayer may apply to the tribunal for a direction requiring an officer of the Board to issue a partial or final closure notice within a specified period.

(5) Any such application is to be subject to the relevant provisions of Part 5 of this Act (see, in particular, section 48(2)(b)).

(6) The tribunal shall give the direction applied for unless … satisfied that there are reasonable grounds for not issuing the partial or final closure notice within a specified period.

(7) In this section “the taxpayer” means the person to whom notice of enquiry was given.

(8) In the Taxes Acts, references to a closure notice under this section are to a partial or final closure notice under this section.’

A taxpayer may appeal under TMA 1970  s.31 against the conclusions or amendments made by a PCN or FCN. 

Mr Embiricos considered that the question of his domicile was a ‘matter’ within TMA 1970 s.28A(1A) and applied to the Tribunal for a direction under TMA 1970 s.28(4) requiring the Officer conducting the enquiry to issue a PCN in respect of that matter. 

HMRC argued that:

‘ … “matter” in s 28A(1A) must mean a matter in respect of which HMRC could issue a final closure notice (‘FCN’) if it were the only issue being enquired into. The legislative intent behind the enactment of the PCN regime is to enable HMRC and the taxpayer to achieve finality on the “matter” which is the subject of the PCN by securing the early payment of tax brought into charge. To achieve such finality, the HMRC officer’s conclusion on a “matter” must enable all necessary amendments to a taxpayer’s tax return arising from the officer’s conclusion to be made, including where relevant, a statement of the amount of any tax brought into charge by the amendment. In other words, the quantum of the tax payable is not a discrete matter for the purposes of s 28A which can be the subject of a separate PCN. Rather, the amendments to the return “required to give effect to” the officer’s conclusion must include a calculation of any tax payable. Where that cannot be done because HMRC do not have all relevant information, the officer cannot (and cannot be required to) issue a PCN’ (para. 3).

Lady Justice Davies, delivering, in the Court of Appeal, the leading judgment with which the other two Judges agreed, accepted HMRC’s arguments.  She did so on a number of different grounds.  In the case of R (Archer) v. HMRC [2017] the Court of Appeal, before the introduction of PCNs by the F(No. 2)A 2017, found that a closure notice, which at the time could only have been given in respect of an enquiry as a whole, must include an assessment of the taxpayer’s liability to taxation.  Arguing that the introduction of the PCN provisions was not a fundamental change to the regime for the closure of enquiries she drew the  conclusion that ‘PCNs were intended to operate in the same way and be subject to the same restrictions as what are now final closure notices (FCNs)’ (para. 61). 

This argument ignores the fact that allowing an enquiry to be partially closed in relation to a matter must have required changes to the provisions for closing enquiries so that those provisions should take account of the differences which arise from closing an enquiry in part and not completely.  Lady Justice Davies did not really explain in her judgement why it is necessarily the case that those differences should not include requiring a conclusion to be drawn in a discrete matter even where it would still be necessary, having done so, to make further enquiries to determine the taxpayers’ tax liabilities to which that conclusion was relevant. 

She did go on to say that:

‘In other words, the PCN (like an FCN) is a form of assessment with specific consequences that are not dependent on the taking of any further action by HMRC or the taxpayer’ (para.62).

That comment fails to take account of the fact that, for example, where a taxpayer has omitted income from his return even when the omitted income has been quantified HMRC is still unable to determine his revised taxation liability unless it knows a number of other matters, such as the amount of his other income and to what extent the personal allowance is applicable. 

She also placed weight on the difference in wording between s.28A(1A) which refers to ‘any matter’ and that of s.28ZA which provides that:

‘at any time when an enquiry is in progress … in relation to any matter, any question arising in connection with the subject-matter of the enquiry may be referred to the tribunal for its determination’ (para. 65).

Both parties accepted that there must be a distinction between any matter in s.28A and ‘any question arising in connection with the subject matter of the enquiry’, that ‘subject-matter’ in s.28ZA was a reference to the phrase ‘any matter’ appearing earlier in that sub-section and that ‘any matter’ in s.28ZA must bear the same meaning in s.28A.  Even if that the case, it is clear that in ordinary English usage ‘matter’ is a word of broad ambit and might be used in distinction to the phrase ‘any question’ without being used in a specialised sense or necessarily requiring the very restricted interpretation given to it by the Court of  Appeal. 

Lady Justice Davies objected that the construction of ‘any matter’ put forward by Counsel for Mr Embiricos had an element of ‘… inherent subjectivity and [would result in] consequent uncertainty in determining what is and is not such’ (para. 67) a matter.  ‘Matter’, however, being, in its normal English usage, a word of broad meaning  the draftsman may be assumed to have used such a term just because of its breadth of meaning. 

Lady Justice Davies also argued that Mr Embiricos’ construction of ‘matter’ would give HMRC a power to issue multiple disclosure notices placing a burden on the taxpayer.  That ignores the fact that it is normally in a taxpayer’s interests to determine HMRC’s position on a matter at the earliest possible stage so that, where HMRC’s position is incorrect, the taxpayer may have the opportunity of appealing to the Tribunal to establish the correct view.  If HMRC were to abuse its administrative powers by issuing PCNs simply in order to exhaust the financial resources of a taxpayer the appropriate remedy would be available through judicial review.

Lady Justice Davies placed considerable emphasis on the history of the enactment of the 2017 changes and in particular on HMRC’ consultation document published on 18th December 2014 (and HMRC’s subsequent summary of responses to it).  In doing so she placed excessive emphasis on the proposals’ purpose of accelerating the payment and collection of tax for the Government’s immediate financial benefit and insufficient emphasis on their purpose of making the enquiry process more efficient and flexible for both HMRC and the taxpayer.  

Taken all in all, the view taken by the Court of Appeal, in confirming the decision of the Upper Tribunal, is a remarkably restrictive one and fails to do justice to the language of s.28A.  It fails to take account of the fact that even where an FCN is issued it need not give rise to ‘an assessment’ for the taxpayer’s own self-assessment may be unchanged.  All that is required of an FCN or a PCN is that the closure notice should 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.’

In respect of an enquiry in which the HMRC officer has disagreed with the taxpayer as to the taxpayer’s domicile where the taxpayer has not yet given information about his unremitted income and gains because he considers himself not to be domiciled in a country of the UK and, as a result, to be subject to the remittance basis, on a straightforward reading of s.28A the officer would seem to have power to issue a PCN. The effect of s.28A (2) would seem to be that such a PCN must state the officer’s  opinion as to the taxpayer’s domicile and that no amendments to the taxpayer’s return are required at that time.  That is because for such amendments to be required it would be necessary for the officer to come to a further conclusion as to whether the taxpayer concerned had any unremitted income and gains. 

The Court of Appeal has opted, however, to reject that straightforward construction in favour of one which will deny the taxpayer the protection of the PCN procedure except in a very narrow range of circumstances. It is to be hoped that Mr Embiricos will maintain his appeal, will be given leave to appeal to the Supreme Court and that the Supreme Court will give a more balanced judgment than has the Court of Appeal. 

Photo by Eric Prouzet on Unsplash

Published in
1 February 2022
Last Updated
28 April 2022