[2011] UKFTT 252 (TC)
TC01116
Appeal
numbers: TC/2010/4053
TC/2010/4050
TC/2010/4048
TC/2010/4044
TC/2010/4045
Stamp
duty land tax (SDLT) – notices of enquiry into land transaction returns (FA
2003, Sch 10, para 12) – letter wrongly referring to self certificate – whether
notice effective – whether mistake in the notice -whether s 83(2) prevented
notice from being ineffective
FIRST-TIER TRIBUNAL
TAX
COOLATINNEY
DEVELOPMENTS LIMITED
NORTHAM
HOUSE 1129 LIMITED
NORTHAM
HOUSE 1130 LIMITED
NORTHAM
HOUSE 1131 LIMITED
NORTHAM
HOUSE 1136 LIMITED Appellants
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
TRIBUNAL:
JUDGE ROGER BERNER
NIGEL
COLLARD (Member)
Sitting in public at 45 Bedford Square, London WC1 on 6 April 2011
David Hannah, Cornerstone Tax
Advisers, for the Appellants
Mario Angiolini, instructed by
the General Counsel and Solicitor to HM Revenue and Customs, for the
Respondents
© CROWN COPYRIGHT
2011
DECISION
1. These
are joined appeals brought under para 15, Sch 10, Finance Act 2003 (“FA 2003”)
against a requirement imposed by a notice under para 14 that the Appellants
produce documents or information in connection with an enquiry into land
transaction returns for the purpose of stamp duty land tax (“SDLT”). The sole
issue before us concerns the validity or otherwise of purported notices of
enquiry under para 12, Sch 10.
Background
2. There
was no dispute on the background facts, which we can summarise quite shortly.
3. Taken
together, four property transactions overall were entered into by the
Appellants, and were notified to HMRC on a timely basis, between 12 December
2007 and 26 March 2008, by way of land transaction returns (forms SDLT1). None
of the Appellants filed a self certificate (SDLT60) in relation to any of the
transactions.
4. Each
of the land transaction returns was accompanied by a letter from Cornerstone
Tax Advisers (“Cornerstone”) setting out details of the relevant transactions
and submitting, for reasons that are outside the scope of the appeal before us,
that no SDLT would arise on the transactions.
5. In
relation to three transactions, HMRC wrote to Cornerstone on 11 March 2008 to
say that the “clearance” applications made by Cornerstone were not accepted,
and that there would be no confirmation of HMRC’s view. No such letter was
written with respect to the fourth transaction, the return for which was
submitted only on 26 March 2008.
6. On
18 and 19 August 2008 HMRC wrote to each of the Appellants. In each case these
letters wrongly stated that HMRC intended to make enquiries into “your self
certificate” regarding the property or properties mentioned in the heading to
the letter. The letter stated that it enclosed (and there was no dispute that
it did enclose) a copy of a letter written to the Appellant’s agent asking for
information, and a copy of Code of Practice COP25.
7. The
letter to the Appellant’s agent in each case stated that notice had been issued
to each of the relevant Appellants under para 12, Sch 10 FA 2003 of HMRC’s
intention to enquire into their land transaction returns, and requiring certain
documents and information set out in an enclosed schedule.
8. Code
of Practice COP 25 is headed “Enquiries into companies and partnerships”. On
its first page of text it states that it is to explain how Stamp Offices carry
out enquiries into company and partnership land transaction returns. It goes
on to explain that information is asked for to help HMRC understand the amount
of SDLT the company (or partnership) has paid and to check that it is right.
The process is set out, including the procedure on the start of the enquiry;
namely that HMRC will write to the company (or partnership), and their advisers
(if any) to inform them that HMRC intend to start enquiries and to explain
their rights and responsibilities.
9. On
29 October 2008, Cornerstone wrote to HMRC in respect of each transaction and
each Appellant referring to the notices and asserting that they had been
incorrectly issued as the Appellants had not rendered any form of self
certificate in respect of the transactions in question. The letters request in
each case confirmation that the notices had been withdrawn and the enquiries
closed.
10. By letters dated
4 November 2008 addressed to the Appellants’ respective agents (but not to the
Appellants themselves) HMRC responded to the Cornerstone letters of 29
October. In those letters HMRC said:
“I apologise for the errors in the enquiry notices
to your clients. The words ‘self certificate’ obviously should have read ‘land
transaction return’.
Under Schedule 11 Finance Act 2003 (FA 2003)
references to a ‘self certificate’ are to a certificate by the purchaser that
no land transaction return is required in respect of the transaction’. As the
purchaser submitted a land transaction return (as opposed to completing a self
certificate) in respect of the property transaction, the detail of which was
fully identified in the notice, any reasonable person would have concluded that
the enquiry related to the SDLT return in respect of that transaction.”
11. At the time of
the November 2008 letters, the enquiry window for the opening of an enquiry
into a land transaction return had already closed in respect of two out of the
four transactions. It remained open in the other two. No further notice of
enquiry was given by HMRC.
12. Following
further requests by HMRC for the documents and information to be provided, and
a review by HMRC, the Appellants appealed on 29 April 2010 against the para 14,
Sch 10 notices to produce documents and provide information.
The law
13. Schedule 10 FA
2003 makes provision, in relation to SDLT, with respect to land transaction
returns, enquiries, assessments and appeals. The general scheme of the
legislation is to permit HMRC, within a defined period, to enquire into a land transaction
return. If an enquiry is opened it will be completed when HMRC issue a closure
notice (para 23). There are provisions for an application to the tribunal for
a direction that HMRC issue a closure notice (para 24). If no enquiry is
opened, then subject only to a discovery assessment in applicable
circumstances, HMRC will no longer have the power to raise an assessment or
make an amendment to a return.
14. The provision
for notice of enquiry is contained in para 12, Sch 10 FA 2003. So far as
material to the period in question, this provides:
“(1) The Inland Revenue may enquire into a land
transaction return if they give notice of their intention to do so (“notice of
enquiry”)—
(a) to the purchaser,
(b) before the end of the
enquiry period.
(2) The enquiry period is the period of nine months—
(a) after the filing date,
if the return was delivered on or before that date;
(b) after the date on which
the return was delivered, if the return was delivered after the filing date;
(c) after the date on which
the amendment was made, if the return is amended under paragraph 6 (amendment
by purchaser).”
15. Before its
repeal with respect to transactions with an effective date on or after 12 March
2008, Part 1, Sch 11 FA 2003 made provision for a self certificate by a
purchaser that no land transaction return was required in respect of a
transaction. Part 3, Sch 11 (repealed at the same time) made provision for
enquiries into self certificates, corresponding to the enquiry provisions
regarding land transaction returns. Para 7 provided:
“The Inland Revenue may enquire into a
self-certificate if they give notice of their intention to do so (“notice of
enquiry”)—
(a) to the purchaser,
(b) before the end of the
enquiry period.
(2) The enquiry period is the period of nine months
after the date on which the self-certificate was produced.”
It is accepted that all the transactions that are
concerned in the disputed notices of enquiry have an effective date prior to 12
March 2008. Accordingly, para 7, Sch 11 was in force in respect of those
transactions.
16. Section 83(2) FA
2003 makes provision for certain documents, including notices, not to be
ineffective by reason of mistake, provided certain conditions are satisfied.
It provides:
“Any such assessment, determination, notice or other
document purporting to be made under this Part is not ineffective—
(a) for want of form, or
(b) by reason of any
mistake, defect or omission in it,
if it is substantially in conformity with this Part
and its intended effect is reasonably ascertainable by the person to whom it is
directed.”
The Part of FA 2003 to which this refers is Part 4, which
makes provision for SDLT, and which includes s 78, the provision that gives
effect to Sch10.
Submissions of the parties
Appellants
17. The submissions
of Mr Hannah for the Appellants can be summarised as follows:
(1)
At the material time there were two ways in which a taxpayer might
notify HMRC of a transaction. One was to self certify under Sch 11 FA 2003.
The other was to submit a land transaction return. These are entirely separate
and mutually exclusive procedures. In seeking on the face of the notices to
open an enquiry into a self certificate, HMRC used the wrong procedure and
sought to open the wrong type of enquiry. Steps that have been taken under an
irrelevant procedure ought not to be treated as notice under the correct
procedure.
(2)
It was accepted by HMRC in its statement of case that para 12, Sch 10 FA
2003 requires that HMRC convey clearly and unambiguously to the purchaser
within the enquiry period that HMRC intends to open an enquiry into its land
transaction return. The notices given by HMRC in these cases were clear and
unambiguous to the effect that an enquiry was being opened into a self
certificate. As there was no such certificate in any of the cases, a recipient
of the letter, not having any technical expertise, on reading on the plain
words of the letter that it was in respect of a self certificate, would
reasonably have disregarded the remainder of the letter and the documents that
accompanied it.
(3)
As regards the application of s 83(2) FA 2003, the document had to be in
conformity with Part 4 of the Act. The only reference in the notice is to an
enquiry into a self certificate. As that was a process within Sch 11, and not
Sch 10, the notice could not be in conformity with Part 4. This was not a case
of mistake; what HMRC were seeking to do was to change the basis of the
enquiry. This is not within the scope of s 83(2).
(4)
The aim of the statutory provisions is to provide legal certainty, and
to protect the taxpayer, who has made a full disclosure, from delay in the
making of enquiries. That certainty would be undermined if a notice issued on
an irrelevant basis could be treated as having been made on another basis.
(5)
Letters sent to the Appellants’ advisers are not relevant to
consideration of what notice has been given to the Appellants.
(6)
Having regard to examples of HMRC’s practice in other cases, in the
interests of fairness the appeal should be allowed.
HMRC
18. The submissions
of Mr Angiolini for HMRC, put shortly, were:
(1)
The notices comprised all the documents sent to the Appellants,
including those on 18-19 August 2008 and, in relation to the two transactions
for which the enquiry window had not then closed, the letters of 4 November
2008 to the Appellants’ agents. Accordingly the Appellants are not entitled,
as they seek to do, to rely solely on the letters sent to them when the
enquiries were started, in isolation from the surrounding circumstances.
(2)
When all the documents sent to the Appellants and the surrounding
circumstances are taken into account, the only possible conclusion is that the
notices were valid in opening an enquiry into the Appellants land transaction
returns pursuant to para 12, Sch 10 FA 2003. Any reasonable recipient of the
letters dated 18/19 August 2008 would have appreciated that HMRC was opening
enquiries into the land transaction returns. When read in its proper context,
any reference to “self certificate” in one of the three documents sent to the
Appellants at the same time could not possibly have led to any misunderstanding
on the part of the Appellants.
(3)
Further, and in any event, in so far as the letters referred, erroneously,
to “self certificate”, such a mistake was readily apparent to the Appellants
and, therefore, any alleged “defect” in those letters, even if considered in
isolation, would fall within the provisions of s 83(2) FA 2003, and did not
invalidate the opening of the enquiries into the Appellants’ land transactions.
The notices were therefore effective.
(4)
Further and in any event, when considering the notices in their true
context, even if s 83(2) were not applicable, such notices would be valid in
accordance with established case law on the interpretation of notices as a
matter of common law.
(5)
None of the examples referred to by the Appellants of different
taxpayers and different transactions are of any relevance or can be of any
assistance to the Tribunal in reaching its decision in the present case.
Discussion
19. We are satisfied
that the question before us can be determined only by references to the facts
and circumstances relating to the Appellants’ own cases. The way in which HMRC
might have dealt with matters concerning different taxpayers in different
transactions can have no bearing on the question of the validity or otherwise
of notices given to the Appellants. That is a question that must be determined
by the application of the law to the facts of the Appellants’ own cases.
Although Mr Hannah raised the issue of fairness, there is no such general
concept of comparison with other cases that can be applied. Mr Hannah did not
suggest that the Appellants here could have any legitimate expectation that
HMRC would accept that the notices were invalid, and in our judgment such an
argument could not be sustained in the circumstances of this case.
20. We also find
that the only documents we can consider in relation to the question whether a
valid notice had been given to an Appellant are those that were actually sent
to the Appellant itself. Paragraph 12, Sch 10 makes it clear that notice must
be given to the purchaser. Accordingly we cannot have regard to the letters
sent by HMRC on 4 November 2008 to the Appellants’ advisers, and we reject Mr
Angiolini’s submission that, in the case of the two transactions for which the
enquiry window remained open at that time, those letters, read in conjunction
with preceding correspondence, would be sufficient to satisfy the statutory
requirements.
21. In our view, in
a case where the statute itself provides a mechanism for determining whether a
notice is ineffective by reason of a mistake in it, if there is such a mistake
then recourse can only be had to that statutory provision to resolve the issue.
22. In support of
his argument that the documents sent by HMRC to the Appellants, when taken
together, constituted a valid notice irrespective of the application of s
83(2), Mr Angiolini referred us to a number of authorities. In Mitchell v North Lanarkshire Council [2007] CSOH 141, the Outer House of the Court of Session had
to consider an application for judicial review of demand notices for council
tax issued by a local authority. The regulation at issue (reg 28(2), Council
Tax (Administration and Enforcement) Regulations 1992) made it mandatory for
the notices to contain certain matters, and provided that it was not necessary
for the notices to be one sheet of paper but if more than one was used they had
to be issued together so as to comprise one notice. The authority had sent the
petitioner a notice accompanied by a pamphlet (referred to as a “glossy”). The
court held that, by reference to reg 28, the two documents should be taken
together, and that they were part of one notice within reg 28.
23. This finding of
the court was based on the terms of particular statutory provisions, which
dealt specifically with the case of more than one sheet “issued together” and
we do not consider that it can provide the answer to a question on the
construction of a differently-worded provision in FA 2003.
24. The court then
went on to consider whether a defect in the notice would render the notice a
nullity. It held that it would not. Lord McEwan said (at [16]):
“… I hold that it would be astonishing if Parliament
having laid out a careful scheme for taxation then legislated in subordinate
rules for the frustration of the scheme if the collection documents are not a
model of clarity. For that reason alone I think that the 1992 Regulations are
no more than rules of procedure and any defect in the notice does not render
that a nullity. In a busy local authority errors can occur yet it remains in
the public interest that taxes are set and collected. If a taxpayer could
avoid liability for such an alleged minor mistake the burden would fall on
others to make up the shortfall or else local services would be reduced. In
any event the fallacy of the argument is seen by reference to reg 29 which in
effect states that an invalid demand is to be treated as valid. Certainly the
levying authority has to issue another document but that is not a matter argued
before me.”
25. Mitchell
was a case concerned with collection of council tax, whereas the question
before us relates to the validity of the opening of an enquiry. Neither the
regulations at issue in that case, nor the statutory provisions with which we
are concerned, leave open the question of validity of notices in case of error
in the notice. We accept that if the relevant provisions contained nothing on
the question of validity in such a case that arguments would arise on general
principles such as those referred to by Lord McEwan, but in our view where
Parliament has set out specific circumstances where errors do not affect
validity there is no room for the application of principles outside those
statutory rules. To find otherwise would be to enable a different test to be
applied than that determined by Parliament itself. This can, we consider, be
demonstrated by Mr Angiolini’s reliance on Mannai Investment Co Ltd v Eagle
State Life Insurance Co Ltd [1994] AC 749 and Speedwell Estates Ltd v
Dalziel [2002] HLR 43 to submit that the correct approach is to ask
whether, in the factual context known to the Appellants, the notices would have
conveyed to the reasonable recipient that HMRC intended to open an enquiry into
the land transaction return. Whilst, as we shall describe, this test is
relevant to the application of s 83(2), if adopted as the sole criterion it
would not correspond to the test as laid down by s 83(2).
26. In a VAT
context, in an appeal to the VAT and Duties Tribunal, Anthony Corston
(2006, decision no 19991), the tribunal held that an assessment purportedly for
a period 00/00 was not invalid as it had been preceded by an explanatory
letter. The tribunal reasoned that the earlier letter, and the breakdown or schedule
that it contained, was itself assessments in their own right, and they were not
overridden or replaced by the later notification. Applying the Court of Appeal
judgment in House v Customs and Excise Commissioners [1996] STC 154, the
tribunal found that the commissioners could assess by reference to any period,
whether or not coincident with one or more prescribed periods, provided that the
taxpayer was given an adequate explanation.
27. We do not read Corston
as providing any guidance on the approach to the question of the validity of a
notice of enquiry of the nature we are considering. In the course of
concluding that an assessment for a period of a year was capable of being an
assessment for that period of time, the tribunal commented that, as the purpose
of assessment process was to recover from a taxpayer the amount of tax that is
properly due, it was not the case that HMRC “have to comply with rigid but
inconsequential matters of form, and run the risk that if they make a mistake,
however unimportant and however obvious to the taxpayer, he secures an
adventitious escape from his liability”. But in the case of an assessment
there is no provision corresponding to s 83(2) FA 2003, and it would be wrong
in our view to apply, in an applicable case, a test different from that set out
by the legislature.
28. There is in our
view no support to be derived from the decision of the Upper Tribunal in Peter
G Gunn v Revenue and Customs Commissioners [2011] UKUT 59 (TCC) for a
submission that, absent s 83(2), the notices were valid as issued. That case
was concerned with income tax assessments that the appellant alleged were
defective for a number of reasons. The tribunal held that there was no
requirement for the notice of assessment to state the statutory provision under
which the assessment is made. That is not an issue in this case. As regards
the other criticisms made of the notices, the tribunal found that the only
point of substance was that the notices were headed “Inland Revenue” at a time
when that body had ceased to exist and had been replaced by HMRC. The tribunal
held that, having regard to the fact that the covering letter was on HMRC
notepaper, the notices of assessment were “in substance and conformity with the
Taxes Act”, for the purpose of s 114 of the Taxes Management Act 1970. Section
114, although containing different requirements, is effectively the
corresponding provision to s 83(2) FA 2003. The tribunal applied the statutory
provision. Gunn cannot therefore support a submission outside the
application of that section.
29. We therefore
turn to consider the application of s 83(2) to the circumstances of this case.
We must first consider whether there is a mistake in the purported notice to
which s 83(2) can be applied. We find that the reference in the letters of
18/19 August 2008 to “enquiries into your self certificate” was a mistake. We
do not accept the argument of Mr Hannah that HMRC proceeded under Sch 11 FA
2003 as opposed to Sch 10. It is clear that the Appellants had filed land transaction
returns for the relevant transactions, and that, although the procedure
remained available to them at the material time, they did not issue self
certificates. It is abundantly clear from the surrounding circumstances and
the documents sent with the letters of 18/19 August 2008 that HMRC intended to
open an enquiry into the land transaction returns and that they intended to
give notice to the Appellants of that intention under para 12, Sch 10, and not notice
relating to self certificates under para 7 Sch 11. This is not therefore a
case of HMRC seeking to change the basis on which an enquiry was opened. The
enquiry was clearly into the land transaction returns, and it was only in the
letters to the Appellants that a mistake was made.
30. Section 83(2) requires
two conditions to be satisfied if it is to have the effect that a mistake is
not to render a notice ineffective. The first is that the notice must
nevertheless be substantially in conformity with Part 4 FA 2003. The second is
that the intended effect of the notice must be reasonably ascertainable by the
person to whom it is directed.
31. In applying the
first of these tests we need to consider what it is that is to be regarded as
the notice. What para 12, Sch 10 requires is that HMRC “give notice” of their
intention to enquire into a land transaction return. It does not say give a
notice. There can be no assumption therefore that the notice be comprised in a
single document, nor, where more than one document is sent to the purchaser,
that any one of those documents should be regarded as the notice. The
notice in these cases was given by means of the collection of documents sent to
the purchaser.
32. On that basis we
find that the notice given by HMRC to each of the Appellants on 18/19 August
2008 was substantially in conformity with Part 4 FA 2003. No formality is
prescribed for the notice, and there are no specific provisions for what it
must contain. The only requirement is that it gives notice of the intention to
enquire into a land transaction return. Whilst there was an error in the
letter sent to each Appellant, the copy of the letter sent by HMRC to the Appellant’s
adviser, and COP 25, both contain the necessary references to land transaction
returns, and contain information about the process.
33. As regards the
second test, we find that the requirement that the intended effect be
reasonably ascertainable is apt to apply an objective test. On that basis,
having regard to what Lord Steyn said in Mannai (at p 767G), “[the]
issue is how a reasonable recipient would have understood the notices”. But
one does not, in the context of s 83(2), have regard only to a hypothetical
reasonable recipient. The test relates to the reasonable understanding of the
real intended recipient. It is necessary to consider, therefore, the
characteristics of the recipient, its own knowledge (or lack of it) and the
overall factual context in considering what the intended recipient could
reasonably have been expected to have understood from the notice.
34. We do not accept
Mr Hannah’s argument that a reasonable recipient would have read the letter
only down to the words “self certificate” and would have disregarded the
remainder of the documentation sent by HMRC. That submission in itself
presupposes that the recipient would have sufficient knowledge and factual
understanding to be aware that the self certificate procedure had not been used
for the transactions in question, and that land transaction returns had been
made instead. In our judgment the Appellants, acting reasonably, would have
considered all the material that had been sent to them on 18/19 August 2008,
and having done so would reasonably have ascertained that the intended effect
was to open an enquiry into the land transaction returns, and that the
reference to self certificates was a mistake. On the basis of the
documentation as a whole there is in our view no other reasonable conclusion
that could have been drawn by the Appellants.
35. Accordingly, we
find that the notices to enquire into the land transaction returns of the
Appellants sent to them on 18/19 August 2008 were, by virtue of s 83(2) FA
2003, effective notices under para 12, Sch 10 to that Act.
36. That is
sufficient to dispose of this appeal. But we ought to address, if briefly, the
alternative argument raised by Mr Angiolini in the event we had found that the
notice was defective and that s 83(2) did not render it effective. This
argument was based on the application of the approach adopted by the House of
Lords in R v Soneji [2005] 1 AC 340. Mr Angiolini submitted that the
balance of prejudice is the key consideration, relying in particular on the
quotation (at [16]) by Lord Steyn of the judgment of the Privy Council given by
Lord Slynn in Wang v Comr of Inland Revenue [1994] 1 WLR 1286, where he
refers to the making of a determination just outside a time limit, and whether
the delay would necessarily involve any real prejudice to the taxpayer.
37. The principle
that can be taken from Soneji is that the emphasis is on the
consequences of non-compliance, and that the question that ought to be posed is
whether Parliament can fairly be taken to have intended total invalidity.
Ultimately this is a question of statutory construction (see Lord Slynn at
[23]). Applying that test, it seems to us, were we required to decide the
point, that if the conditions in s 83(2) FA 2003 were found not to have been
met as regards the notices at issue in this appeal, the intention of
Parliament, as evidenced by the inclusion of s 83(2) and the requirement that
specific conditions be met if a notice is not to be ineffective, is that the
notice would be ineffective. That does not, in our view, permit the
application of any other test, such as one of prejudice.
38. This conclusion,
to our minds, accords with the scheme of the legislation. That is carefully
designed to balance the interests of HMRC in properly assessing land
transactions to SDLT, and to make the necessary enquiries to enable that end to
be achieved, with the interests of the taxpayer who, subject to having made
full disclosure in a land transaction return or as otherwise provided by the
relevant provisions, is entitled to legal certainty, either on the expiry of
the enquiry window without any enquiry having been opened, or on the issue of a
closure notice following an enquiry.
Decision
39. For the reasons
we have given, we dismiss this appeal.
ROGER BERNER
TRIBUNAL JUDGE
RELEASE DATE: 15 April 2011
Amended on 4 May 2011 pursuant to rule 37 of the Tribunal
Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.
