Coolatinney Developments Ltd & Ors v Revenue & Customs [2011] UKFTT 252 (TC)

FTT-Tax
Coolatinney Developments Ltd & Ors v Revenue & Customs
[2011] UKFTT 252 (TC) · 2011-04-15
[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 Sch10. 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 Sch11. 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.

Cited in 9 later judgments