Beware of Misleading HMRC Closure Notices
In the recent case of Edoh v HMRC the appeal was against an HMRC closure notice which added £19,400 to the taxpayer’s profit for tax year 2004/05. The First Tier Tribunal believed the taxpayer who claimed to have misunderstood implications of an HMRC meeting and had not signed any agreement regarding a tax settlement. The appellant produced to the Tribunal’s satisfaction documents showing that £19,400 was in respect of expenses for contractors supplied by agency. The appeal was allowed, which was clearly just and fair. But what was of concern is that the Tribunal found that the appellant had been misled to a degree by HMRC!
Usually tax disputes with HMRC are settled without costly formal appeal proceedings. This makes sense as neither side wants to waste costs when the tax dispute can be settled by negotiation. In fact, this is encouraged by HMRC’s Litigation Settlements Strategy (“LSS”) and recognised in statute (section 54TMA 1970).
However, where the agreement with HMRC is reached over a phone call or meeting with the Inspector, the taxpayer needs to exercise great caution.
In other words, before the appeal is determined, both the taxpayer and HMRC must come to an agreement. This can be in writing or otherwise by oral agreement. However, when the agreement is not in writing HMRC must confirm by written notice precisely what agreement was come to, and the terms agreed. The legislation is unequivocal and specifically worded to remove doubt; otherwise the HMRC investigation settlement could end up like the shambles illustrated in the above case.
No one denies that HMRC should expect taxpayers to act diligently and within the law, but surely the same standards should be expected by HMRC.
We are happy to provide appropriate and expeditious tax advice involving HMRC enquiries, disputes or investigations.
