Credit Suisse: Appeal allowed as HMRC had failed to open a valid enquiry

In Credit Suisse Securities (Europe) Ltd and others v HMRC [2020] UKFTT 86 (TC), the First-tier Tribunal (FTT) allowed a company's appeal against a closure notice on the grounds that HMRC had not issued a valid notice of enquiry.

Background

The appellants were all companies within the Credit Suisse Group (CS). 

Bank payroll tax (BPT) was a temporary tax imposed by Schedule 1, Finance Act 2010 (FA 2010), on certain forms of remuneration awarded to employees of banks between December 2009 and April 2010. 

CS's appeal was concerned with the application of BPT to a deferred variable award scheme which it operated for senior employees (APPA).  

There were discussions about the APPA between HMRC and CS before its BPT return was filed on 31 August 2010. Those discussions continued after that date. However, no agreement was reached in relation to whether BPT applied to the payments made during the chargeable period. 

Paragraph 23, Schedule 1, FA 2010, required HMRC to give notice of its intention to open an enquiry into the taxpayer's BPT return by 31 August 2011. No written notice was issued before or after that date.

HMRC eventually concluded that the awards under the APPA were  subject to BPT and purported to issue four closure notices in January 2017, amending the returns and increasing the tax payable by £83,144,379. 

CS appealed to the FTT. 

FTT decision 

The appeal was allowed.

The FTT followed the Court of Appeal's decision in HMRC v Raftopoulou [2018] EWCA Civ 818. In that case the Court held that, although there was no prescribed form for an enquiry notice, it had to be clear from the notice that HMRC intended to enquire into a return. 

In the present case, there was no clear indication that the post-filing discussions were more formal, or on a different basis, to those that had taken place before the filing of the returns. In the view of the FTT,  notice could not be given by mere "interference or implication".  Accordingly, as there was no valid enquiry notice, CS's appeals were  allowed. 

As the FTT had found in favour of CS in relation to the procedural issue, it was not necessary for the FTT to consider the underlying substantive issue. It did, nonetheless, consider the substantive issue  and held that, had it been necessary to reach a decision on this point,  it would have found in favour of HMRC. 

Comment

This case clearly demonstrates the importance of HMRC ensuring that it has opened a valid enquiry if it wishes to amend a taxpayer's return.  

As the FTT noted in this case, an informal enquiry does not have the statutory consequences that result from the issuing a formal enquiry notice. HMRC therefore needs to consider the position carefully as, subject to any further appeal, HMRC's failure to follow its usual practice of issuing notices has in this instance resulted in a potential loss to the Exchequer of £83m. 

As the amount of tax in issue in this case is substantial, it would not be surprising if HMRC was to seek to appeal to the Upper Tribunal.   

The decision can be viewed here.