The balance of power between HM Revenue and Customs (HMRC) and individual taxpayers may appear to be all one way. However, as a Court of Appeal decision showed, expert legal advice can be highly effective in levelling the playing field.
HMRC wished to open an enquiry into a businessman’s tax return but, in order to do so, was obliged by Section 9A of the Taxes Management Act 1970 to serve him with a formal notice of enquiry within 12 months of the date on which the return was filed. Due to an error the notice was sent to an address that the businessman had vacated almost a year previously, with the result that he did not receive it.
After the businessman challenged the notice, HMRC conceded that he had not been personally served with the document in that it had not been sent to his usual or last known place of residence. However, the Upper Tribunal (UT) upheld the notice on the basis that a copy had been sent to his representative, an accountancy firm which he had authorised to deal with HMRC on his behalf.
In upholding the businessman’s appeal against that decision, the Court noted that HMRC’s website stated at the relevant time that, although correspondence could be addressed to taxpayers’ representatives, formal notices of enquiry must be served on taxpayers in person. In the circumstances, the accountancy firm did not have actual or apparent authority to accept service of the notice on the businessman’s behalf.
HMRC argued in the alternative that all sides had proceeded on the shared mistaken assumption that a tax enquiry had been validly commenced, and it would thus be unconscionable for the businessman to rely on the error in respect of service. In rejecting that submission, however, the Court noted that any such assumption on the accountancy firm’s part had arisen from HMRC’s false representation that a formal notice of enquiry had been sent to its client. In the circumstances, both the notice of enquiry and the demand for additional tax that followed it were invalid.