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Closing HMRC enquiries

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In Embiricos , the FTT rejected HMRC’s view and found that a partial closure notice (PCN) could be issued without prior quantification of the tax due. The judgment is particularly relevant to personal domicile enquiries and supports the argument that information on foreign income and gains may be unnecessary when considering domicile. Embiricos also illustrates the worth of collaborative enquiry management in advance of any closure notice application to the FTT. However, the subsequent FTT judgment of Levy took a different view and agreed HMRC’s interpretation of the law. The PCN rules therefore appear likely to be an area of debate with HMRC for some time to come.

The recent FTT decision in Embiricos v HMRC [2019] UKFTT 236 (TC) saw the taxpayer successfully obtain a partial closure notice (PCN) in relation to a domicile enquiry, with HMRC’s interpretation of the PCN rules being rejected by the tribunal. It is a significant decision, albeit subject to appeal, and of interest to anyone advising clients under HMRC enquiry.

The introduction of the PCN rules in 2017

It has long been known that the self-assessment enquiry process had design flaws when it was introduced in 1998. In some ways, old pre self-assessment concepts such as an inspector’s ‘right to be satisfied’ lived on, at least behaviourally, and the actual workings of self-assessment (SA) remained little understood. The gradual development of ‘discovery’ case law over the last 20 years is but one illustration of this. Following the creation of HMRC in 2005, the powers and safeguards review admitted that ‘the enquiry regime for assuring compliance for direct tax returns is viewed by businesses, tax agents and HMRC staff as inflexible and unnecessarily time-consuming.

In SA enquiries, where HMRC is reluctant to issue a closure notice, a taxpayer has always been able to apply to the tribunal for a direction for the issue of a final closure notice. However, applications for final closure notices could only be made when all the relevant information had been ascertained in relation to all the open tax issues for a year and the tax calculated (a principle affirmed in the judgment in Archer v HMRC [2017] EWHC 296). Joint referral of a standalone issue to the tribunal was possible under TMA 1970 s 28ZA, but only where both parties agreed to do so. The result was that SA enquiries tended to become protracted, particularly where multiple issues were involved.

In 2006, the author wrote an article for this journal (‘Closing time for CTSA?’, Tax Journal, 9 July 2006) focusing on an early taxpayer success in obtaining a corporate tax self-assessment enquiry closure notice direction from the tribunal. Thirteen years is a long interval for any follow-up article, but there were perhaps fewer taxpayer successes in seeking closure notices than the author anticipated. One reason was that applying to the tribunal for a closure notice was the type of ‘one shot’ challenge that a taxpayer would only undertake when all aspects of an enquiry had been addressed. Too early an application might result in failure at the tribunal, handing a significant tactical advantage to HMRC. Slow and inflexible case progress also caused HMRC difficulty, however, as it ties up the department’s resources and delays tax collection, particularly in anti-avoidance cases. In 2014, a consultation was announced on a new power enabling the referral of individual aspects of an enquiry to the tribunal. While the initial proposals were that only HMRC be allowed to seek this, the measures ultimately introduced by F(No. 2)A 2017 Sch 15 allowed for PCN applications to be made by either HMRC or the taxpayer.


Mr Embiricos is from Greece, but he lived in the UK for many years before moving to Monaco in 2017. Mr Embiricos claimed the remittance basis on his tax return for 2015 on the basis that he had retained his Greek domicile of origin. In December 2016, HMRC enquired into the return to check his claim to be non-domiciled in the UK. In 2018, Mr Embiricos applied to the tribunal for a closure notice direction. HMRC then wrote to him stating that he had acquired a UK domicile of choice, but that HMRC could not issue a final closure notice without information relating to offshore income and gains so as to calculate the revised tax, given that the claim to the remittance basis failed. The taxpayer contended that rather than a final closure notice, a partial closure notice was possible simply on the matter of domicile, and that the issue of a PCN did not require the calculation of a revised self-assessment tax computation.

Essentially, the judgment focused on three provisions of TMA 1970. Firstly, the tribunal considered whether domicile might be considered a separate ‘matter’ for the purposes of s 28A(1A). That provision states:

‘Any matter to which the enquiry relates is completed when an officer of Revenue and Customs informs the taxpayer by notice (a ‘partial closure notice’) that the officer has completed his enquiries into that matter.’

While the legislation does not define what constitutes a ‘matter’, the FTT had little doubt that domicile was capable of being considered as such. Moreover, the judgment distinguished previous cases (such as Archer ) as having limited bearing on the post PCN enquiry framework, stating that: ‘The partial closure notice regime is a fundamental change. It is no longer the case that HMRC must issue a single closure notice bringing all of its enquiries to an end’ (para 58).

The second area of focus in Embiricos was whether the issue of a PCN without an amendment to a tax computation is consistent with TMA 1970 s 28A(2)(b). Section 28A(2) provides:

‘A partial or final closure notice must state the officer’s conclusions and–

  • state that in the officer’s opinion no amendment of the return is required, or
  • make the amendments of the return required to give effect to his conclusions.’

The FTT concluded that, unlike a final closure notice, a partial closure notice does not have to amend a taxpayer’s self-assessment return tax computation, and that ‘HMRC is able to issue a partial closure notice which does not quantify the amount of tax due’ (see para 74). Here the amendment of the return that was required by s 28A(2)(b) was simply the removal of the claim to the remittance basis. In deciding this, the tribunal acknowledged that given the facts in this case it had not been required to define precisely what the ambit of the PCN provisions were, commenting that (at paras 71, 72):

‘As far as we can see, there is nothing in [TMA 1970] which sets out what the tribunal’s powers are in relation to an appeal against a conclusion in a closure notice where the effect of that conclusion (or of any amendment which is made as a result of the conclusion) is not to increase or reduce an assessment or allow or disallow a claim or relief.

‘It may be that the result of this is that a partial closure notice is only valid if the conclusion or any amendment to the return which is made as a result of the conclusion changes the taxpayer’s self-assessment or disallows a claim or relief. This is not however a point which we need to decide in this particular case as HMRC’s conclusion that Mr Embiricos was domiciled in the UK during the relevant period means that they should amend his tax return to disallow the claim.’

The third aspect focused on in Embiricos was the onus placed by HMRC by TMA 1970 s 28A(g):

‘The tribunal shall give the direction applied for unless satisfied that there are reasonable grounds for not issuing the partial or final closure notice within a specified period.’

The FTT reasoned that this test hinged on whether that taxpayer had already provided enough information for it to be reasonable for HMRC to conclude on the ‘matter’ of domicile. In Embiricos , there had clearly been active and constructive collaboration with HMRC’s enquiries. Given the information that HMRC had already been provided with, and the FTT’s view that domicile was a separate ‘matter’, there were no reasonable grounds for the FTT not to direct HMRC to issue a closure notice. The FTT also commented on the costs which Mr Embiricos had already incurred, and the considerable additional costs which would follow if a PCN were not issued. As HMRC were directed to issue a PCN in relation to the matter under enquiry, the associated HMRC information notice was held to fail the ‘reasonably required’ test.


Embiricos was a reverse for HMRC, but in Levy [2019] UKFTT 418, the FTT reached the opposite conclusion, and supported HMRC’s view of the law. The facts in Levy were similar as it also involved a domicile dispute, albeit the collaborative enquiry management that was seen in Embiricos was clearly absent in Levy . The early paragraphs in the FTT judgment in Levy are, in the author’s view, worth contrasting with the exemplary approach to be found in Embiricos (see, for example, paras 121 to 123 of the Levy judgement). Leaving this aside, however, it is striking that the FTT wholly disagreed with the view taken in Embiricos on the intention of Parliament when PCN’s were introduced in 2017 (at paras 137 and 138):

‘I have given very careful consideration to the decision of this tribunal in Embiricos , but I have come to the opposite conclusion. In my judgment, it is clear that there is no power under [s 28A] for HMRC to issue a partial closure notice in respect of a “matter” that is said to consist of a determination of Mrs Levy’s claim for the remittance basis at a time when the tax effect of the determination is unknown.

‘I reach that conclusion principally by reference to a consideration of [s 28A] in the light of other relevant provisions of [TMA 1970] and the manner in which Parliament gave effect to the concept of a partial closure notice in [F(No. 2)A 2017], noting that it did so at a time when, applying normal principles of statutory interpretation, it can be taken to be aware of the decision by the High Court in Archer .’

Essentially, the FTT took the view that Embiricos had reached too broad a conclusion regarding the operation of the PCN rules, and that the overall framework of TMA 1970 required that any closure notice must state the tax due.

Domicile enquiries

There are some particularly noteworthy aspects in both cases for domicile enquiries. In Embiricos , HMRC had already made clear that it considered that it held enough information to conclude on domicile, yet was resistant to the issue of a PCN without the taxpayer first calculating the full extent of the potential tax liabilities. HMRC went further and suggested that it needed to know the amounts involved to consider whether the case was even worth litigating. Given that Mr Embiricos had already incurred considerable costs, the FTT had little sympathy for HMRC’s argument, commenting both on the amount of information that HMRC held, and the inferences that HMRC could already draw from the evidence. In Embiricos , the FTT also highlighted the challenges that would arise if a taxpayer were forced to self-assess the complex tax provisions relating to overseas trusts and entities (see para 61) where domicile was still in dispute.

In Levy, however, the FTT did not find HMRC’s extensive information requests to be unreasonable or disproportionate. When reaching the opposite conclusion from Embiricos in that domicile could not be considered a separate matter, and that a PCN must state the amount of tax due, the FTT observed that Archer was law when the PCN rules were enacted in 2017 and that ‘the provisions in relation to partial closure notices were intended to work in the same way as they had done in relation to what are now final closure notices’ (para 167). This conclusion will be closely reviewed by those now contemplating applying for a PCN.


We therefore now have two recent opposing judgments from the FTT on how the PCN rules operate. The introduction of the PCN regime allows for more flexible and proactive approaches to resolving disputes with HMRC, and Embiricos shows how what HMRC considers to be one indivisible ‘matter’ may be capable of being broken up, and a PCN applied for. In Levy , though, the narrower HMRC view of the law prevailed, with the FTT concluding that a taxpayer seeking to sub-divide disputes was not what Parliament had intended, and that it was only possible to issue a PCN when the amount of tax was known. It will be interesting to see how these differing views of how the PCN rules operate might be resolved.