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Gotcha! Tinkler and estoppel

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Estoppel is the legal principle which says, very broadly, that if you and I have dealings on the basis of a shared but mistaken belief that a particular fact is true, I may in some circumstances be debarred from subsequently asserting that it is untrue. Its application to revenue matters has been clarified in the recent Supreme Court decision in Tinkler v HMRC [2021] UKSC 39.

The facts in Tinkler were of the simplest. HMRC purported to commence an enquiry into Mr Tinkler’s self-assessment tax return.  The enquiry notice was defective because, owing to an HMRC mistake, it was sent to the wrong address and Mr Tinkler never received it.

However, a copy was sent to Mr Tinkler’s agent. No one noticed the defect and the enquiry proceeded in the express belief on the part of both HMRC and the agent that it was valid.

It was only 10 years after the enquiry commenced (and 2½ years after a closure notice was issued) when Mr Tinkler’s substantive appeal to the First-tier Tribunal against the closure notice was being prepared that someone on Mr Tinkler’s team spotted the problem and thereupon asserted that (regardless of any technical merits HMRC’s case might otherwise have) the enquiry was invalid ab initio and the adjustments imposed by the closure notice ineffective. HMRC responded that Mr Tinkler was estopped from challenging the validity of the enquiry.

Surprisingly, given the simplicity of the facts and the regularity with which this sort of mistake may be expected to occur, the battle has swayed back and forth as the case has worked its way through the First-tier Tribunal, Upper Tribunal, Court of Appeal and now Supreme Court.

The Supreme Court has now found in favour of HMRC, approving (subject to one refinement) the principles set out by the High Court in HMRC v Benchdollar Ltd [2009] EWHC 1310 (Ch).

A couple of particularly interesting points come out of the case.

One is that it was important that HMRC had to some extent relied upon the fact that Mr Tinkler’s agents had ‘expressly asserted and thereby affirmed the existence of a valid enquiry in circumstances where it was reasonably apparent that the Revenue would rely on [the agents’] subscription to that common assumption, even if only in the negative sense that the Revenue would not thereafter check that the enquiry had been duly opened, and notice of it duly served on Mr Tinkler, before the limitation period for doing so ran out, as they might have done if no such affirmation had been provided.’ In other words, although the mistake was HMRC’s, the agent had to some extent assumed responsibility for the shared assumption. 

Mere passive acquiescence in HMRC’s erroneous assumption (rather than positive agreement with it) may not be enough to give rise to estoppel – especially in the case of an unrepresented taxpayer, where it is unlikely that HMRC would be able to show any significant reliance on the taxpayer’s ‘subscription to that common assumption’. Thus, if Mr Tinkler had been unrepresented during the course of the enquiry, it is perfectly possible that he would have been able to rely on the invalidity of the notice once it was drawn to his attention in the course of his appeal.

Second is that this form of estoppel relies upon a common erroneous belief. What if a taxpayer is aware that HMRC’s assumption is mistaken but deliberately elects not to disencumber HMRC of it? This may, depending on the circumstances, be an offence; in any event, such behaviour by a professional would, at the very least, invite censure as breaching the rules on professional conduct in relation to taxation adopted by the main professional bodies. So, it is not to be recommended.

Finally, was estoppel relevant anyway? The First-tier Tribunal had held that, regardless of defects in the giving of the written enquiry notice, if the taxpayer was (as a matter of fact) aware of HMRC’s enquiry into the return, that knowledge was, in itself, sufficient to satisfy the ‘giving of notice’ requirement of the Act. Deciding that question would require, as the Supreme Court said, ‘careful consideration of several cases’ and as it was unnecessary to decide the point in Tinkler, that question would be left for another time.

Issue: 1543
Categories: In brief