Embiricos v HMRC: Court of Appeal provides guidance on Partial Closure Notice regime

In Embiricos v HMRC [2022] EWCA Civ 3, the Court of Appeal has set down authoritative guidance on the operation of the statutory scheme relating to partial closure notices (“PCNs”) in s.28A of the Taxes Management Act 1970. The Court upheld the decision of the Upper Tribunal that HMRC cannot issue a PCN in respect of an enquiry into a taxpayer’s claim to the remittance basis of taxation without specifying the amount of any tax due as a result of its rejection of that claim. The Court held that PCNs are intended to operate in the same way and be subject to the same restrictions as final closure notices (“FCNs”). As both PCNs and FCNs are in the nature of an assessment by HMRC, which take effect directly by altering a taxpayer’s self-assessment, a PCN issued by HMRC to give effect to its conclusion that the taxpayer was not entitled to claim the remittance basis during the enquiry years must bring into charge the taxpayer’s foreign income and gains in that period on the arising basis. An amendment that simply removed the claim to the remittance basis in the return without specifying the resulting tax due on the arising basis would not comply with the express requirements in s.28A(2)(b) TMA and would not give effect to HMRC’s domicile conclusion.

The Court’s decision confirms more generally that where a conclusion on the validity of a “matter” enquired into by HMRC has computational consequences for a tax return and self-assessment contained within it, a PCN must give effect to the conclusion by amending the taxpayer’s self-assessment and stating the assessment of any tax due in consequence. The practical effect of the judgment is that during the enquiry the taxpayer is required to provide HMRC with the details of his worldwide income and gains to enable it to calculate the tax consequentially due on the arising basis.

Akash Nawbatt QC and Sebastian Purnell appeared for HMRC. Click here to read the full decision.

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