The facts
Shiva Patel and Ushma Patel (TC06426) attempted to register online for SA but failed to jump through the necessary hoops. So they downloaded tax forms for 2008/09 from the HMRC website and submitted paper returns by 31 January 2010.
HMRC accepted these returns, and issued the ladies with UTR numbers. The letters of acknowledgement stated that HMRC “will treat the form for all purposes as though you sent it in response to a notice from us requiring you to make a Tax Return by the date we received it”.
In October 2010, HMRC sent both taxpayers what purported to be notices of enquiry into the returns (under TMA 1970 s 9A). HMRC received no response, and those enquiries remained open until March 2016 when closure notices (under TMA 1970, s28A) were issued by HMRC, together with amendments increasing each person’s tax liability.
The Patels appealed, and the first tier tribunal (FTT) was asked to consider the validity of HMRC’s actions.
What’s the problem?
Everything HMRC did (the enquiry, the closure notice and the amendment to the taxpayers’ self assessed tax position) is only possible when the return in question is “a return under section 8”. The Patels argued that, as they had never received a notice under TMA 1970 s8(1), their returns were no such thing, and therefore HMRC had no power to enquire into or to amend them.
HMRC’s arguments
HMRC accepted that no TMA 1970 s 8(1) notices had been issued, but it argued that it is entitled to treat the Patel’s returns as if they were made under section 8.
There is nothing in the legislation which prevents treating a voluntary return as though it had been submitted in response to a section 8 notice. Otherwise, it would be necessary for a notice to be issued, and for the taxpayer to respond by sending in what was essentially the same document as they had submitted voluntarily – surely a needless extra level of bureaucracy.
It isn’t all one-sided: having the returns treated as “under section 8” provides some safeguards to the taxpayer as well as powers for HMRC (for example, some protection against discovery assessments).
Finally, the general “collection and management powers” granted to HMRC by the Commissioners of Revenue & Customs Act 2005 should count as authority for what had been done regarding the self assessments.
Patels’ arguments
The legislation sets out a series of steps which each follow from, and depend upon, the previous steps. If there was no section 8(1) notice, the return was not made in response to it: so no enquiry, no closure and no amendment were possible.