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HMRC enquiry is valid if taxpayer’s agent acts upon it


Published: 04 Aug 2021 Update History

In deciding the Tinkler case the Supreme Court has ruled that despite HMRC sending an enquiry notice to the wrong address, the taxpayer could not claim the enquiry was invalid as his tax advisers acknowledged the enquiry.

The Supreme Court has ruled that a taxpayer was prevented from denying the validity of an HMRC enquiry into his tax return because his tax advisers had acted upon the assumption that the enquiry was valid.

Mr Tinkler argued that an HMRC enquiry into his 2003/04 tax return was not valid because the initial notice of the enquiry had been sent to the wrong address and he did not receive it.

HMRC opened its enquiry on 1 July 2005 issuing a letter to Mr Tinkler and sending a copy to his tax agent. His agent responded to HMRC on 6 July, wishing to claim a loss for 2003/04 that had been omitted from the return stating that it could not amend the return to make the claim as “the return is now the subject of a section 9A TMA 1970 enquiry”.

The enquiry resulted in a closure notice issued on 30 August 2012 to deny the claim for loss relief stating that the original tax owed before the enquiry, of more than £700,000, was correct.

The Court of Appeal ruled ([2019] EWCA CIV 1392) on two points. First it decided that the agent did not have actual or apparent authority to receive a notice of enquiry on behalf of Mr Tinkler. Second, it decided that neither Mr Tinkler nor his tax agent had assumed the requisite “element of responsibility for the assumption made” and, therefore, Mr Tinkler wasn’t estopped from denying the validity of the enquiry under an “estoppel by convention”.

An “estoppel by convention” arises when parties act upon a common assumption that a given state of facts is true.

HMRC appealed this second point to the Supreme Court ([2021] UKSC 39). Following the five principles governing estoppel by convention outlined by the High Court in Commissioners for HMRC v Benchdollar [2009] EWHC 1310 (Ch), the Supreme Court ruled on 30 July that Mr Tinkler was estopped from denying that a valid enquiry had been opened into his return.

Although HMRC mistakenly represented to the agents that the notice had been served to the correct address, the Supreme Court considered that HMRC was not prevented from raising an estoppel by convention. In its letter of 6 July 2005, the agent indicated to HMRC that it too believed that a valid enquiry had been opened. Thereafter, HMRC relied on the agent’s endorsement of the common assumption that the enquiry was valid and this satisfied the first three principles.

The fourth principle was satisfied because HMRC’s reliance was related to the dealings between the parties and the fifth was satisfied because HMRC’s reliance on the common assumption was to its detriment, as it did not act to send another notice of enquiry to Mr Tinkler before the expiry of the relevant time limit. HMRC therefore satisfied all the requirements for establishing an estoppel by convention.

The court also opined on two additional issues. First, while there was no transaction between HMRC and Mr Tinkler, it considered that this is not a requirement of estoppel by convention as the mutual dealings between them were sufficient. Second, estoppel by convention in this case would not undermine the statutory protection given to taxpayers by s9A, TMA 1970.

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