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A Badly Drafted Closure Notice

This Upper Tribunal case concerns closure notices in a capital allowances claim for software licenses held by First-tier Tribunal (FTT) in 2018.

The original FTT case dealt with a marketed tax avoidance scheme aimed at securing capital allowances (first year allowances) for specialist software licenses. The taxpayer lost the case and when HM Revenue & Customs (HMRC) issued its closure notice the Inspector stated: -

“…I conclude of the losses claimed only a currently unquantifiable part may be allowable. I have amended your partnership loss figure to reflect this. The figure for your partnership loss is as follows:

  • The original Partnership loss figure was £25,482,181 (for Betex LLP)

  • The Partnership loss figure is now £0.00”

What was the true meaning of the closure notice, had FTT erred in law and did the apparently contradictory wording of “currently unquantifiable” and stating a £0.00 value allow the taxpayer to argue that some element of the loss was still available? The Upper Tribunal said no.

Case Background

Both HMRC and FTT rejected the claimants (two LLPs) capital allowances claims on a number of “knock out” points and a short article on the decision can be found here.

Crucial to the original decision was that neither of the LLPs were carrying out a trade at the time or during the accounting period when the qualifying expenditure was incurred. If that was right, then neither LLP would be able to claim capital allowances at all: their allowance would be nil by virtue of the fact that a necessary condition to claiming any allowance had simply not been met – amongst some other fundamental provisions.

The taxpayer appealed to the Upper Tribunal (UT) on two grounds: -

  1. That FTT was not permitted to consider the ‘knock out’ points which were not referred to in the Closure Notices.

  2. That FTT erred in law by concluding the expenditure incurred by the LLPs were not the full sums paid.

There was no appeal against the ‘knock out’ points merely FTTs right to consider them; so, if UT found against the taxpayer on (1) the appeal fails and there would be no need to consider (2).

Closure Notices

Whenever HMRC open an enquiry (or compliance check) into a tax return they must do so in writing a “notice of enquiry” and there are both procedural and time requirements attached to this. Once an enquiry is opened it must, at some point, be concluded and HMRC are duty bound to formally notify the taxpayer of this “closure notice” with their conclusions.

The taxpayer argued in this case that FTT erred in law and should have taken a much more restricted approach to the matters actually set out in the closure notice. FTT was not entitled to use the prior history or widen matters to an otherwise narrowly, and arguably badly, worded notice. HMRC were also duty bound to state a clear conclusion and FTT failed to consider the implications of this – ‘some allowances were available’.


UT agreed with the taxpayer in part but disagreed with their arguments overall. Whilst closure notices must be construed as a whole, be clear and informative (as far as possible) they must be viewed in the context of the enquiry and specifically from the standpoint of a reasonable recipient with all the knowledge that it entails. Looking at things in the round the taxpayer should have been in no doubt that the whole of the loss had been eliminated.

Therefore, although the closure notice in this case could have been better worded, UT dismissed the taxpayers appeal. This is not the easiest decision to follow and one can see how the taxpayer might feel aggrieved that HMRC had still left some loose ends open. Anybody dealing with disputed closure notes will be well advised to study the decision.

If you have questions on this, or related tax matters, we will be delighted to hear from you.


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