Closure notice issued in error

[jedbank]

Hi

HMRC were conducting a corp tax enquiry - we received a closure notice unexpectedly stating no tax due. Advised client etc. We have now received an email from the inspection stating that the notice was issued in error and he wishes to settle on the basis of a letter issued in January - we had agreed that there was an adjustment due to timing of when something went into the directors loan account but the loan account has since been repaid so no tax due right now - however, if we agree to the request to disregard the closure notice, there will be interest and possible penalties for careless behaviour.

Should we accept the request to ignore the closure notice?

Thanks in advance

[section 44]

yes

[wamstax]

If you do you better be prepared to explain fully to your client why you are recommending that you operate outside the statute governing tax enquiries.

After all if you forgot to do something in the appropriate time and it was your mistake would HMRC agree to ignore the statute - I doubt it

[wamstax]

I would caution you to review the following recent tax case where HMRC issuing notices incorrectly prevented them from assessing or collecting the duties.
Link is here >>>
http://www.bailii.org/uk/cases/UKUT/TCC/2014/73.html

If your client became aware of this wouldn't he sue you for the tax interest and penalties that he did not need to pay?

[wamstax]

If you have problems after considering the tax case of Bristol & West Plc v Revenue feel free to contact me on 07751720507 for a chat that might be mutually beneficial.

[bd6759]

If your client has been careless, para 43 would allow HMRC to assess the additional tax, notwithstanding the closure of the enquiry.

[wamstax]

BD
Any discovery would have to arise after the closure notice to enable the discovery assessment to be made even if client careless imho

[bd6759]

Why? Para 43 is not dependent on para 44. Both are provisions that allow an assessment. They are not prohibitive.

The prohibitive para is para 42, which prohibits an assessment unless 43 OR (not both) 44 apply.

[wamstax]

Hi BD
Para 44 (my underlining ) says
A discovery assessment for an accounting period for which the company has delivered a company tax return, or a discovery determination, may be made if at the time when the Inland Revenue—.
(a)ceased to be entitled to give a notice of enquiry into the return, or.

(b)completed their enquiries into the return,.

they could not have been reasonably expected, on the basis of the information made available to them before that time, to be aware of the situation mentioned in paragraph 41(1) or (2).

So clearly as HMRC
(I) Had validly opened an enquiry
(ii) Had clearly been of the view before closing the enquiry that an underassessment situation existed
(ii) issued a closure notice in relation to the enquiry

it is impossible for them to say that there was a discovery of the underassessment position (for Para 41) only after the they closed their enquiry. So clearly Para 44 would restrict their ability to make a discovery assessment and the information provided by the company during the enquiry would be information provided or made available to HMRC under Para 44(2)

Additionally they have issued a closure notice and therefore any adjustments or assessment to be made must accord with the closure notices content. If the closure notice says no adjustments were necessary then clearly no assessment is required and the enquiry has been closed accordingly.

[bd6759]

I agree that para 44 is not satisfied. That doesn't matter. It is one of the two conditions to look for when seeing is an assessment is allowed (it does not prohibit an assessment, it allows an assessment). If either condition (43 or 44) is satisfied, then the prohibitive condition at 42 does not apply.

Have you tried looking at paras 41, 42 and 43?

41 tells us that HMRC can make an assessment if there is tax unpaid - there is

42 prohibits an assessment unless either 43 or 44 are satisfied. -so look at 43 and 44

43 allows an assessment where there is careless of deliberate behaviour - there is, so an assessment can be made

A closure notice applies to an enquiry and allows a return and self assessment to be amended. A closure notice has nothing to do with an assessment.