EM3831A - Concluding the Enquiry: SA Legislation: Elements of partial and final self-assessment Closure Notices - Closure Notice terminology

The guidance on this page explains what is meant by the terminology used in relation to self-assessment closure notices.

ITSA, NRCGT and CTSA enquiries are into returns or claims. Partial closure notices (PCN) and final closure notices (FCN) are only issued for enquiries into returns. A PCN cannot be issued where there is an enquiry into a claim made outside a return.

HMRC can only enquire into each return once (although we can enquire into an amendment to a return that is made after our enquiry into the return has been completed). So our enquiry is always into the whole return.

For operational reasons we often identify particular parts of a return that we concentrate on. Those 'parts' of the return are often referred to as risks, issues or aspects. Where those risks are settled in a partial closure notice we now refer to these as 'matters' in the PCN.

The legislation for final closure notices doesn’t refer to matters so we do not use that term in FCNs.

Matter

The PCN legislation introduced the concept of a 'matter'. A matter is any part of a tax return that can become final by being amended but without affecting other parts of the tax return or being affected by other parts of the return. We call this a 'discrete' matter.

It could be a single entry on the return, several entries that need to be considered together or a supplementary page. For example, a claim to Capital Allowance, a deduction for a particular expense or a claim to a relief. In a complex avoidance arrangement involving several transactions, the matter may be the overall arrangements that were used to achieve a tax advantage rather than each amount claimed or deducted.

The objective of issuing a PCN is to make one or more matters final either by agreement or following an appeal to the tribunal. The PCN must state your conclusions and make the amendment or state that no amendment is required.

Ideally, these matters would be identifiable from your enquiry correspondence. It is these matters that need to be described in your partial closure notices, so it must be clear to the taxpayer and ultimately any tribunal or court, which matters you have enquired into and are now completing in the PCN. You should therefore describe a matter in a PCN in the same way as you described it in the enquiry correspondence.

The description of the matter should be clear, concise and specific. It should not include any conclusions or potential amendments to tax calculations.

The way you describe a matter is particularly important for a PCN. This is because you can only complete the enquiry into a matter by PCN where the matter

• is discrete and self-contained and
• can be made final on its own without affecting any other matter you’re enquiring into

To any person looking at the enquiry as a whole, it must also be clear which matters have been made final and which matters are still under enquiry.

Form PCN101, which is available in SEES for approving the issue of a PCN, asks you to provide the ‘Description of the matter’ to be completed by the PCN. The approving officer should check that the description is succinct and of sufficient detail for the taxpayer to be able to identify it.  When completing your PCN you should copy and paste the ‘Description of the matter’ from form PCN101 into the SEES PCN template.

For more guidance on partial closure notices (PCNs), including guidance for approving officers, see CH279600+.

When completing your overall enquiry using a final closure notice (FCN), you should ensure that all issues that remain open as part of your enquiry are included in the FCN.

Conclusion, Reason and Amendment

Several tribunal and court judgements have made it clear that reasons, conclusions and amendments are separate parts of the process of completing an enquiry. HMRC are required by statute to state conclusions and make amendments. However, HMRC are not required to state reasons in a PCN or FCN.

Amendments

The amendment is the change that you make to one or more tax return entries that are part of the self-assessment. Both partial and final closure notices should either state that no amendment is needed or make the amendments required to give effect to your conclusions in relation to the matter(s).

The closure notice itself makes the amendment. That is why closure notices are written in the past tense as the amendment is made when the notice is issued.

Amendments are expressed in monetary terms. The amendment is the result of all of the conclusions stated in that closure notice. For all cases there is a right of appeal against the amendment. For each closure notice, you should be able to say

• what the self-assessment was before the amendment
• what amendment is being made by this closure notice, this includes amendments to all entries on the return which are impacted by your conclusion
• what the self-assessment is after the amendment

Your amendment must clearly show the amount of tax being charged by that closure notice.

Conclusion

Your conclusions are the decisions you reach about what needs to be amended so that the return is correct. The starting point for considering how you describe your conclusions will always be what return entries are being changed.

We are required to state conclusions in a closure notice. For enquiries into income tax/CGT and NRCGT there is a right of appeal against the conclusions stated. Court and tribunals will decide on the scope of any appeal (see below) based on how HMRC state our conclusions.

There is no right of appeal against conclusions stated in a CT closure notice. But as the amendments follow directly from the conclusions stated, even in a CT case how the conclusions are stated is important to the scope of any appeal.

Your conclusion explains how the return is being amended. A conclusion should be clear and should explain your view of how the return is incorrect in respect of a particular issue and, where appropriate, what the correct treatment is. 

Alternative conclusions

In avoidance cases, where there is more than one piece of legislation that may apply to a particular scheme and the legislation has not been tested at Upper Tribunal or a higher court, it may not yet be clear which conclusion is the correct one. So there may be alternative conclusions that you could state in any closure notice.

If you think that there are alternative conclusions that you could state, the first point to consider is whether you could obtain further information or explanation to clarify the position.

In those circumstances, you should consider making a joint referral to the tribunal under Section 28ZA Taxes Management Act 1970 (for individuals and partnerships) or Paragraph 31A Schedule 18 FA 1998 (for a company).

If you cannot get the taxpayer’s agreement to make the referral and you believe that stating alternative conclusions is the best way forward you must contact TALA for advice before issuing your closure notice.

Reason

Although HMRC are not required to state reasons for our conclusions and amendments in a PCN or FCN, we obviously have to explain how we have reached our conclusions and why we have made the amendments.

PCN and FCN templates are available in SEEs. These templates are being updated to include a section for officers to include reasons in the notice. The purpose of including a section for reasons in a closure notice is so that we can clearly separate the reason from the conclusion.

Your ‘reason’ is why you have reached a conclusion. For example, the relevant legislation or a tribunal decision. You can include alternative reasons if they support the same conclusion. Reasons can’t be appealed against.

If you have already explained your reasons in correspondence you can either repeat those reasons in the closure notice or make reference to that previous correspondence in the section for ‘Reason’ in the closure notice in SEES. Separately you will still need to include the description of the matter and conclusion in your closure notice.    

Where your conclusion is that no amendment is required, you may still want to explain that by stating reasons in the closure notice.

Scope of the appeal

The scope of the appeal means the questions that the tribunal will actually consider during an appeal hearing.

The Court of Appeal has summarised the relevant principles of the scope of an appeal (Fidex Limited v HMRC [2016] EWCA Civ 385 [45])

“The scope and subject matter of an appeal are defined by the conclusions stated in the closure notice and by the amendments required to give effect to those conclusions.

What is important "are the conclusions set out in the closure notice, not the process of reasoning by which HMRC reached those conclusions.

"The closure notice must be read in context in order properly to understand its meaning. Subject always to the requirements of fairness and proper case management, HMRC can advance new arguments before the First-tier Tribunal to support the conclusions set out in the closure notice."

When conclusions are too narrowly stated and they are rejected by the courts, HMRC may not be allowed to introduce other technical arguments. However, when we state our conclusions too widely, the courts may consider that the scope of the appeal allows the taxpayer to introduce arguments that would not otherwise be allowed by more precisely stated conclusions.

Therefore, it is important you strike a balance when stating your conclusions.