A Greek taxpayer has lost his case at the Court of Appeal (CoA) regarding the issuance of a partial closure notice (PCN) having won the case at the First-tier tribunal (FTT) but then losing the case on HMRC’s appeal to the Upper Tribunal (UT). The taxpayer had claimed that he wasn’t domiciled in the UK during a particular tax year, but HMRC considered that he was. Where he is not domiciled then he can be taxed on the remittance basis and his worldwide income is only taxed to the extent it is remitted to the UK. This can be quite beneficial for wealthy individuals from outside of the UK.
HMRC had requested information from the taxpayer about his non-UK income and gains but the taxpayer was reluctant to provide it as first he wished to agree with HMRC that he was UK domiciled and therefore that HMRC needed the information. The taxpayer requested that they make a joint referral to the FTT for it to determine whether he was UK domiciled but HMRC disagreed, a joint referral can only be made if both parties agree. The taxpayer then applied to the FTT to force HMRC to issue a PCN on the domicile question. HMRC disagreed to issue a PCN as they considered that the PCN wouldn’t have legal effect unless it detailed the amount of tax due as a result of the conclusion of the UK domicile question. They needed the requested information before the issuance of a PCN.
The case ended up at the CoA. The CoA reviewed the purpose of the PCN legislation that was introduced in 2017. One of the reasons for introducing PCNs was to allow certain aspect of complex tax investigations to be completed and any tax due to the exchequer remitted earlier than waiting for the whole enquiry to be completed. The CoA also reviewed a recent case where a taxpayer held that a closure notice wasn’t valid unless it detailed the numerical changes necessary (our analysis on the subsequent case regarding penalties can be found here). The CoA found that HMRC were correct, for a PCN or a final closure notice (FCN) to be valid it had to detail the amount of tax due and therefore HMRC couldn’t be forced to issue a PCN without detailing the numerical effect. The CoA dismissed the appeal and upheld the UT’s decision.
The taxpayer is now in the same position as before all the litigation, he must provide information about his worldwide income and gains to HMRC so they may determine what his tax position will be when not using the remittance basis. Once they have this information HMRC can issue a closure notice, whether a PCN or FCN, that the taxpayer can then appeal to the FTT if he disagrees about HMRC’s conclusion on his domicile status.
The decision can be found at: Epaminondas Embiricos v The Commissioners for HMRC – Find case law (nationalarchives.gov.uk)
Thinking about all the litigation involved, over many years, a considerable amount of time may have been saved if HMRC had agreed to the joint referral that the taxpayer requested but the case has helped clarify when PCN or FCNs can be issued and what information they must contain.
Please let us know if you have any questions about your domicile status and whether you can use the remittance basis for calculating your UK tax liabilities. Please also contact us if HMRC have raised an enquiry into your tax return. We are experienced with these matters.
