Lee Sharpe looks at the option of asking the tax tribunal to force HMRC to close an enquiry down.
Enquiries can drag on for many months, and even for years. Advisers can find this frustrating – particularly when an enquiry outlasts more than one caseworker and they have to remind the fresh HMRC officer (referred to as an ‘inspector’ in this article) that an issue was already addressed, back in 2015.
I am old enough to remember when self-assessment was first introduced, and we were promised that HMRC inspectors would not be able to drag their feet on enquiries because of powers to get the commissioners (now tribunals) to close an enquiry down. But this power is rarely used in practice. This article will consider how the mechanism works, and why it should perhaps be used more often.
Enquiry closure rules
The relevant legislation (TMA 1970, s 28A) was introduced by FA 1994 (see also FA 1998, Sch 18, para 33 for equivalent corporation tax provisions). In its latest form, TMA 1970, s 28A(4)-(7) states that the taxpayer may apply to the tribunal to direct HMRC to issue a final closure notice. This effectively forces an official end to the enquiry stage (at which point HMRC can and often does issue assessments of additional tax due, on concluding its enquiry – that can in turn be appealed against).
And this is important because, generally, HMRC can open only one enquiry into a tax return; once it is closed, HMRC cannot enquire into it again (see, for example, TMA 1970 s 9A(3); while HMRC does have ‘information and discovery powers’, these powers are specifically limited in relation to tax returns, outside of the enquiry window).
It follows that HMRC is often loath to close an enquiry down, as it will not get another chance.
HMRC defence
The legislation states that the tribunal “shall give the direction applied for, unless satisfied that there are reasonable grounds [not to do so]”; it follows that there is a presumption in favour of closure, that HMRC must counter.
The standard defence is that HMRC has not yet had all the information (or the time) necessary in order to conclude its enquiry satisfactorily.
In Estate 4 Ltd v HMRC [2011] UKFTT 269 (TC), the tribunal observed:
“However desirable it may appear to…HMRC that an enquiry should be continued, the test to be applied by the tribunal is whether on an objective view it is appropriate for a closure notice to be issued. This involves close scrutiny of the questions put to the taxpayer and its advisers, the information provided in response and its adequacy, and the extent to which it appears to the tribunal that further enquiry would produce information enabling [a further assessment]”
In Beneficial House v HMRC [2017] UKFTT 801 (TC), the tribunal said:
“A closure notice may be appropriate even if the officer has not pursued to the end every line of enquiry. What is required is that the enquiry has been conducted to a point where it is reasonable for the officer to make an ‘informed judgment’ of the matter.”
So, HMRC’s defence revolves around whether it has yet had the information in order to be able to make that “informed judgment”, but it cannot insist on the enquiry being exhaustive.
Wider issues
A little selfishly, I noted that delays in conducting an enquiry can be quite vexing for advisers. But it can be much more stressful for the taxpayer, for whom it is often deeply personal, as well as the obvious financial concern. In my own practice, I fear HMRC is taking longer to conclude its enquiries (although it could just be down to the cases I tend to consult on).
In Refinitiv Ltd et al v HMRC [2025] UKFTT 00415 (TC), the claimants had been dealing with a highly technical dispute with HMRC over many years. Just one corporation tax year was still under enquiry, with the (several) other years having been formally closed and having progressed to assessment, thence to appeal. But despite numerous requests, HMRC refused to close the 2018 year.
To be fair to HMRC, there was an outstanding Judicial Review matter that was relevant to the year under enquiry. Furthermore, HMRC’s general information powers (FA 2008, Sch 36) would be severely limited after having closed the enquiry, and HMRC wanted them to be kept available depending on how the Judicial Review might go. However, in deciding that HMRC must nevertheless formally close its remaining enquiry, the tribunal considered:
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The taxpayer had provided all the information HMRC had asked for over the roughly ten years of the enquiry, and there were no outstanding information requests from HMRC at the time the company had made its closure application.
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In fact, they had dealt with over 1,000 information requests from HMRC and attended more than 300 meetings.
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HMRC could devise a sufficiently broad closure notice to cater for any uncertainty over the pending Judicial Review – and the tribunal had power to amend the corresponding assessment as appropriate, in any case, once it was appealed, subject to a hearing, like all the other years.
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HMRC might well lose their mid-enquiry information powers but that was, basically, tough (it is more nuanced than that, but legal beagles will note the judge’s rather ‘nice’ observations about HMRC trying to use its information powers ostensibly for one purpose, but really for another).
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There was the small matter of more than £300m waiting for repayment to the taxpayer (to which HMRC’s response might be summarised as its being the taxpayer’s fault for attempting Judicial Review – again, short shrift was got from the tribunal judge).
Research and development claims
Some readers will be familiar with my strong distaste for HMRC’s use of its relatively non-technical ISBC teams to conduct enquiries into various companies’ research and development tax claims over the past several years.
While there is much to dislike in this sorry tale, one notable point raised in the Chartered Institute of Taxation’s letter to HMRC in July 2023 was that the enquiry teams were refusing to issue closure notices that the companies could then appeal against, and then for a hearing at tribunal. My own cynical inference is that HMRC was hoping to raise as much publicity and political capital as possible before its blanket claim rejections were overturned in droves at tribunal.
No fishing expeditions
In Khan v HMRC [2014] UKFTT 018 (TC), the taxpayer had asked for a closure notice in relation to a relatively straightforward enquiry that had dragged on. The taxpayer complained that the inspector was trying to undertake an exhaustive enquiry. While noting neither side had acquitted themselves particularly well, the judge said:
“An enquiry of this nature ought to be capable of being completed within two years, and the tribunal must guard against it becoming a fishing expedition by the Revenue in the hope of justifying the time already spent.”
The judge then gave HMRC no more than nine months to conclude its enquiry. So, not all good news for the taxpayer.
Conclusion
The power to request the tribunal to direct an enquiry be formally closed is nice in theory – and the above cases are largely supportive – but there are many other cases where the tribunal has been sympathetic to HMRC’s concerns that the enquiry has not yet run its course. This would not prevent the taxpayer from making a similar appeal later on (the taxpayer can ask the tribunal to make a direction more than once) but even these relatively simple cases can consume time, attention and cost. And, while tribunal cases are taking years to be heard, HMRC is hardly ‘quaking in its boots’.
Even so, I have previously seen an enquiry letter conclude with words to the effect: “If you agree to the above tax adjustments, I will close the enquiry and issue assessments accordingly”. If this is becoming more prevalent and the enquiry looks otherwise likely to drag on, perhaps an appropriate response – subject to careful consideration and appropriate advice – should be to enlist the tribunal’s help in making up the inspector’s mind?
