Appeals against Conclusions set out in a Closure Notice – HMRC v Tower MCashback

Court of Appeal Decision

On an appeal by a taxpayer against the conclusions set out in a closure notice, HMRC may only raise and rely on grounds in support of its conclusions which relate to the subject matter of the enquiry (as determined by the First-tier Tribunal); and

The First-tier Tribunal should use its case management powers to ensure that the taxpayer is not ambushed by any grounds raised by HMRC.

Summary

By a majority, the Court of Appeal held that the Special Commissioners did have jurisdiction to hear arguments on section 45 Capital Allowances Act 2001 ("CAA 2001) which were not mentioned in the closure notices and that HMRC was not confined to arguments based on section 45(4) CAA 2001 (which was the sub-section referred to in correspondence with HMRC as the sole reason for the disallowance of the taxpayer partnerships' claims to capital allowances).

The Court was unanimous in holding that the taxpayer partnerships had incurred expenditure on the acquisition of software licences notwithstanding the terms of the loan agreements which were limited recourse, interest free and unlikely to be repaid in full.  In consequence their claims to capital allowances were allowed.

A detailed analysis and discussion of the ramifications of the decision are set out in the attached link.

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