The Upper Tribunal has judged the following appeals concerning disputed car benefits (Norton and anor v HMRC  UKUT 48 (TCC)):
- appeal dismissed against income tax and NIC assessments and determinations in respect of the availability of certain cars to a director (Mr Norton);
- appeal allowed for one of the contested years on the grounds that the discovery assessment was incorrectly raised before the enquiry window had closed; and
- appeal dismissed that a letter from HMRC had represented a closure notice.
The availability issue
The appellant company ran a car dealership. Two of the cars it held (a Maserati, and a Ford GT40) were rare and were used for promotional and business purposes but had also been used privately by Mr Norton, one of the two directors, in the past. The case considered whether the cars had continued to be made available to the director in later tax years.
The company had argued that the cars were not made available as:
- the cars could only be used lawfully for private purposes in periods when Vehicle Exercise Duty (VED) had been paid on them – at other times a SORN (statutory off-road notification) would be made; and
- the company’s handbook only allowed private use with the express permission of management,
and these served as effective restraint to their private use. However, the UT upheld the First-tier Tribunal’s previous findings that:
- the need for a SORN before the cars could be driven on the road did not prevent them from being made available, because it was relatively easy for the restriction to be removed by the payment of VED; and
- “permission of management” constituted Mr Norton and his wife. She had generally consented to him using the cars for private purposes in the past and he was in sole control of the keys.
The discovery assessment issue
This matter had been considered by the FTT in a number of cases but had never been judged by the UT before. It was argued that the discovery assessment raised in respect of one of the contested years was invalid as it was raised before the enquiry window had closed. The UT considered TMA 1970 and agreed, concluding:
“In our view, the legislation and its intended effect are clear. Section 29(3) TMA states that the taxpayer “shall not be assessed” unless one of two conditions is satisfied. In a case like the present where the condition in section 29(4) is not applicable, the words of section 29(3) amount to an unambiguous prohibition on any assessment being made while the conditions in section 29(5) have not been met. We also agree with the FTT in Curtis at  that the validity of a discovery assessment must be tested at the time it is made. The conditions in section 29(5) are temporal as is made clear by the words “at the time when”. It follows that a discovery assessment made during the ‘enquiry period’ is invalid because the conditions in section 29(5) cannot be satisfied at that time. As the FTT in Curtis pointed out, HMRC’s view would mean that the validity of an assessment would remain uncertain until the end of the enquiry period. We do not accept that a discovery assessment issued during the enquiry period can exist in an indeterminate state like Schrödinger’s cat until the enquiry period ends.”
The closure notice issue
This hinged on whether a letter from HMRC in respect of a 2015-16 enquiry represented a closure notice. The UT agreed with the FTT that it did not constitute one as:
“The officer only stated that the information suggested that Mr Norton owed additional tax which indicates a provisional or tentative view rather than a firm conclusion. The officer made it clear that the assessments and amendment were not final in the last two paragraphs of the letter when she stated that she had informally suspended collection of the additional amounts due until discussions between Mr Norton’s accountant and her colleague had been finalised. Only then would the officer contact Mr Norton again about his tax liability and, we infer, finalise the position.”
It was argued by the taxpayer that TMA 1970, s. 114A should be applied. This acts to “cure documents, such as purported closure notices, which would otherwise be invalid for ‘want of form [or because] of a mistake, defect or omission therein, if the same is in substance and effect in conformity with or according to the intent and meaning of the Taxes Acts’.” Although usually applied by HMRC, the UT judged that there was nothing to prevent it being used by the taxpayer. However, the UT considered that the contents of the letter meant that:
“We are forced to conclude that these show that the letter was not in substance and effect a notice of closure in conformity with or according to the intent and meaning of section 9A of the TMA. Accordingly, we dismiss Mr Norton’s appeal on this ground.”
Related content from Claritax Books
Discovery Assessments, by tax barrister Keith Gordon, is a detailed, clearly written guide to the law and practice in this area. Based on the author’s personal involvement in many leading cases, the book contains much practical advice explaining when and how such assessments may be challenged.