Supreme Court confirms taxpayer can be estopped from relying on safeguards
The decision in Tinkler v HMRC has implications for all taxpayers and emphasises the need to correctly identify procedural points from the outset.
The decision in Tinkler v HMRC has implications for all taxpayers and emphasises the need.
In an important decision at the end of July 2021, the Supreme Court confirmed in Tinkler v HMRC  UKSC 39 that the doctrine of estoppel by convention can be used by HMRC to stop taxpayers from denying that an enquiry into an income tax self-assessment return was validly opened. The same analysis is likely to apply to assessments across all heads of tax and as a result, the decision may well limit the safeguards which taxpayers are otherwise entitled to rely on. The decision therefore has significant and far-reaching implications for all taxpayers and their advisors, and it emphasises the need to correctly identify procedural points (such as whether a notice of enquiry or assessment is valid) from the outset of any potential disputes. If they are not, it may not be possible for a taxpayer to rely on the point at a later date – even on appeal to the Tribunal.
HMRC sent both a Notice of Enquiry (the Notice) to Mr Tinkler and a copy of the Notice to Mr Tinkler’s agent. The Notice was sent to the wrong address and the agent was not authorised to receive it; as a result, the enquiry was invalid.
Despite this, the agent responded to HMRC’s enquiry as if it had been validly opened and the validity of the enquiry (plus the resulting Closure Notice) was not challenged by Mr Tinkler for many years. It was not until two months before the hearing of his appeal to the First-tier Tribunal (FTT) that Mr Tinkler first raised this issue.
The Court of Appeal confirmed that HMRC had not opened a valid enquiry into Mr Tinkler’s returns as the Notice was not properly served on Mr Tinkler or his agents. HMRC appealed that decision to the Supreme Court on the sole point that notwithstanding the strict technical analysis, Mr Tinkler was estopped by convention from asserting that the enquiry was invalid.
Estoppel by Convention
At its heart, estoppel by convention prevents a party from raising an argument where both parties to a dispute have previously proceeded on the same common mistake of fact or law. It can only apply where both parties have proceeded on the basis of the same mistake and where that mistake has (in essence) been communicated to, relied on and assumed by both parties. It will not apply where both parties independently, and without discussion, proceed on the same mistake.
The Supreme Court accepted that Mr Tinkler was estopped from arguing that the enquiry was invalid. This was because: i) the agent’s correspondence – sent on the basis that the enquiry had been opened – established the common mistake of fact or law; and ii) it would be unconscionable to allow Mr Tinkler to depart from the shared mistake given that had the validity of the Notice been challenged immediately, HMRC would have had sufficient time to issue a replacement Notice.
Taxpayers and their advisors should verify the validity of any decisions of HMRC which they receive as quickly as possible, including notices of enquiry, closure notices, assessments to tax and penalty determinations. These checks should include all potential issues, from the basics (e.g. was it sent to the wrong address) to the more complex (e.g. was it in time). If the decision is invalid, this should be brought to HMRC’s attention immediately.
If a holding response needs to be sent whilst the checks are being made, taxpayers and their advisors should consider whether the response may be taken as confirmation of the validity of the decision or notice. If necessary, the response should be limited to acknowledging receipt of the correspondence, with an express reservation on validity.
KPMG Law’s Dispute team can advise on both the validity of a notice or determination, as well as how to respond to a notice or determination which is or may be invalid.