HRMC loses £653,000 tax battle following administration error

HMRC has lost in its £653,000 first-tier tribunal battle against a tax avoidance user after the government department made an administration error in one of its letters to the appealant.

Michael Mabbutt won his appeal against HMRC after the government department sent him a letter in January 2011 saying his tax return for the year ended 5 April 2009 was under investigation due to the fact that he took part in a tax avoidance scheme.

Mabbutt based his appeal on the fact that HMRC wrote in the letter that its investigation was connected to the tax year ended on 6 April 2009, one day later than the correct date.

The tax avoidance scheme user countered that the error “resulted in a stated intention to enquire into a tax return for a year which did not exist”, in which the first-tier tax tribunal agreed.

The tribunal came to the conclusion that the letter sent in January 2011 did not constitute a valid notice of enquiry into Mabbutt’s tax return for the year ended 5 April 2009.

Tribunal judge Jane Bailey said: “Without a valid enquiry notice, there was no enquiry and the purported closure notice has no standing. Consequentially the appellant’s appeal is allowed.”

Responding to the decision, a HMRC spokesperson said: “We are disappointed with the tribunal’s decision and are considering whether to appeal.

“HMRC is proud of our record of winning around 80% of avoidance cases that are taken to litigation by the taxpayer and many more settle with us before reaching that stage.

“We tackle avoidance wherever we see it and litigate where necessary to ensure schemes are defeated and the tax due is paid.”