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Third time unlucky

Individuals who file self-assessment returns are generally open to enquiries into their tax returns by HM Revenue and Customs (HMRC). In addition to those tax returns which are selected by
HMRC for a particular reason (e.g., unexplained, significant decreases in self-employment income), a ‘very small proportion’ of tax returns are randomly selected for an enquiry (see HMRC’s Enquiry Manual at EM0093). It is therefore useful to know how tax return enquiries normally operate, including the rules around how and when HMRC may open and close an enquiry.

Seeking closure

For example, HMRC enquiries sometimes take an undue amount of time to complete. This can be giva stressful time for the taxpayer (not to mention potentially expensive, in terms of professional representation in the enquiry), who will no doubt want the ordeal to end without undue delay. However, an important protection is available to taxpayers in such circumstances. A procedure is available whereby a taxpayer (or agent) may apply to the First-tier Tribunal (FTT) for a direction requiring HMRC to issue a ‘closure notice’ (i.e., a notice that the tax return enquiry is closed, and setting out any amendments and conclusions) within a specified period. This applies to both ‘final’ and ‘partial’ closure notices (NB this article focuses on the former). The FTT must issue the closure notice direction unless satisfied that there are reasonable grounds for not doing so; the onus of proof rests with HMRC. An appeals process is available in respect of the FTT’s decisions (TMA 1970, s 28A(4), (5)).

Three strikes…but not out

Taxpayers are allowed to apply to the FTT for a closure notice direction on more than one occasion in respect of the same tax return enquiry. However, the outcome may be the same unless the circumstances of the case have changed significantly. For example, in Bryan v Revenue and Customs [2026] UKFTT 743 (TC), the taxpayer was a sole practitioner solicitor. HMRC opened enquiries into the taxpayer’s tax returns for 2016/17 and subsequently 2017/18. The taxpayer provided HMRC with a considerable amount of documentation and information. However, HMRC sought more. The taxpayer applied to the First-tier Tribunal (FTT) for a direction that HMRC issue a closure notice. He pointed out that the documents and information already provided were more than adequate to enable HMRC to close the enquiry. There was no missing money. Everything had been through the books. The taxpayer also argued that the client account bank statements attracted privilege. Furthermore, he pointed out that he accounted on an accruals basis. This meant that he was taxed on invoices raised and work-in-progress movements.

However, the FTT considered that HMRC’s misgivings concerning the taxpayer’s client account, disbursements, expenses, and work-in-progress methodology were wholly justifiable. The FTT did not believe that providing the information requested by HMRC was disproportionate, nor would it involve much work or expense for the taxpayer. Furthermore, the information sought by HMRC in relation to the taxpayer’s client account bank statements was not privileged and was certainly not privileged if it was redacted. The FTT concluded that there were reasonable grounds for not issuing a closure notice, either now or within a specified period, and dismissed the taxpayer’s application.

Practical tip

Premature applications for closure notices should be avoided. Even if the tribunal directs HMRC to close the enquiry, HMRC’s enquiry conclusions are likely to be inaccurate, particularly if based on incomplete information, possibly to the taxpayer’s detriment.

Disclaimer: The information provided on AccountingFirms.co.uk is for general informational purposes only and should not be considered professional accounting, tax, or legal advice. Always consult a qualified accountant or tax adviser for advice tailored to your individual circumstances.