Domicile Enquiries – Partial Closure Notice requests

Those subject to ongoing HMRC domicile enquiries were no doubt awaiting with interest the eagerly anticipated decision of the Court of Appeal in the case of Epaminondas Embiricos v HMRC [2022] EWCA Civ 3. 

The wait is over with the decision now released. Unfortunately, the outcome was not necessarily what those affected wanted to hear. The Court upheld the decision of the Upper Tribunal (UT). 

By way of background, HMRC enquired into Mr Embiricos’ self-assessment tax returns for the years ended 5 April 2015 and 5 April 2016. These were submitted on the basis he was non-UK domiciled and entitled to make a claim for the remittance basis of taxation. HMRC had concluded after investigating the facts that Mr Embiricos was UK domiciled and sought to calculate the additional tax by issuing an information notice to ascertain his worldwide income.

Mr Embiricos made an application to the First Tier Tribunal (“FTT”) requesting they make a direction to HMRC to issue a Partial Closure Notice (“PCN”) on the matter of domicile stating the information request was ‘invalid’ until such time the domicile had been formally decided.  PCN’s were introduced in 2017.  A PCN can be issued by HMRC or applied for by a taxpayer in respect of one or more aspects of an HMRC enquiry, allowing others matters to remain open.  A Final Closure Notice (“FCN”) is then issued at the end of the enquiry.  

HMRC on the other hand stated they were unable to issue a PCN until such time that the tax had been calculated – thus the information request was fundamental to calculate the tax and then issue the PCN.    

This impasse was initially decided by the FTT who held that the legislation concerning PCN’s did not require a quantification of tax – fundamentally stating that the domicile position was a separate “matter” (as required by the PCN rules) to the quantification of the tax resulting.    

When later heard at the UT it allowed HMRC’s appeal confirming that in order to issue a PCN HMRC is required to first calculate the tax at stake. The UT concluded that the domicile position was not a separate matter to the resulting tax.  

The Court of Appeal upheld this decision confirming that PCNs are intended to operate in the same way and be subject to the same restrictions as final closure notices (“FCNs”), both requiring an adjustment to the assessment of tax, if any.

The outcome is that Mr Embiricos must submit all information in respect of his worldwide income and gains before he has a right to appeal HMRC’s decision on his domicile.  The PCN does not allow simply for the remittance basis claim to be removed. 

Moving Forward

It remains to be seen whether a further appeal will be made in the Embiricos case.

If not, those with domicile enquiries being conducted under a formal compliance check will be required to provide details of their non-UK income and gains if they wish to challenge an adverse HMRC decision through a closure notice. They are now left with the task of calculating foreign income and gains which they may not eventually be taxable on. 

The decision does pave the way for HMRC to progress domicile enquiries which have been in hiatus pending the outcome of this case.