• Domicile Enquiries – Partial Closure Notice requests

    We explain the eagerly anticipated decision of the Upper Tier Tribunal (“UT”) in the case of HMRC v Epaminondas Embiricos.

Case update:

Domicile Enquiries – Partial Closure Notice requests

01 February 2021

Those subject to ongoing HMRC domicile enquiries were no doubt awaiting with interest the eagerly anticipated decision of the Upper Tier Tribunal (“UT”) in the case of HMRC v Epaminondas Embiricos [2020] UKUT 0370. 

The wait is over with the decision now released. Unfortunately the outcome was not necessarily what those affected wanted to hear. The decision went against the previous conclusion in favour of the taxpayer reached by the First Tier Tribunal. 

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 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. Like the existing full closure notice regime, 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. 

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.  

The UT 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 decision was supported by previous case law (albeit prior to the introduction of the PCN legislation).  

The outcome, 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.  

Moving Forward

It remains to be seen whether a further appeal will be made in the Embiricos case. If not, those with domicile enquiries 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. 

On a more positive note, the decision does at least pave the way for HMRC to progress domicile enquiries which have been in hiatus pending the outcome of this case.