If HMRC requests information that is required only if a prior substantive conclusion is correct, can a court decide the substantive issue in the context of the taxpayer’s challenge to the information notice? And if the court can, should it do so? In Henkes, the UK’s First-tier Tax Tribunal answered the questions in the affirmative - yes, it can and, yes, it will – contrary to the earlier FTT decision in Levy.

Henkes

H had filed tax returns on the basis of being non-UK domiciled and HMRC opened enquiries into these returns questioning his domicile status. Having reached an interim conclusion that H should be regarded as UK domiciled, HMRC requested information on H’s worldwide income and gains which would consequently be taxable in the UK. H challenged the information notice before the FTT and the question arose whether, in this context, the FTT has jurisdiction to determine H’s domicile status.

Extrapolating from the earlier case of Vodafone 2, the FTT concluded that it had jurisdiction to decide a mixed question of law and fact, such as the question of H’s domicile, as a preliminary issue to determining the validity of an information notice. (Vodafone 2  itself is authority for the proposition that the FTT has jurisdiction to decide a question of law as a preliminary issue.) Great emphasis was placed on the fact that the preliminary issue of H’s domicile was so fundamental as to be capable of bringing the enquiry to a close and, therefore, appropriate for the FTT to determine. Additionally, as a specialist tax tribunal, the FTT was perfectly equipped to make this domicile determination and there were no statutory provisions to the contrary.

Having regard to the fact that the enquiry had been long-standing, the taxpayer had been cooperative incurring considerable trouble and expense and that the question here was binary and fundamental, the FTT concluded that it should and would exercise its jurisdiction.

The FTT then decided that H was UK domiciled. This meant that, in accordance with the general law of issue estoppel and the broader doctrine of abuse of process, H would not be able to argue in any subsequent appeal (for example against the tax assessment which HMRC can be expected to issue in due course) that he did not, in fact, have a UK domicile in the relevant tax years.

Practical implications

Uncertainty arises in light of Henkes given that the FTT had reached the opposite conclusion on almost identical facts in the earlier case of Levy. As both were FTT decisions, neither creates a binding precedent. So, it is anyone’s guess how the next similar case may be decided. It can only be hoped that the Upper Tribunal will provide some clarity when it considers the related Embiricos case later this year (even though that case concerned closure rather than information notices).