Judgment summary
This decision concerns an application by HMRC to strike out parts of an appeal brought by Scott Knight against a closure notice issued on 5 April 2024 for the 2020/21 tax year, which amended his self-assessment return to charge Capital Gains Tax of £194,272.40 (paras 1, 30).
The Appellant also appealed an associated penalty of £91,793.70 under Schedule 24 Finance Act 2007, but the penalty appeal was not relevant to the strike out application (paras 2, 4).
HMRC applied under Rule 8 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 to strike out four aspects of the appeal: whether the Tribunal had jurisdiction over a claim for business asset disposal relief (BADR) not made at the time of the closure notice; whether the fact that the Appellant's brother received BADR gave the appeal a reasonable prospect of success; whether an assertion of duplication of tax with an earlier closure notice had a reasonable prospect of success; and a discrete quantum point (paras 3, 18).
The Tribunal declined to strike out the BADR issue, finding it fell within the 'matter in question' arising from the closure notice, but struck out the grounds relating to the brother's BADR treatment and the duplication of tax argument. It declined to determine the quantum issue at this stage (para 63).
Background
Scott Knight was the sole director and 60% shareholder of Dirty Harry's Waste Management Ltd, which was incorporated on 24 October 2008 and entered liquidation on 29 March 2021 (paras 21, 24).
On 23 March 2021 a first interim distribution was made comprising a cash distribution of £420,000.00 and a distribution in specie of £1,224,021.00, of which the Appellant's 60% share totalled £986,412.60 (paras 23, 27).
The Appellant submitted his self-assessment tax return for 2020/21 on 2 February 2022, which did not declare the capital distribution (para 25). HMRC opened an enquiry into the return on 7 September 2022 under section 9A TMA 1970, noting that the distribution should have been included (paras 26, 27).
HMRC issued the Closure Notice on 5 April 2024 under section 28A TMA 1970, assessing CGT of £194,272.40 on the basis that the Appellant had received the capital distribution in the 2020/21 tax year (para 30). A related Penalty of £91,793.70 was issued on 22 July 2024 under Schedule 24 Finance Act 2007 (para 2).
A separate earlier closure notice, dated 4 February 2021, related to the 2017/18 tax year and concerned a loan written off by Dirty Harry's of £260,978 and a beneficial loan of £25,077, both assessed to income tax under section 415 Income Tax (Trading and Other Income) Act 2005 (para 22).
The Appellant's Grounds for Appeal initially referred to the liquidation not yet being finalised, and later emails dated 2 April 2025 and 9 December 2025 raised additional points, including a claim for entrepreneurial/business asset disposal relief, comparison with his brother Mark Knight's tax treatment, and an assertion of duplication of tax (paras 11, 12, 15).
Core dispute
HMRC applied to strike out parts of the Appellant's appeal against the Closure Notice, identifying four issues: (1) whether the Tribunal had jurisdiction to consider a BADR claim that had not been made in the Return or at the time the Closure Notice was issued; (2) whether the ground based on the Appellant's brother having received BADR on a similar distribution had a reasonable prospect of success; (3) whether the ground alleging duplication of tax between the 2020/21 Closure Notice and the earlier 2017/18 closure notice had a reasonable prospect of success; and (4) whether the quantum of the gain should be reduced by £60 for deductible costs (paras 18, 36-39).
HMRC argued that the BADR issue fell outside the 'matter in question' defined by the Closure Notice because no BADR claim had been made in the Return, relying on sections 42, 43C and Schedule 1A TMA, and on the First-tier Tribunal decision in Robert Williams v HMRC [2023] UKFTT 00429 (TCC) (paras 36, 54).
The Appellant argued that a BADR claim had been validly made and accepted, that his circumstances were the same as his brother's, that there was no deliberate wrongdoing, and that HMRC were duplicating tax already agreed and paid in relation to Dirty Harry's liquidation (paras 15, 41).
Court findings
Applying the principles from Fidex Ltd v HMRC [2016] EWCA Civ 385, Investec Asset Finance plc v HMRC [2020] EWCA Civ 579, Orsted West of Duddon Sands (UK) Ltd v HMRC [2025] EWCA Civ 279, and Shinelock v HMRC [2023] UKUT 107 (TCC), the Tribunal held that the scope of an appeal is defined by the conclusions in the closure notice, not by HMRC's reasoning, and that the conclusion in the Closure Notice that CGT was payable inherently included a conclusion that no reliefs applied (paras 46-51).
The Tribunal found that the focus on the Capital Distribution in the Closure Notice did not exclude BADR from the 'matter in question', regardless of whether a BADR claim had been made by the time the notice was issued, and that this was not affected by the absence of a claim at that time, consistent with the Upper Tribunal's reasoning in Shinelock (paras 51, 52).
The Tribunal declined to determine whether the Appellant had made a valid BADR claim in time and in the correct form, holding that this issue had not been fully argued at the hearing and should be left to a substantive hearing (para 55). Accordingly, it refused to strike out Issue One for lack of jurisdiction (para 56).
On Issue Two, the Tribunal held that the tax treatment of another taxpayer, even in similar circumstances, could not generally form part of the 'matter in question' for a different taxpayer's closure notice, and struck out this ground for lack of jurisdiction. In the alternative, applying the test in The First De Sales Limited Partnership v HMRC and Easyair Ltd v Opal Telecom Ltd, the Tribunal found the Appellant had no realistic prospect of success on this ground because entitlement to BADR depends on the Appellant's own circumstances (paras 57-59).
On Issue Three, the Tribunal found the Appellant's pleadings on duplication of tax to be scant, and that the 2017/18 closure notice concerned a different tax head (income tax on a loan write-off and beneficial loan) and a different tax year from the Capital Distribution assessed for CGT in 2020/21. It held there was no realistic prospect of success and struck out this ground (paras 60-61).
On Issue Four, the Tribunal declined to determine the quantum point because HMRC's request was conditional on success on the other issues, which did not occur (para 62).
Outcome
The Tribunal declined to strike out Issue One (BADR), but directed that the Appellant file further and better particulars on the factual and legal basis of his BADR appeal, including why the claim was made in time and in the correct form and why he meets the BADR criteria, within 28 days of release of the decision, with HMRC to file an amended Statement of Case or confirm they do not wish to do so within 28 days thereafter (para 63(1)).
The Tribunal struck out Issue Two, relating to the Appellant's brother's receipt of BADR (para 63(2)).
The Tribunal struck out Issue Three, relating to the alleged duplication of tax (para 63(3)).
The Tribunal declined to determine Issue Four, relating to quantum (para 63(4)).
The decision records a right to apply for permission to appeal under Rule 39, to be received not later than 56 days after the decision is sent (para 64).
Major issues / areas of contention
- Whether the Tribunal had jurisdiction to consider a business asset disposal relief (BADR) claim not made in the Return or at the time the Closure Notice was issued.
- Whether the 'matter in question' defined by the Closure Notice encompassed the availability of BADR.
- Whether the ground that the Appellant's brother received BADR on a similar distribution had a reasonable prospect of success.
- Whether the ground alleging duplication of tax between the 2017/18 closure notice and the 2020/21 Closure Notice had a reasonable prospect of success.
- Whether the quantum of the assessed gain should be reduced by £60 for deductible costs.