Tower MCashback v HMRC: What Your Closure Notice Actually Fixes For The Appeal

Your enquiry has finally ended. A closure notice arrives, HMRC's formal decision on the enquiry, and it cuts your claim or pushes up your tax bill. It gives one reason for doing so—often a short, blunt one.

So you study that reason, and you think you can knock it down. If the officer's stated ground is wrong, the amendment falls away and you win. That feels like the whole game.

Here is the uncomfortable truth, and it is worth knowing before you draft a single line of your appeal: beating the officer's stated reason does not, by itself, win the appeal. At the tribunal, HMRC can defend the very same conclusion on a completely different legal argument—one the closure notice never mentioned. The case that settles this is a Supreme Court decision called Tower MCashback, and it shapes how every closure-notice appeal is framed. This article explains what it means for you: what your appeal is actually about, what HMRC can and cannot do, and the limits that protect you from being ambushed.

What A Closure Notice Fixes—And What It Doesn't

When HMRC opens an enquiry into your return and then closes it, the law tells the officer to do two specific things. Under section 28A of the Taxes Management Act 1970—the section for an individual's or trustee's return—the closure notice must state the officer's conclusions and either confirm no change is needed or make the amendments to your return required to give effect to those conclusions. The partnership-return version of the same duty sits in section 28B. (In Tower MCashback the appellants were limited liability partnerships, so it was section 28B in play—the machinery covered in our guide to partnership tax appeals—but most readers will have received theirs under section 28A.)

In practice the document is usually headed "closure notice" or "notice of completion of enquiry". It states the officer's conclusion (or conclusions), shows the revised figures, and amends your self-assessment to match—often with a recalculation of the tax due. It also carries the appeal deadline and tells you how to appeal. When you read it, find two things first: the conclusion the officer has reached, and the amendment they have made to your figures. Those—not the reason—are what you are appealing.

Notice what that duty does not require: a full account of the officer's reasoning. The notice has to state the conclusion and make the amendment. It does not have to set out, point by point, the chain of legal argument behind it.

That distinction is the key to the whole case. What you are given the right to appeal, under section 31(1)(b) TMA 1970, is "any conclusion stated in or amendment made by a closure notice"—the conclusion and the amendment, not the reasoning. And because the conclusion is what is under appeal, the conclusion is what defines the boundaries of the fight. The reasoning the officer happened to give is the start of the argument, not its outer wall.

Put simply: your closure notice fixes the conclusion you are contesting. It does not lock either side into a single line of argument about why that conclusion is right or wrong.

The Trial Judge's Statement Of The Rule, Approved By The Supreme Court

The cleanest statement of the principle came from the trial judge, Mr Justice Henderson, and the Supreme Court expressly approved it. At paragraph 15 of the leading judgment, Lord Walker quoted Henderson J:

"There is no express requirement that the officer must set out or state the reasons which have led him to his conclusions... What matters at this stage is the conclusion which the officer has reached upon completion of his investigation of the matters in dispute, not the process of reasoning by which he has reached those conclusions."

And then the passage that does the real work:

"...the Commissioners... must in my judgment be free in principle to entertain legal arguments which played no part in reaching the conclusions set out in the closure notice. Subject always to the requirements of fairness and proper case management, such fresh arguments may be advanced by either side, or may be introduced by the Commissioners on their own initiative. That is not to say, however, that an appeal against a closure notice opens the door to a general roving inquiry into the relevant tax return. The scope and subject matter of the appeal will be defined by the conclusions stated in the closure notice and by the amendments (if any) made to the return."

Read that twice, because it captures both halves of the rule. New arguments are allowed—from either side—to support or attack the conclusion. But the appeal is not "at large": it cannot become a general trawl through the rest of your return. It stays inside the subject matter of the conclusion and the amendment.

Lord Walker preferred this framing to a stricter reading and held, at paragraph 17, that there is "neither statutory warrant nor any need to look further" than the conclusion the notice plainly reached. The tribunal's job is to decide whether the amendment is right—not merely to mark the officer's stated reasoning.

How The Rule Is Usually Stated: The Four Points

Tower MCashback has since been distilled into a four-point summary that practitioners reach for. It comes from a later Court of Appeal case, Fidex Ltd v HMRC [2016] EWCA Civ 385, where Lord Justice Kitchin set out the principles "set out by Henderson J as approved by and elaborated upon by the Supreme Court". Attributed to Tower MCashback, they are:

1. The scope and subject matter of the appeal are defined by the conclusions stated in the closure notice and by the amendments needed to give effect to them.
2. What matters are the conclusions, not the process of reasoning by which HMRC reached them.
3. The closure notice must be read in context to understand what it actually means.
4. Subject always to fairness and proper case management, HMRC can advance new arguments before the tribunal to support the conclusions in the closure notice.

That is the rule in four lines. Points 1 to 3 bound the appeal and tell you the reasoning is not decisive; point 4 is the one that surprises taxpayers most, and it is the one Tower MCashback itself put beyond doubt. (The principle is still good law and still being applied—the Court of Appeal followed the same four points in Investec Asset Finance plc v HMRC [2020] EWCA Civ 579.)

What Actually Happened In The Case

The underlying dispute was about a tax-avoidance scheme, and the facts are worth a moment because they show the principle in action—they are the reader's fear, realised.

Four limited liability partnerships bought licences to use software. For the representative partnership the price was £27.5 million. The members put up 25% of that from their own pockets; the remaining 75% came from non-recourse loans on uncommercial terms, with the borrowed money moving in a circle—out and straight back—so that it never actually reached the software vendor, even briefly. On that spending the partnerships claimed 100% first-year capital allowances on the whole £27.5 million.

HMRC's closure notice refused the claim. The officer's original stated objection rested on a specific anti-avoidance provision—the first-year-allowance rule then in section 45 of the Capital Allowances Act 2001 (a provision since repealed). But by the time the appeal was heard, HMRC had abandoned that specific point and was arguing something else entirely: that the full £27.5 million had not really been "incurred" on acquiring software at all, because of the circular financing.

That is exactly the scenario that worries appellants. HMRC dropped the reason it had given in the notice and won on a different one. And the Supreme Court allowed it—because the conclusion (the first-year-allowance claim is excessive) was the same. The court directed the closure notices be amended to allow only 25% of the allowances, the proportion the members had genuinely funded themselves.

A word of caution on the capital-allowances point, which is secondary to the procedural lesson but often over-simplified. The court did not hold that money going round in a circle is automatically fatal. At paragraph 77 Lord Walker warned that "it is not enough for HMRC, in attacking a scheme of this sort, to point to the money going round in a circle. Closer analysis is required." Here the borrowed money never reached the vendor even temporarily, which is what sank the claim—but circularity alone is not the test. If your dispute is about a disallowed capital-allowances claim on its own merits, our guide to capital allowances appeals covers that ground.

The Limits That Protect You

If HMRC can switch arguments at will, does the closure notice mean anything at all? Yes—and the same judgment that lets HMRC change tack also builds in real protections. Three of them matter to you.

The appeal is bounded—it is not a free-for-all. HMRC cannot use your closure-notice appeal to reopen unrelated parts of your return. The dispute stays within the subject matter of the conclusion and the amendment. If the conclusion was about, say, a particular relief claim, HMRC cannot pivot the appeal into a general audit of entirely separate entries. A genuine attempt to do that is precisely the Tower MCashback/Fidex objection you can raise.

Fairness and case management are your safety net. Lord Walker gave HMRC a pointed warning at paragraph 18, which the whole court endorsed:

"This should not be taken as an encouragement to officers of HMRC to draft every closure notice that they issue in wide and uninformative terms... In a case in which it is clear that only a single, specific point is in issue, that point should be identified in the closure notice. But if... the facts are complicated and have not been fully investigated... the public interest may require the notice to be expressed in more general terms. As both Henderson J and the Court of Appeal observed, unfairness to the taxpayer can be avoided by proper case management during the course of the appeal."

That last sentence is the practical reassurance. If HMRC springs a genuinely new argument on you late in the day, the remedy is usually more time—an adjournment, directions, an opportunity to gather evidence and respond—not having to fight it on the spot. The tribunal's case-management powers exist to stop you being ambushed.

The tribunal decides the law for itself. This is the engine of the whole principle, and it lives in section 50 TMA 1970. On an appeal, section 50(6) says that if you are overcharged the assessment "shall be reduced accordingly, but otherwise... shall stand good", and section 50(7) lets it be increased if you are undercharged. The tribunal's statutory task is to decide whether the amount is right—full stop. It is not confined to checking the officer's reasoning.

There is a flip side to that power worth saying plainly: because the tribunal decides the correct figure for itself, it can in rare cases settle on a higher amount than the closure notice—so appealing is not entirely without personal risk. It is uncommon, but it is real, and it is part of why a clear-eyed view of the merits matters before you lodge.

Lord Hope, who gave a short concurring judgment, made this the express basis of the rule. At paragraph 84 he said that while the scope of the appeal is defined by the conclusions and amendments, "section 50 of TMA does not tie the hands of the [tribunal]... to the precise wording of the closure notice when hearing the appeal." A Special Commissioner, Dr Avery Jones, had made the same point in an earlier case, quoted by the Supreme Court: the tribunal forms its own view of the law and is not bound to the officer's stated reasons. Neither HMRC's reasoning nor, for that matter, your own pleaded grounds bind the tribunal's view of the law.

What This Means For Your Grounds Of Appeal

Translate all of this into how you actually run your case, and a few clear instructions fall out.

Read the conclusion, not just the reason. Identify precisely what the closure notice concluded and what amendment it made—that is your "subject matter". The officer's stated reason tells you where the argument begins; it does not tell you where it ends.

Attack the conclusion on the merits, not only the officer's reasoning. It is not enough to show the officer's specific ground was flawed. Build your case around why the amendment itself is wrong—why, on the facts and the law, the right figure is the one you returned. To see the difference: if the notice disallows an expense and the officer's stated reason is "no receipt", proving you have the receipt only knocks out that reason—HMRC can still argue the expense was not wholly for the business. The winning case shows the expense was deductible, full stop, whatever route the tribunal takes to get there. Assume HMRC may defend the conclusion on a broader basis than the notice states, and be ready for it. Our guide to writing grounds of appeal works through how to frame this.

A bald, uninformative notice is not a winning point on its own. Many readers receive a terse notice—"the claim is excessive", and little more. Tower MCashback shows the courts will read such a notice in context, including prior correspondence and any covering letter, so do not pin your whole case on its brevity. (Lord Hope, at paragraph 83, did say taxpayers "are entitled to expect a closure notice to be more informative", and both Justices discouraged HMRC from making bald notices the norm—so an uninformative notice does strengthen your fairness and case-management arguments. It just rarely wins outright.)

If the notice is too vague to understand, ask HMRC to spell it out. Where the conclusion is so bald you genuinely cannot tell what is being decided or why, you can write to the officer named on the notice and ask them to state, in writing, what the conclusion is and the basis for it. That helps you frame your grounds—and if HMRC later springs a new argument, a paper trail showing you asked and got little back supports any fairness or case-management point you raise.

You can change your grounds too—the flexibility runs both ways. Under section 31A(5) TMA 1970, your notice of appeal must specify your grounds of appeal. But that is the starting point, not a cage: the tribunal's case-management powers (rule 5 of the Tax Chamber rules) let it permit you to add or argue further grounds later. So just as HMRC is not locked into its stated reasons, you are not locked into the grounds you first pleaded. If a better argument emerges, you can ask the tribunal to let you run it.

If a new HMRC argument would ambush you, ask for time—don't panic. A late new argument from HMRC is a case-management problem with a case-management answer. Concretely: raise it in writing to the tribunal (or out loud at the hearing if that is the first you have seen of it), say plainly that the point is new, that you need time to respond and gather evidence, and ask for directions or a short postponement. Tribunals routinely grant this. That is the protection Lord Walker and Lord Hope built into the rule.

Test whether the new point is even in bounds. There is a quick check you can apply to any fresh HMRC argument: is it still about the same claim or figure the closure notice amended, or has it moved to a different entry on your return? If it is the same entry, expect the tribunal to let HMRC run it. If it has jumped to a different entry, say so—that is outside the subject matter of this appeal, and the Tower MCashback boundary is exactly the objection you make.

It is worth seeing where this sits in the bigger picture. The closure-notice route is how HMRC concludes an enquiry it opened in time—the lifecycle covered in HMRC enquiries and closure notices. It is different from a discovery assessment, the route HMRC uses to reopen a year after the enquiry window has shut, which has its own separate gateways and conditions (the subject of Langham v Veltema). Tower MCashback is about what a closure notice fixes for the appeal that follows it.

How To Appeal A Closure Notice

If you want to challenge the conclusion or amendment in your closure notice, the mechanics are the same as any direct-tax appeal. You generally have 30 days from the date of the notice to appeal. The first appeal goes to HMRC, not straight to the tribunal—and you can also ask for a free internal review, a fresh look by a different officer that takes around 45 days. If that does not resolve it, the case goes to the First-tier Tribunal, where there is no fee to appeal. Our step-by-step guide to how to appeal to the tax tribunal walks through each stage.

One last reminder on who proves what. On the amount, the burden is on you: under section 50(6), it is for you to show the assessment overcharges you. That is precisely why framing your case around why the figure is wrong—rather than only why the officer's reasoning was flawed—matters so much. Win that, on whatever legal basis the tribunal accepts, and you win the appeal.

Key Legislation And Resources

The Judgment

• HMRC v Tower MCashback LLP 1 and another [2011] UKSC 19 — full judgment on BAILII; Supreme Court, Lord Walker giving the leading judgment (Lord Hope concurring), the other five Justices agreeing; handed down 11 May 2011
• Supreme Court case page (UKSC 2010/0041) — judgment PDF and press summary

Legislation

• Section 28A TMA 1970 — completion of an enquiry into a personal or trustee return; the closure notice must state conclusions and make the amendments required to give effect to them (subsection (2)), and can now be a partial or final closure notice
• Section 28B TMA 1970 — the equivalent for a partnership return (the section in issue in Tower MCashback, which concerned LLPs)
• Section 31 TMA 1970 — the right of appeal against any conclusion stated in, or amendment made by, a closure notice
• Section 31A TMA 1970 — notice of appeal; the notice "must specify the grounds of appeal" (subsection (5)). (The old subsection (6) letting the tribunal allow other grounds was omitted in 2009; that flexibility now comes from the tribunal's case-management powers in rule 5 of the Tax Chamber rules.)
• Section 50 TMA 1970 — disposal of the appeal: the tribunal reduces or increases the assessment so it stands at the right figure (subsections (6)–(7))

Key Cases

• HMRC v Tower MCashback LLP 1 and another [2011] UKSC 19 — a closure notice fixes the conclusion you appeal, not the reasoning; HMRC may defend that conclusion on new arguments subject to fairness and case management (Lord Walker, paras 15–18); section 50 lets the tribunal decide the law for itself within the subject matter of the appeal (Lord Hope, paras 83–85)
• Fidex Ltd v HMRC [2016] EWCA Civ 385 — Kitchin LJ's four-point distillation of the Tower MCashback principle (at [45]), the form in which the rule is most often quoted
• Investec Asset Finance plc v HMRC [2020] EWCA Civ 579 — applies the Fidex four points; confirmation the principle is still good law

On This Site

• Capital Allowances Appeals — the substantive tax behind the Tower MCashback dispute; appealing a disallowed capital-allowances claim
• HMRC Enquiries And Closure Notices — the enquiry-to-closure-notice lifecycle that produces the notice you are appealing
• Partnership Tax Appeals — the section 28B partnership-return machinery that was in issue in Tower MCashback, and how partnership closure notices and appeals work
• Writing Grounds Of Appeal — how to frame grounds that attack the conclusion, not just the officer's reasoning
• How To Appeal To The Tax Tribunal — the step-by-step of appealing to HMRC, asking for a review, and lodging a tribunal appeal
• Discovery Assessments and Langham v Veltema — the other route HMRC uses to reopen a year, once the enquiry window has closed
• Preparing For Your Tax Tribunal Hearing — case management, directions, and bundles, relevant to the "ask for time, don't get ambushed" point

This article is for informational purposes only and does not constitute legal or tax advice. For advice specific to your situation, consult a qualified tax adviser, accountant, or solicitor.