August 11, 2026
The First-tier Tribunal refused HMRC’s attempt to strike out a Business Asset Disposal Relief argument in an appeal against a capital gains tax closure notice.
The scope of an appeal is determined by the “matter in question”, not simply by the headings HMRC chooses or every computational component expressly mentioned in the closure notice.
The case concerned a capital distribution received on the liquidation of a company in which Mr Knight was the majority shareholder. The distribution had not been included in his tax return. HMRC opened an enquiry and issued a closure notice assessing capital gains tax on the undisclosed distribution.
Mr Knight later accepted that the distribution gave rise to a taxable gain, but argued that the conditions for Business Asset Disposal Relief were satisfied and that the assessed liability should be reduced. HMRC applied to strike out that part of the appeal.
The strike-out application did not ask the Tribunal to decide whether Mr Knight actually qualified for BADR. It asked whether the Tribunal had jurisdiction to hear the argument at all within the appeal against the closure notice.
An HMRC enquiry is brought to an end by a closure notice stating the officer’s conclusions and, where appropriate, amending the return. On appeal, the Tribunal’s jurisdiction is focused on the “matter in question” identified by the enquiry and closure notice.
That concept prevents an appeal from becoming a free-standing review of every possible issue in the taxpayer’s affairs. It protects both parties by defining the dispute. However, the matter in question is not always identical to each individual line of HMRC’s calculation or each legal proposition expressly written into the notice.
The correct characterisation depends on the enquiry’s scope, the conclusion reached, the amendment made and the relationship between the taxpayer’s argument and the liability assessed.
HMRC’s position was, in substance, that BADR had not been claimed and did not form part of the closure notice decision. On that analysis, the Tribunal could determine whether the liquidation distribution was taxable but could not use the appeal to entertain a new relief claim.
That argument has practical force. Many tax reliefs must be claimed within specific statutory time limits and through specified procedures. The Tribunal cannot use a general sense of fairness to disapply those requirements.
However, a procedural strike-out is a severe remedy. HMRC needed to show that the BADR argument had no reasonable prospect because it fell outside the Tribunal’s jurisdiction or could not lawfully affect the assessment under appeal.
The First-tier Tribunal treated the proper amount of capital gains tax arising from the liquidation distribution as the relevant matter in question. BADR, if available, directly affected the rate and amount of tax on that gain.
The Tribunal therefore refused to strike out the argument. It was open to Mr Knight to contend within the appeal that the closure-notice amendment overstated his CGT liability because the relief applied.
That was a procedural victory only. The decision did not establish that the statutory conditions for BADR were met, that any claim was validly made or that the appeal would ultimately succeed. Those issues required separate determination on the facts and legislation.
· It does not remove the need to make relief claims within the statutory time limit wherever a claim is required.
· It does not mean that any new tax argument can be introduced into any closure-notice appeal.
· It does not establish entitlement to BADR on the substantive facts.
· It does not prevent HMRC from arguing at the substantive hearing that the statutory claim machinery has not been satisfied.
The judgment is best understood as a decision about the breadth of the identified CGT dispute, not as a general extension of claims deadlines. Advisers should continue to make protective claims and amendments rather than relying on litigation to repair the position.
The enquiry notice, correspondence, information requests, closure notice, amendment and notice of appeal should be read together. A narrow phrase in one document may be informed by the wider course of the enquiry, while broad wording may leave room for computational or relief arguments directly connected with the assessed transaction.
When a closure notice is received, advisers should identify: the transaction or source under challenge; the legal conclusion HMRC has reached; the amendment made; the assumptions embedded in the calculation; and any reliefs or deductions that necessarily affect the amount assessed.
Appeal grounds should then address both the substantive error and the procedural route by which the Tribunal can correct it. Where a relief was not previously claimed, the adviser should separately assess amendment deadlines, overpayment-relief routes, statutory claim requirements and whether a protective application should be made.
HMRC applications to strike out should be resisted only on a properly reasoned jurisdictional basis. The fact that an argument is connected with the same transaction is relevant, but not always sufficient. The issue is whether it falls within the actual matter concluded by the closure notice.
Tax procedure is often treated as secondary to technical tax law. Knight demonstrates why that is dangerous. A taxpayer can have a strong substantive argument and still lose the ability to deploy it if the claim, enquiry or appeal route is mishandled.
Conversely, HMRC cannot necessarily define an appeal artificially narrowly by omitting a directly relevant computational issue from the narrative of the closure notice. The Tribunal must identify the substance of the decision under appeal.
The best protection is procedural discipline at every stage: complete returns, timely claims, clear correspondence, carefully reviewed closure notices and appeal grounds drafted with the eventual jurisdictional question in mind.
Scott Knight is a useful taxpayer decision on the permissible scope of a closure-notice appeal. The Tribunal refused to exclude a BADR argument that directly affected the CGT liability HMRC had assessed on the liquidation distribution.
It should not encourage complacency about claim deadlines. Rather, it shows that the “matter in question” can be broader than the individual components expressly discussed by HMRC, particularly where the proposed relief is integral to calculating the tax on the transaction already under appeal.
The closure notice defines the battlefield. The first task is to read it closely enough to understand where its boundaries really lie.
