Bloomsbury Verlag GMBH
| Jurisdiction | UK Non-devolved |
| Judgment Date | 14 December 2015 |
| Neutral Citation | [2015] UKFTT 660 (TC) |
| Date | 14 December 2015 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge Malcolm Gammie CBE QC, Mr Roland Presho FCMA
Corporation tax – Taxpayer becoming UK resident – Trading losses incurred in first two accounting periods – Late notification of chargeability – HMRC issuing notice to file company tax returns – Whether self-assessment subject to four year time limit – Whether losses existed and available to set off against profits of later periods – Discovery assessment and penalty determination – Appeal allowed.
The First-tier Tribunal (FTT) allowed Bloomsbury Verlag GmbH's appeal against HMRC assessments that denied the company relief for brought forward trading losses under ICTA 1988, s. 393(1) on the basis that the earlier period losses did not exist because they had not been established by an in-time self assessment in respect of the loss making periods. The FTT found that for the first loss making periods, HMRC had not issued a notice requiring a return under the Finance Act 1998 (FA 1998), Sch. 18, para. 3, the return submitted voluntarily did not constitute a valid return and, therefore, there was nothing to prevent that period's losses being offset in a later period. As for the second loss making period, the return for that period was submitted within three months of the issue by HMRC of the notice to file and was not out of time as the four year time limit within para. 46 applied only to assessments by HMRC and did not extend to a company's own self-assessment.
This was an appeal by Bloomsbury Verlag GmbH (the company) against a discovery assessment and enquiry closure notice charging corporation tax for its 2005 and 2007 accounting periods together with an appeal against penalties for failure to notify chargeability to corporation tax for each period. The company had been late in notifying HMRC of its chargeability to corporation tax for the years 2003 to 2009 but had then submitted returns for each year disclosing losses for 2003, 2004, 2006 and 2009 and profits for 2005, 2007 and 2008, offsetting the earlier years losses against the later years' profits under the Income and Corporation Taxes Act 1988 (ICTA 1988), s. 393(1)). The 2003 return was submitted voluntarily, as HMRC had only issued notices requiring returns for the 2004 to 2009 periods.
HMRC did not dispute that the company had incurred losses in its 2003 and 2004 accounting periods but rejected the loss relief claims on the basis that the company's tax returns were out of time so the losses did not exist because they had never been self-assessed.
The FTT examined in detail the procedural requirements of FA 1998, Sch. 18, including the meaning of assessment, the application of the time limits prescribed by para. 46, whether these applied to a company's self-assessment or only to assessments by HMRC, and whether para. 88 operated to determine the losses as nil and no longer capable of alteration. The FTT reached the following conclusions:
The company's initial notification letter did not constitute a self-assessment at all so could not be taken to be an in timeassessment of the 2004 losses.
The company's voluntary return for the 2003 year was not a valid return. A company was obliged only to notify its chargeability to tax, under para. 2, and whilst HMRC were given a discretion to require the company to deliver a return (or not), a company's obligation to deliver a return and self-assess depended upon it receiving notice from HMRC to that effect; it was not entitled to deliver a voluntary return.
Although Sch. 18 referred to the return (in terms of what is contained in it) and to the assessment (in terms of the amount of tax payable based on the content of the return) as different things, an assessment was an integral part of the return without which the return was incomplete.
Sch. 18, para. 97 did not equate the terms assessment and self-assessment in the Taxes Management Act 1970 (of which Sch. 18 was to be treated as part by virtue of FA 1998, s. 117(2)) but indicated that self-assessment, amendment and determination were distinct procedural steps that could be distinguished from an assessment in the traditional form that existed prior to the adoption of CTSA.
The para. 46 time limit did not apply to a self-assessment, only to an assessment made in exercise of the power conferred to HMRC, i.e. an assessment made on the company rather than one the company itself included in a return.
Para. 88, which provided for conclusiveness (as no longer capable of alteration) in amounts stated in returns and affecting other accounting periods operated consequentially upon the submission of a valid return for the period; there was no valid return for 2003 so HMRC could not use para. 88 to say the company had no established losses for that period.
Applying these conclusions to the case itself, the FTT determined that:
1) The company notified its chargeability for the 2003 period late but HMRC never required it to deliver a company tax return for that period. The voluntary return was not a company tax return and para. 88 did not apply so that the 2003 losses were not determined in relation to any later period at zero.
2) The company's 2004 return was submitted following a notice issued by HMRC within the relevant time period. The self-assessment included in that return was not subject to the time limit specified under para. 46. Para. 88 operated to determine the 2004 trading losses for later periods which were to be automatically taken into account as reducing the company's trading income in those later periods (subject to any other use that could be made of them).
3) The 2004 losses could be offset against the 2005 profits and there was further nothing to prevent the 2003 losses from also being set off in 2005, given that relief under ICTA 1998, s. 393 was allowed as part of the computation to trading profits without any requirement for a claim or to have had the losses determined in an earlier year. That HMRC did not require the company file a tax return for 2003 did not prevent the company establishing the existence of losses and their availability for set off in a later year.
4) These principles applied equally to the 2007 year as they did to the 2005 year.
Accordingly, the company's appeal was allowed in respect of both the tax and penalties sought.
This case includes a useful analysis of the provisions of FA 1998, Sch. 18 governing a company's obligations under CTSA as well as in the context of the automatic offset of brought forward trading losses under ICTA 1998, s. 393(1). HMRC denied the company loss relief for earlier years’ losses on the basis that the losses had not been established by an in time self-assessment because the tax returns subsequently filed were out of time. The FTT, however, found that HMRC had not required a return for the first loss making period and there was nothing to prevent the loss arising in that period from being offset in later periods. As far as the second loss making period was concerned, the return for that period was not out of time because it was filed within three months of HMRC issuing the notice to file and the four year time limit applied only to HMRC assessments and not a company's self-assessment. Accordingly, the losses for both years were available for carry forward and offset in later periods.
[1] Bloomsbury Verlag GmbH (the Company) appeals against the corporation tax charged and the penalties determined for its accounting periods ended 31 December 2005 and 31 December 2007. The tax for 2005 is charged by way of a discovery assessment made on 14 September 2012 in the amount of £146,546.70. The tax for 2007 arises from a closure notice and Revenue amendment of the same date in the amount of £66,073.50. A penalty determination was issued on 24 September 2012 for failure to notify that the Company was chargeable to tax for each of the periods concerned. The tax-geared penalty is £29,309 for 2005 and £13,215 for 2007.
[2] The Company appealed on 10 October 2012 and requested a review under section 49B of the Taxes Management Act 1970 (TMA) in respect of both periods. Its grounds of appeal were that the Company had incurred trading losses in prior accounting periods that should automatically be offset against the trading profits of the 2005 and 2007 periods. It said that it had no taxable profits in either period. The tax and penalties should therefore be reduced to nil.
[3] HMRC's review appears fairly perfunctory. In his letter of 12 December 2012 the reviewing officer summarised some of (but not all) the issues that had been raised and concluded that the letter notifying the decision to raise the assessment and issue the closure notice correctly sets out HMRC's policy in respect of the matter in dispute. Given the extensive correspondence leading up to this stage of events this might have been anticipated and was presumably the nature and extent of the review as appeared appropriate to HMRC in the circumstances (see section 49E(2) TMA).
[4] Prior to the review, on 19 October 2012, the Company had made representations within a time frame agreed with HMRC. It also wrote on 1 November 2012 correcting certain information that it regarded as inaccurate in a letter of 30 October 2012 to the Company from its inspector which it assumed would be among the material submitted to the Reviewing Officer. Under section 49E(4) TMA the review must take account of any representations made by the appellant at a stage which gives HMRC a reasonable opportunity to consider them. It was not possible to tell from the letter notifying the Reviewing Officer's conclusion whether this had been done and the Company accordingly wrote following the notification raising six issues (four of which related to the earlier correspondence and its representations), which it considered had not been satisfactorily dealt with. In response HMRC informed the Company that the review … is finalised...
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