Cumming-Bruce
| Jurisdiction | UK Non-devolved |
| Judgment Date | 04 December 2020 |
| Neutral Citation | [2020] UKFTT 490 (TC) |
| Date | 04 December 2020 |
| Court | First Tier Tribunal (Tax Chamber) |
[2020] UKFTT 490 (TC)
Judge Rupert Jones, Ian Menzies-Conacher
Michael Sherry, Counsel instructed by Michael Sherry Limited at Temple Tax Chambers, appeared for the appellant
Alan Hall, litigator of HM Revenue and Customs' Solicitor's Office, appeared for the respondents
Capital gains tax – Allowable capital losses – Mansworth (HMIT) v Jelley [2003] BTC 3 – TMA 1970, s. 9A enquiry or standalone claim and enquiry under TMA 1970, Sch. 1A – R & C Commrs v Cotter [2013] BTC 837 – Discovery Assessment – TMA 1970, s. 29 – Whether the discovery had lost its essential newness or become stale by the time of assessment – Appeal dismissed.
The First-tier Tribunal (FTT) dismissed a taxpayer's appeal against closure notices and a discovery assessment disallowing Mansworth v Jelley losses, finding that HMRC had validly enquired into the taxpayer's losses claims and the discovery had not lost its essential newness or become stale by the time the discovery assessment was issued.
Following the decision in Mansworth (HMIT) v Jelley [2003] BTC 3 (MvJ), Mr Cumming-Bruce (the appellant) wrote to the Inland Revenue in 2003 claiming additional allowable losses in respect of the returns he had already submitted in respect of 2000–01 and 2001–02. These losses were set-off against capital gains in various subsequent years. The MvJ losses were initially accepted by the Revenue in 2003 but were then disallowed later that year.
On 4 December 2013 HMRC issued a discovery assessment under TMA 1970, s. 29 in respect of the appellant's 2009–10 tax return. On 3 March 2015 HMRC issued closure notices under TMA 1970, s. 28A in respect of the appellant's 2000–01, 2001–02, 2004–05, 2006–07, 2011–12, 2012–13 tax returns. The assessment and closure notices charged capital gains tax or disallowed capital losses that had been claimed.
There were two issues in the appeal:
- Had the appellant proved that his notification in 2003 of MvJ losses for 2000–01 and 2001–02 were standalone claims and not amendments to the returns so that they could not be validly enquired into under TMA 1970, s. 9A? If so, this would mean that the closure notices for those years could not have been validly issued by HMRC under s. 28A.Did the law, as interpreted in R & C Commrs v Cotter [2013] BTC 837, require the Revenue to have enquired into the notified losses as standalone claims under TMA 1970, Sch. 1A? If so, the mechanism for disallowing losses would be to have issued closure notices issued under Sch. 1A, para. 7.If the claims for MvJ losses by the appellant for the two tax years were not validly enquired into and disallowed, then they would be allowable losses available to be carried forward for use in subsequent periods. Therefore, were the s. 28A closure notices and amendments to the returns charging additional tax for the later years, 2005 onwards, valid or invalid?
- Had HMRC proved that the 2009–10 discovery assessment was valid, in that the discovery conditions of TMA 10970, s. 29(5) were satisfied and that the assessment was not stale. When did HMRC make the discovery of an insufficiency in tax in relation to period 09–10, was it in January to March 2012? If the discovery was made in this period, did the assessment lose its essential newness by the time it was made in December 2013?
On the first issue, the FTT was satisfied that the appellant's claims in 2003 for MvJ losses for 2000–01 and 2001–02 were amendments to the returns and validly enquired into under TMA 1970, s. 9A such that the later closure notices (and disallowance of losses) were validly issued by HMRC under s. 28A. The letter presented the claim for the losses as amendments to the returns rather than standalone claims and based on the law, as interpreted in Cotter, did not require the Revenue to have enquired into the losses as standalone claims under TMA 1970, Sch. 1A, para. 5. As the notifications of MvJ losses by the appellant were validly enquired into and disallowed, then they were not allowable losses available to be carried forward. Therefore, the closure notices and amendments to the returns charging additional tax for the later years were valid.
On the second issue, the FTT found that while in March 2012, when the appellant's agent wrote to HMRC to advise them that the MvJ losses were potentially not allowable, and HMRC had replied that guidance on such losses had changed, so they were not allowable, an HMRC officer had subjectively made a discovery of the existence of MvJ losses and objectively, any officer would reasonably have done so, that did not equate to a discovery of an insufficiency of tax. Instead it was a different HMRC officer in November 2013 that made the discovery of an insufficiency, following more correspondence and having reviewed all the papers in the case and concluding that none of the appellant's arguments should succeed and capital losses claimed should not be allowed. The discovery assessment was made shortly afterwards in December 2013 and was therefore not stale. Further or alternatively, the FTT was satisfied that even if the discovery of an insufficiency of tax was made in March 2012, it did not become stale or lose its essential newness by the time the assessment was raised in December 2013.
Even though the taxpayer's agent had written to HMRC advising them that Mansworth v Jelley losses utilised in the taxpayer's 2009–10 tax return were potentially not allowable, and HMRC had replied that such losses were not allowable, the FTT found that the threshold for discovery had not been made at that time. The threshold was only reached some 20 months later after HMRC had exchanged further correspondence and considered the specific facts of the taxpayer's case in deciding to disallow the losses.
[1] The Appellant appeals the following decisions of HMRC charging him capital gains tax or disallowing capital losses that he claimed. The decisions consist of six Closure Notices under s. 28A Taxes Management Act (“TMA 1970”) issued on 3 March 2015 and a discovery assessment under s. 29 TMA 1970 issued on 4 December 2013 in respect of tax years from 2000–2001 to 2012–2013. They are as follows:
| Tax Year | £ Additional Tax | Authority | Date issued |
| 2000–01 | Nil – losses disallowed | s. 28A TMA 1970 | 3 March 2015 |
| 2001–02 | Nil – losses disallowed | s. 28A TMA 1970 | “” |
| 2004–05 | 16,005.60 | s. 28A TMA 1970 | “” |
| 2006–07 | 56,954.00 | s. 28A TMA 1970 | “” |
| 2009–10 | 25,330.68 | s. 29 TMA 1970 | 4 December 2013 |
| 2011–12 | 3,236.52 | s. 28A TMA 1970 | 3 March 2015 |
| 2012–13 | 18,810.96 | s. 28A TMA 1970 | “” |
[2] The figures for additional tax under appeal set out above appeared to have been agreed by the parties by the conclusion of the hearing. In any event, they seek a decision in principle on the two issues in dispute which are set out below.
[3] The Appellant wrote to the Inland Revenue in 2003 further to his tax returns filed for each of the years 2000–01 and 2001–02 and claimed additional allowable costs or losses, augmenting the existing losses claimed in his returns. These losses were set-off against capital gains in various subsequent years. The basis of much of the capital losses that were claimed for the purpose of calculating capital gains tax followed the decision in Mansworth (HMIT) v Jelley [2003] BTC 3. (“MvJ”). The MvJ losses were initially accepted by the Revenue in correspondence in 2003 but were then disallowed later that year and this was confirmed in the closure notices issued in 2015.
[4] There are two issues that fall to be determined within the appeal.
[5] The first issue is:
Has the Appellant proved that his notification in 2003 of MvJ losses for each of the 2000–01 and 2001–02 tax years were standalone claims and not amendments to the returns so that they could not be validly enquired into by the Revenue under s. 9A TMA 1970? If so, this would have the effect that the closure notices for those years (disallowing losses) could not be validly issued by HMRC under section 28A.
Does the law, as interpreted in R & C Commrs v Cotter [2013] BTC 837, require the Revenue to have enquired into the notified losses as standalone claims under Schedule 1A TMA 1970? If so, the mechanism for disallowing losses would be to have issued closure notices issued under paragraph 7 of Schedule1A.
If the claims for MvJ losses by the Appellant for the two tax years were not validly enquired into and disallowed, then they would be allowable losses available to be carried forward for use in subsequent periods tax years 2004 onwards. Therefore, are the section 28A closure notices and amendments to the returns charging additional tax for the later years, 2005 onwards, valid or invalid?
[6] This issue was a development of the Appellant's first four grounds of appeal contained in his notice of appeal:
- The notification claim for Mansworth v Jelley losses for 2000/01 and 2001/02, although made by way of amendment to the return forms for those years did not form part of the self assessments for those years and were 'stand alone' notification claims.
- Although enquiries were opened under TMA 1970, s.9A into the self assessments for those years no separate enquiries were opened into the loss notification claims under TMA 1970 Schedule 1A.
- The Revenue wrote to the taxpayer agreeing the losses notified.
- Accordingly the losses notified stand and the assessments for the subsequent years (including in particular years 2004/5. 2006/07. 2009/10. 2011/12, 2012/13) should take account of those losses being losses previously accrued in earlier years.
[7] The second issue in this appeal is:
Has HMRC proved that the 2009–10 discovery assessment was valid, in that the discovery conditions of s. 29(5) TMA 1970 were satisfied and that the assessment was not stale. When did HMRC make the discovery of an insufficiency in tax in relation to period 09–10, was it in January to...
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Cumming-Bruce v R & C Commissioners
...v R & C Commrs [2022] BTC 528, the Upper Tribunal (UT) upheld the decision of the First-tier Tribunal (FTT) in Cumming-Bruce [2021] TC 07962, deciding that HMRC had been correct to enquire into the taxpayer’s losses claim under TMA 1970, s. 9A rather than Sch. 1A. Summary Following the deci......