Cumming-Bruce v R & C Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 25 August 2022 |
| Neutral Citation | [2022] UKUT 233 (TCC) |
| Year | 2022 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2022] UKUT 233 (TCC)
Upper Tribunal Judge Thomas Scott, Deputy Upper Tribunal Judge Anne Redston
Upper Tribunal (Tax and Chancery Chamber)
Capital gains tax – Allowable capital losses – Mansworth (HMIT) v Jelley [2003] BTC 3 – Whether HMRC were correct to enquire into the claim under TMA 1970, s. 9A or should it have been treated as a standalone claim and enquired into under TMA 1970, Sch. 1A – R & C Commrs v Cotter [2013] BTC 837, R (oao De Silva) v R & C Commrs [2017] BTC 37, R (oao Derry) v R & C Commrs [2019] BTC 11 and R & C Commrs v Tooth[2021] BTC 15 considered – Appeal dismissed – TMA 1970, s. 8, 9A, 9ZA, 9B, 42, Sch. 1A and 1B, TCGA 1992, s. 2, 16.
In Cumming-Bruce 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.
Following the decision in Mansworth (HMIT) v Jelley [2003] BTC 3 (MvJ), in early 2003 the appellant (Mr Cumming-Bruce) wrote to HMRC claiming additional allowable losses in respect of the returns he had already submitted in respect of 2000–01 and 2001–02. The losses were set-off against capital gains in various subsequent years.
In 2015 HMRC closed enquiries into Mr Cumming-Bruce’s 2000–01 and 2001–02 returns on the basis that the MvJ losses claimed in the returns were not allowable (this did not change the tax payable for these years). HMRC also issued a discovery assessment in relation to 2009–10 and closure notices in respect of other years for which they had opened enquiries, on the basis that additional tax was due because brought forward losses had been disallowed.
Mr Cumming-Bruce appealed against the closure notices and discovery assessment on the basis that:
- his notifications of the MvJ losses were standalone claims, and did not form part of his tax return, and therefore HMRC should have opened the enquiries under TMA 1970, Sch. 1A, and not under s. 9A; and
- the discovery assessment was ‘stale’.
In Cumming-Bruce [2021] TC 07962, the FTT dismissed the appeal, deciding that HMRC had correctly enquired into Mr Cumming-Bruce’s MvJ losses under TMA 1970, s. 9A rather than Sch. 1A, and the discovery assessment had not become stale.
Mr Cumming-Bruce appealed to the UT on the enquiry issue, which dismissed his appeal. The appeal on the staleness issue was dropped following the Supreme Court’s ruling in R & C Commrs v Tooth [2021] BTC 15.
The UT rejected Mr Cumming-Bruce’s primary submission that, relying heavily on TCGA 1992, s. 16(2A), there were two distinct stages to making a capital loss claim. Being, first, that the loss had to be ‘notified’ to HMRC, who ‘determine’ the loss. Then second that when the loss has been ‘determined’ it is ‘allowable’ and may then be included in a capital gains tax (CGT) computation for the year in which the loss arises, and to the extent not so utilised, may be carried forwards. In Mr Cumming-Bruce’s view this meant that any enquiry into the loss must be under Sch. 1A. Instead, the UT agreed with the FTT and HMRC that the legislation does not mandate a two stage process, there is no requirement for HMRC to ‘determine’ the notified loss, and an enquiry need not in every case be opened under Sch. 1A.
The UT also rejected Mr Cumming-Bruce’s secondary submission. This submission was that, on the particular facts of the case, and in light of TMA 1970, s. 8(1) and related case law, as the MvJ losses did not change his overall tax payable for the years in question, none of the MvJ losses were ‘information … for the purpose of establishing’ the amount of Mr Cumming-Bruce’s CGT liability or the tax payable by him for that year and they were therefore not ‘in the return’. Consequently, he submitted that HMRC had to enquire into the losses under TMA 1970, Sch. 1A which they had failed to do.
The UT agreed with HMRC that reading TCGA 1992, s. 16(1), (2) and (2A) and TMA 1970, s. 42, all capital losses arising in a tax year must be included in the return for that year. It also followed from the natural reading of TMA 1970, s. 9ZA that an amendment becomes part of the return and is not separable or distinguishable. Before reaching its conclusion the UT also considered the cases of R & C Commrs v Cotter [2013] BTC 837, R (oao De Silva) v R & C Commrs [2017] BTC 37, R (oao Derry) v R & C Commrs [2019] BTC 11 and R & C Commrs v Tooth[2021] BTC 15, and found that none of these decisions assisted Mr Cumming-Bruce. Finally, the UT found that the practical consequences of Mr Cumming-Bruce’s secondary submission reinforced its conclusion that the losses were ‘in the return’.
Even though the taxpayer’s loss claims were made after his returns for the years of the losses had been submitted, and did not change the tax payable in those years (as all the losses were carried forward), the claims were amendments to the submitted returns and therefore HMRC’s enquiries into the claims were correctly made under the provisions for enquiries into returns rather than as enquiries into standalone claims.
Comment by Meg Wilson, Lead Technical Writer at Croner-i.
Mr Michael Sherry of Counsel, instructed by Edwards Greene, Chartered Accountants appeared for the appellant
Mr Imran Afzal of Counsel, instructed by the General Counsel and Solicitor for Her Majesty's Revenue and Customs appeared for the respondents
[1] The Appellant, Mr Cumming-Bruce, appeals against the decision (“the Decision”) of the First-tier Tribunal (“the FTT”). Mr Cumming-Bruce had claimed capital losses in 2000–01 and 2001–02 totalling almost £3m on the basis of the Court of Appeal's judgment in Mansworth (HMIT) v Jelley [2003] BTC 3 (“MvJ”). These were set off against capital gains in 2004–05, 2006–07, 2009–10, 2011–12 and 2012–13.
[2] HMRC opened enquiries into all relevant years other than 2009–10 under s 9A of the Taxes Management Act 1970 (“TMA”). In 2015, HMRC closed their enquiries on the basis that the MvJ losses claimed in 2000–01 and 2001–02 were not allowable, and so were not available to be carried forward into the later years. HMRC issued a discovery assessment1 in relation to 2009–10.
[3] There were two issues in dispute before the FTT:
- whether Mr Cumming-Bruce's notifications of the MvJ losses were stand-alone claims or whether they formed part of his tax return. If the former, HMRC were required to open enquiries under TMA Schedule 1A (Sch 1A), and not under TMA s 9A; and
- whether the discovery assessment was stale.
[4] HMRC succeeded on both issues before the FTT (Judge Rupert Jones and Mr Ian Menzies-Conacher), and Mr Cumming-Bruce asked for permission to appeal. On 14 April 2021, Judge Raghavan gave permission on both grounds, but Mr Cumming-Bruce withdrew his appeal on the staleness issue after the Supreme Court's judgment in R & C Commrs v Tooth[2021] BTC 15 (“Tooth”)2.
[5] Therefore, the only issue before us was whether the FTT made an error of law in deciding that HMRC had correctly enquired into Mr Cumming-Bruce's MvJ losses under TMA s 9A rather than under Sch 1A.
[6] The facts were not in dispute and are set out in the Decision, from which the following summary is largely taken.
[7] References below to paragraphs in the form [x] are to paragraphs in the Decision unless indicated otherwise.
[8] On 10 January 2002, Mr Cumming-Bruce's self-assessment (“SA”) return for 2000–01 was filed by his accountant Richard Hallas and Partners (“the Representative”). The return included a disposal of 1,500 shares in Oakdene Ltd for £1.5m for a nil gain. These shares had been obtained pursuant to an adjustable share option scheme operated by Mr Cumming-Bruce's employer. The return also included other capital gains and losses. The Representative completed the pages CG1 to CG8 by inserting details of each disposal, and setting off the gains and the losses. The final result was a capital loss carried forwards of £59.
[9] On 11 October 2002, the Representative filed Mr Cumming-Bruce's 2001–02 SA return. This included a further disposal of Oakdene shares for £1.5m with a nil gain, as well as other capital gains and losses. The Representative again completed the pages CG1 to CG8 by inserting details of each disposal and setting off the gains and the losses. The final result was a capital loss carried forwards of £3,293, which included the £59 capital loss brought forward from the previous year.
[10] At one point during the hearing Mr Sherry suggested that the Representative had not “calculated” Mr Cumming-Bruce's tax position for those two years. However, the FTT had found at [219] that Mr Cumming-Bruce had “calculated his liability to income and capital gains tax with his returns for 2000–2001 and 2001–02 by completing the tax calculation summary pages of each return”. There was no appeal against that finding, and it was not open to Mr Sherry to raise it for the first time in oral submissions before this Tribunal. Moreover, the Representative explicitly stated that it had calculated Mr Cumming-Bruce's tax in the correspondence which followed: see paragraph 13 below.
[11] On 12 December 2002, HMRC opened an enquiry into Mr Cumming-Bruce's 2000–01 return under TMA s 9A.
[12] On 8 January 2003, HMRC issued a press release relating to the MvJ judgment (“the 2003 Guidance”), which stated that the gain/loss on disposal of shares acquired pursuant to share options should be calculated by deducting from the disposal proceeds both (a) the market value of the shares at the time the option was exercised and (b) any amount chargeable to income tax on the exercise of the option.
[13] On 24 January 2003, the Representative wrote to HMRC, saying:
We refer to the recent Tax Case of Mansworth v Jelley and the Inland Revenue press...
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