ECL Solutions Ltd v HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judgment Date | 20 November 2008 |
| Date | 20 November 2008 |
| Court | Special Commissioners |
special commissioners decision
Theodore Wallace
Mrs Catherine Gunn, director, for the Company
Adam Tolley, instructed by the Solicitor for Revenue and Customs, for the Respondents
Closure application - corporation tax - enquiry - conclusion dependent on outstanding appeals concerning annual payments and regulation 80 determinations - application dismissed
A special commissioner dismissed an application for a closure notice by a company in respect of an inquiry into its corporation tax returns until appeals in respect of certain annual payments and determinations under reg. 80 of the Income Tax (PAYE) Regulations 2003 (SI 2003/2682) had been determined, since Revenue and Customs had reasonable grounds for not giving a closure notice while those appeals remained to be determined.
The taxpayer company wrote to the special commissioners seeking a closure notice on 29 September 2008 in a letter which also concerned appeals by the company against assessments and against reg. 80 determinations. At a preliminary hearing the closure application was considered.
On such an application in relation to an enquiry into a corporation tax return it was for the Revenue to satisfy the tribunal that they had reasonable grounds for not giving a closure notice (see FA 1998, Finance Act 1998 schedule 18 subsec-or-para 33Sch. 18, para. 33). The Revenue accepted that an enquiry had been opened into the company's corporation tax return for the years from October 1999 to October 2002. That enquiry depended on the outcome of the outstanding appeals against assessments and regulation determinations.
The company had made deductions in its trading accounts in respect of licence fees paid in respect of worldwide rights to trade in the Ban-Air Storage system. The Revenue contended primarily that the payments were annual payments under ICTA 1988, Income and Corporation Taxes Act 1988 section 349s. 349 on which income tax should have been deducted and so were not deductible for corporation tax, although relief would potentially be available under ICTA 1988, Income and Corporation Taxes Act 1988 section 338Bs. 338B. The corporation tax position thus depended on the appeal as to the licence payments since the corporation tax assessments would have to be amended if the company's appeal against the assessment failed. Until that was determined the enquiry should not be closed. The question of a closure notice to the corporation tax enquiry did not affect the assessments based on annual payments since those were to income tax rather than to corporation tax. If a closure notice was issued the Revenue would make a conditional assessment.
The regulation 80 determinations were alternative to the assessments to income tax and concerned the company's liability as employer on the basis that if the payments were not annual payments they were Sch. E emoluments. That alternative liability was to account for the income tax and was again not for corporation tax. Neither the assessments based on annual payments nor the alternative reg. 80 determinations concerned corporation tax. An enquiry under FA 1998, Finance Act 1998 schedule 18 subsec-or-para 24Sch. 18, para. 24 into a company tax return did not cover income tax on annual payments.
The taxpayer contended that the assessments under ICTA 1988, Income and Corporation Taxes Act 1988 schedule 16 subsec-or-para 4Sch. 16, para. 4(2) (which was the provision covering assessments of tax due under Income and Corporation Taxes Act 1988 section 349s. 349) were corporation tax assessments. The company was entitled to a closure notice so as to know what the conclusions of the Revenue were. Moreover, the Revenue were out of time to make an assessment to corporation tax by reason of FA 1998, Finance Act 1998 schedule 16 subsec-or-para 46Sch. 16, para. 46.
Whether the taxpayer was entitled to a closure notice in respect of the enquiry into its corporation tax returns for the relevant years.
The special commissioner (Theodore Wallace) (dismissing the application) said that no copy of the notice of enquiry was produced but it was common ground that there was such a notice. ICTA 1988, Income and Corporation Taxes Act 1988 section 117 subsec-or-para 1s. 117(1) provided that Income and Corporation Taxes Act 1988 schedule 18Sch. 18 had effect in place of the provisions of TMA 1970, Taxes Management Act 1970 part II part IVPt. II and IV so far as they related to corporation tax.
Income and Corporation Taxes Act 1988 schedule 18 subsec-or-para 24Schedule 18, para. 24 enabled the Revenue to enquire into a company tax return. Paragraph 3 provided that the Revenue might by notice require a company tax return of information relevant to the tax liability of the company. In para. 1 tax was defined in Sch. 18 as corporation tax including any amount chargeable as if it was corporation tax. Corporation tax was charged on profits. The charge to corporation tax was wholly different from the income tax payable by a company making annual payments and the rate of tax was different. Quite apart from the fact that the tax for which a company had to account on annual payments was income tax, the returns of income tax due on annual payments were to be made quarterly under ICTA 1988, Income and Corporation Taxes Act 1988 schedule 16 subsec-or-para 2Sch. 16, para. 2 and not on the annual return under Sch. 18.
In all the circumstances, the assessments in question were to income tax and not to corporation tax. They referred in terms to ICTA 1988, Income and Corporation Taxes Act 1988 schedule 16 subsec-or-para 4Sch. 16,...
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