Oriel Developments Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 02 August 2019 |
| Neutral Citation | [2019] UKFTT 503 (TC) |
| Date | 02 August 2019 |
| Court | First Tier Tribunal (Tax Chamber) |
[2019] UKFTT 503 (TC)
Judge Tony Beare
Mr Keith M Gordon, instructed by Croner Taxwise Limited, appeared for the appellant
Mr Mark Fell, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondent
Corporation tax – Claim for chargeable gains rollover relief (following a compulsory purchase) in respect of expenditure on constructing buildings on land already held – Conclusion that such expenditure did not amount to acquiring other land for the purpose of the relief and therefore that the claim was invalid but that the discovery assessment issued by the Respondents in this respect was based on a discovery which was stale and was therefore invalid – Appeal upheld – TCGA 1992, s. 247, 247A, 153A – FA 1998, Sch. 18, para. 41 – The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273), r. 25(2), 7(2), 2.
The First-tier Tribunal (FTT) allowed a taxpayer company's appeal against a discovery assessment on the basis that the discovery was stale. HMRC should have raised a prospective discovery assessment while awaiting the outcome of another case.
Oriel Developments Ltd (the appellant) included a provisional rollover relief claim in its corporation tax self-assessment (CTSA) return for the accounting period ending 31 August 2010. This was in accordance with the procedures in TCGA 1992, s. 247A in relation to the disposal of land under a Compulsory Purchase Order. In the accounting period ending 31 August 2012 the appellant reinvested the entire proceeds from the disposal, constructing new buildings on land it already owned. The appellant duly claimed rollover relief under TCGA 1992, s. 247 and understood that this superseded the provisional claim.
In May 2014 HMRC opened an enquiry into the appellant's CTSA return for the accounting period ending 31 August 2010. By August 2014 an HMRC Officer (Ms Rodgers) had formed the view that as the reinvestment consisted of construction on land already owned by the appellant the rollover relief claim was invalid because the reinvestment was not “applied … in acquiring other land” (as required by TCGA 1992, s. 247(1)(c)) and advised the appellant accordingly. In September 2015 Ms Rodgers told the appellant that as it had not reinvested the disposal proceeds within four years of the accounting period end date of the disposal (as required by TCGA 1992, s. 153A(5)(b)) the tax on the disposal was due. Ms Rodgers said that an assessment for the period to 31 August 2010 would be raised under TCGA 1992, s. 153A(4).
A discovery assessment was raised under FA 1998, Sch. 18, para. 41, but not until May 2018. This was because initially HMRC attempted to disallow the claim by amending the appellant's 31 August 2010 CTSA return. But following the appellant's request for a statutory review and the Upper Tribunal's decision in R & C Commrs v Benham (Specialist Cars) Ltd [2017] BTC 533 in October 2017, HMRC accepted that an amendment was not appropriate. HMRC asserted that the discovery assessment was based on a discovery made by an HMRC officer (Dr Coffey) in May 2018, having taken over the case in October 2017.
The FTT had to determine three issues:
- The discovery assessment issue – had HMRC acted within their powers under TCGA 1992, s. 153A(4) and FA 1998, Sch. 18, para. 41(1) in issuing the discovery assessment?
- The rollover claim issue – did the appellant's claim for rollover relief satisfy the condition in TCGA 1992, s. 247(1)(c), i.e. were the disposal proceeds used in acquiring other land?
- The procedural issue – in litigating the Rollover Claim Issue, were HMRC entitled to adduce the argument that the expenditure in question was not applied in making an acquisition (because the buildings on which the expenditure was incurred came to be owned other than by way of an acquisition)?
Judge Beare found that the discovery made by Dr Coffey in May 2018 was identical to the discovery made by Ms Rodgers in 2014 or 2015, other than, as a result of the decision in Benham, Dr Coffey had realised that HMRC had used the wrong mechanism for dealing with the invalid claim to rollover relief. This conclusion meant that, Judge Beare was bound by the decision of the Court of Appeal in R & C Commrs v Tooth [2019] BTC 14 to conclude that the relevant discovery was the discovery by Ms Rodgers and not the discovery by Dr Coffey. Given that the facts were identical to those in Tooth, the FTT found that it was precluded from finding that Dr Coffey's discovery was sufficient to trigger the issue of the discovery assessment.
The FTT did not accept HMRC's three submissions that if the relevant discovery was the discovery by Ms Rodgers, this should not invalidate the issue of the discovery assessment.
- The FTT found that it was bound by Pattullo v R & C Commrs [2016] BTC 510, Beagles v R & C Commrs [2018] BTC 528 and Tooth to hold that, generally, a discovery assessment could to be held to be invalid on staleness grounds.
- The staleness concept was not a limitation on the time within which assessments or amendments may be made, as described in s. 153(4)(b). Instead, it was simply a judicial gloss on the meaning of the word discovers and, as such, a hurdle which needed to be addressed before a discovery assessment could be made. It was to be distinguished from the express time limits which exist in the legislation, such as the one in FA 1998, Sch. 18, para. 46.
- HMRC were entitled to issue a protective discovery assessment while they awaited the outcome of the decision in Benham and therefore the discovery made by Ms Rodgers was stale at the time when the discovery assessment was issued by Dr Coffey. This was enough to conclude that the discovery assessment was invalid, but for completeness the FTT also considered whether it was permissible for Dr Coffey to issue the discovery assessment on the basis of Ms Rodgers's discovery, but decided not to decide the point.
Although this was enough to allow the taxpayer's appeal, the FTT considered the other two issues.
Judge Beare did not think that the argument that the expenditure in question was not applied in making an “acquisition” had formed part of HMRC's position in relation to the case as set out in the statement of case, as was required by SI 2009/273, r. 25(2). However, he allowed the argument to be admitted because:
- he thought it was clear from the statement of case that the burden of proof was on the appellant to establish that the expenditure in question had been incurred on the acquisition of land – as opposed to the enhancement of land – and it was implicit in that question that whether or not the construction of the buildings on the appellant's existing land amounted to an acquisition of those buildings was one which the appellant would need to address in order to satisfy that burden of proof; and
- he accepted HMRC's submission that this was purely a question of law and therefore that the two week period between the receipt by the appellant of HMRC's skeleton argument and the hearing was enough time for the appellant to deal with the argument in its submissions.
If the FTT had not determined the discovery assessment issue in favour of the appellant, it would have dismissed the appeal on the basis that the construction by the appellant of the new buildings on its existing land did not amount to “acquiring other land” within the meaning of TCGA 1992, s. 247(1)(c).
While Judge Beare recognised that there was no good policy reason for limiting the relief in TCGA 1992, s. 247 to the acquisition of new land, it seemed to him that to describe the construction of buildings on existing land as falling within the phrase “acquiring … land” ran counter to the general approach in TCGA 1992 and to established principles of land law. When buildings are constructed on existing land, the owner of the land does not thereby acquire a new interest in land. Instead, the owner merely enhances its existing interest in the land on which the newly-constructed buildings are situated. The fact that TCGA 1992, s. 38 made such a clear distinction between acquisition expenditure and enhancement expenditure tended to reinforce this conclusion, as did the fact that, in Judge Beare's view, the exclusion in TCGA 1992, s. 248 was intended to encompass both the dwelling-house (or part) and the land on which the dwelling-house (or part) was situated. Since that exclusion was the subject of a cross-reference in TCGA 1992, s. 247(1)(c), logic suggested that the reference to the acquisition of land in the latter provision should be construed in a manner which was consistent with that construction of TCGA 1992, s. 248.
On the issue of discovery assessments and staleness, Judge Beare noted that an appeal against the Upper Tribunal decision in Beagles was shortly to be heard by the Court of Appeal and an application for leave to appeal to the Supreme Court against the Court of Appeal's decision in Tooth was being sought.
If the case had not been decided in the taxpayer's favour because of the staleness of the discovery assessment, the taxpayer's appeal would have been dismissed on the basis that the rollover relief claim was invalid because by the appellant constructing new buildings on its existing land it did not did not meet the requirement of “acquiring other land”.
[1] This decision relates to a discovery assessment (the “Discovery Assessment”) which was issued by the Respondents on 23 May 2018 for the Appellant's accounting period ending 31 August 2010 in the amount of £351,928.42. The Respondents allege that the Discovery Assessment has been properly issued pursuant to their powers under paragraph 41 of Schedule 18 to the Finance Act 1998 (the “FA 1998”) because the provisional declaration claiming rollover relief under section 247(1) of the Taxation of Chargeable Gains Act 1992...
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