Poll
| Jurisdiction | UK Non-devolved |
| Judgment Date | 07 May 2021 |
| Neutral Citation | [2021] UKFTT 223 (TC) |
| Court | First Tier Tribunal (Tax Chamber) |
[2021] UKFTT 223 (TC)
Judge Robin Vos Mrs Norah Clarke
The Appellant appeared in person
Mr Steve Goulding, litigator of HM Revenue and Customs' Solicitor's Office, appeared for the respondents
Income tax – Trading Losses – Sideways loss relief – Carry back of losses – ITA 2007, s. 66, 72 & 74 – Was the Appellant carrying on a trade on a commercial basis and with a reasonable expectation of profit – Were closure notices issued outside any statutory time limit – TMA 1970, s. 34 & s. 34A – Did HMRC delay unreasonably in issuing the closure notices – Appeal dismissed.
The First-tier Tribunal (FTT) dismissed the taxpayer's appeal against closure notices disallowing loss relief on the basis that the closure notices were validly issued and that the taxpayer's activities in buying and selling film rights did not amount to a trade.
This was an appeal by Mr Poll (the Appellant) against closure notices issued by HMRC disallowing claims made by the Appellant to offset losses made in his film business against his general income, principally on the basis that the business did not amount to a trade. The Appellant's film business involved buying and selling film distribution rights under the Premier Picture Sovereign arrangement.
The Appellant appealed to the FTT on the following grounds:
- the closure notices were not validly issued because:there were issued outside of the statutory time limit;they were stale; orHMRC had acted unreasonably or unfairly in relation to the enquiry; or
- if the closure notices were validly issued, all of the conditions for loss relief (at ITA 2007, s. 66, 72 and 74) were met. These were:that the Appellant was carrying on a trade;that the trade was conducted on a commercial basis; andthat there was a reasonable expectation that the trade would generate profits within a reasonable time.
With regard to the validity of the closure notices, the FTT found that there is no time limit within which HMRC must issue a closure notice; that the concept of “staleness” does not apply to closure notices and that the FTT does not have the power to quash a closure notice on the basis that HMRC's conduct has been unfair or unreasonable.
With regard to the trading issue, and having considered all of the relevant factors, the “clear conclusion” was that the business did not amount to a trade: “looking at the picture as a whole, the transactions essentially involved laying out a capital sum in return for a possible future income stream”. Even if a trade was being carried on, the FTT did not accept that it was being carried on on a commercial basis with a view to making a profit.
The FTT dismissed the Appellant's appeal, finding that the closure notices had been validly issued and that the conditions for loss relief were not met.
This was an unsuccessful attempt by the taxpayer to demonstrate that his “hands-on” approach to the arrangements distinguished his case from the facts in Degorce v R & C Commrs [2017] BTC 26.
[1] The Appellant, Mr Poll is a keen photographer. After his employment with Morgan Stanley came to an end in 2007, he set up a photography business as a sole trader.
[2] In late 2007, Mr Poll was introduced to an organisation called Premiere Picture which promoted an arrangement called “Premiere Picture Sovereign”. The proposed business involved buying film distribution rights and then selling them in return for a share of any income generated by the film.
[3] Mr Poll decided to set up a film business using Premiere Picture Sovereign. He committed £650,000 to the business although only £125,000 of this was his own money. The remainder was provided by way of loan from GBF Capital Limited, a company connected with Premiere Picture.
[4] As a result of the way film distribution rights are valued for accounting purposes, the accounts of the business for the first accounting period showed a loss of £583,881. In his tax return for the year 5 April 2008, Mr Poll made a claim to carry back those losses and set them against other income he had received in the previous three tax years.
[5] The film business generated some further (but much smaller) losses in the following two tax years. The figure for the tax year ended 5 April 2009 was £22,149 and for the tax year ended 5 April 2010 was £9,798.
[6] HMRC opened enquiries in relation to Mr Poll's tax returns for each of these three years. They have issued closure notices disallowing the loss claims, principally on the basis that the film business was not a trade or that, even if it was, it was not commercial.
[7] Mr Poll appeals against the closure notices on the basis that he was carrying on a trade on a commercial basis. He also says that the closure notices are invalid as they have been issued too late.
[8] Shortly before the hearing, both parties submitted a small number of additional documents. The documents were relevant to the matters which the tribunal had to decide and neither party objected to the introduction of the new evidence by the other. We were satisfied that it was in accordance with the overriding objective to admit the documents as part of the evidence and gave permission for each party to do so.
[9] The evidence before us consisted of a number of bundles of documents and correspondence produced by HMRC, the additional documents which we have just referred to and the evidence of Mr Poll which was principally contained in a witness statement but which was supplemented by further oral evidence given at the hearing itself. Mr Goulding cross examined Mr Poll both on the contents of his witness statement and the additional evidence which he gave at the hearing.
[10] For the most part, we found Mr Poll to be a straightforward witness and we accept much of what he told us. However, there were parts of his evidence, mainly in relation to his motivations and expectations in connection with the business which, in the light of the other evidence available to us, we have found implausible or unrealistic. Where relevant, we have explained why this is the case.
[11] We will deal first with the validity of the closure notices given that, if Mr Poll is right that the closure notices are invalid, we will not need to examine the question of trading.
[12] Mr Poll challenges the validity of the closure notices on a number of grounds:
- There is a statutory time limit and the closure notices were issued outside the time limit.
- The closure notices were stale in the sense that HMRC had all the information they needed in order to issue the closure notices several years before the closure notices were in fact issued.
- HMRC acted unreasonably and/or unfairly in relation to the enquiry.
[13] Mr Poll filed his self-assessment tax return for the year ended 5 April 2008 on 7 August 2008. HMRC opened an enquiry under s 9A Taxes Management Act 1970 (“TMA”) on 20 January 2009.
[14] A self-assessment tax return for the year ended 5 April 2009 was submitted by Mr Poll on 17 December 2009. HMRC's enquiry was opened on 7 December 2010.
[15] Mr Poll filed his self-assessment tax return for the tax year ended 5 April 2010 on 27 January 2011. The enquiry was opened on 9 January 2012.
[16] On the basis of the evidence before us, we accept that the enquiries into the self-assessment tax returns for each of these years were validly opened. There is no suggestion they were not.
[17] Between the opening of the first enquiry in January 2009 and December 2010, there followed a series of correspondence between HMRC and Mr Poll's advisers in which Mr Poll provided comprehensive information about the Sovereign arrangements and which debated whether or not Mr Poll was carrying on a trade.
[18] The final letter in this series was a letter from HMRC dated 7 December 2010 which referred to the fact that HMRC were investigating similar arrangements entered into by other taxpayers and that there was a case which was on its way to the tribunal. There was no response to this letter from Mr Poll or his advisers.
[19] There were some further communications between HMRC and Mr Poll's advisers in 2012 and 2013 but, with the exception of one letter from HMRC in 2013 which provided an update on the proposed tribunal case and mentioned a possible settlement opportunity, this dealt with other aspects of HMRC's enquiry relating to losses in respect of Mr Poll's photography business and income from Morgan Stanley.
[20] There was sporadic correspondence between HMRC and Mr Poll's advisers in 2014 but, aside from administrative matters, this simply referred to the ongoing litigation and possible settlement opportunities.
[21] Between 2015–2017, HMRC wrote to Mr Poll and to his advisers a number of times about the possibility of settlement and their wish to take a further case to the tribunal. Neither Mr Poll nor his advisers responded to these letters.
[22] The litigation referred to by HMRC was the case of Degorce v R & C Commrs [2015] BTC 528. The decision of the First-tier Tribunal ([2013] TC 02593) was released on 4 March 2013. The Upper Tribunal decision ([2015] BTC 528) was released on 24 August 2015. The judgment of the Court of Appeal ([2017] BTC 26) was issued on 6 October 2017.
[23] Having received no response to their correspondence in 2017, HMRC issued closure notices in respect of all three tax years on 19 September 2018.
[24] Mr Poll's advisers appealed on his behalf against each of the closure notices on 17 October 2018. HMRC reaffirmed their view of the matter on 24 October 2018 and offered a review which was accepted by Mr Poll on 18 November 2018. The review was concluded on 21 December 2018 and upheld HMRC's original decision. Mr Poll's notice of appeal to the Tribunal was filed on 20 January 2019.
[25] Mr Poll submits that the time limit for self-assessments in s 34 TMA applies to any amendment to a self-assessment resulting from a...
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