R (on the application of De Silva and another) v Revenue and Customs Commissioners
| Jurisdiction | England & Wales |
| Judge | Lord Hodge,Lord Neuberger,Lord Kerr,Lord Reed,Lord Hughes |
| Judgment Date | 15 November 2017 |
| Neutral Citation | [2017] UKSC 74 |
| Date | 15 November 2017 |
| Court | Supreme Court |
[2017] UKSC 74
Lord Neuberger
Lord Kerr
Lord Reed
Lord Hughes
Lord Hodge
Appellants
David Ewart QC
(Instructed by RPC LLP)
Respondent
Alison Foster QC
Aparna Nathan
(Instructed by HMRC Solicitor's Office)
PTA Intervener (Cotter Solutions Ltd)
(Written submissions only)
Amanda Hardy QC (Instructed by GRM Law)
Heard on 22 June 2017
( with whomLord Neuberger, Lord Kerr, Lord ReedandLord Hughesagree)
This appeal concerns the interpretation of provisions of the Taxes Management Act 1970 ("the TMA"). The principal issue is whether the Commissioners of HM Revenue and Customs ("HMRC") were entitled to open an enquiry into the claims for relief from income tax, which the appellants (Mr De Silva and Mr Dokelman or collectively "the taxpayers") had made in their tax return forms to carry back losses to earlier tax years, and, as a result, amend their tax returns to deny the taxpayers the full relief which they claimed or had been given. The taxpayers argue that HMRC were entitled to inquire into their claims only under Schedule 1A and that, because the statutory time limit for such an enquiry had expired, their claims had become unchallengeable.
The taxpayers were limited partners in various limited partnerships established under the Limited Partnerships Act 1907. The general partner of the partnerships was Investing in Enterprise Ltd ("IEL"). The taxpayers became partners in these partnerships in implementation of marketed tax avoidance schemes which were aimed at accruing trading losses through investment in films in order to set off those losses against income of the same or earlier years. The taxpayers invested in the partnerships in part by using their own money but principally by taking out non-recourse or limited recourse loans. The schemes aimed to take advantage of tax incentives under section 42 of the Finance (No 2) Act 1992 (as amended) ("the 1992 Act") to encourage investment in the production and acquisition of qualifying films. It is not necessary to give details of the tax incentives. In the early years of trading a limited partner could use the provisions of sections 380 and 381 of the Income and Corporation Taxes Act 1988 (" ICTA") to set off his allocated share of trading losses of a partnership in a particular year against his general income for that year of assessment or any of the previous three years of assessment. The ability to carry back the losses in this way allowed the partner to choose to set off the losses against his taxable income in one or more of those years in a way which gave him the greatest advantage.
The relevant film partnerships lodged tax returns, which IEL completed, for the tax years 1998/99, 1999/2000, 2000/01 and 2001/02, in which the partnerships claimed that they had suffered substantial trading losses, in relation to which they claimed relief for film expenditure under section 42 of the 1992 Act. HMRC did not accept those claims, but initiated inquiries into the partnerships' tax returns under section 12AC(1) of the TMA. After extensive investigations, HMRC determined that the claims for losses should not be accepted and issued closure notices on the inquiries in about July 2003. In substance, HMRC disallowed the partnerships' claims for expenditure funded by the non-recourse or limited recourse loans to individual partners and also the expenditure paid as fees to the promoters of the schemes. The partnerships appealed to the Special Commissioners of Income Tax (the predecessors of the First-tier Tribunal (Tax Chamber)) in August 2003. Those appeals and the partnerships' claims for losses and relief were compromised by an agreement dated 22 August 2011 under section 54 of the TMA ("the partnership settlement agreement") under which the partnerships' losses were stated at much reduced levels.
Mr De Silva in his self-assessment tax return form for 1998/99 included a claim to set off his share of trading losses of certain partnerships in other years, including 1999/2000, against his general income in several tax years, including 1998/99, with the intention of reducing his payment in respect of tax due for 1998/99 by £16,800. He included that figure in box 18.9 on the return form against an entry, "1999–2000 tax you are reclaiming now". Under the heading "additional information" in his return he explained the detail of the carry-back claims which he was making to give rise to that figure. The losses which supported his claim to reduce his tax payment by £16,800 were his share of partnership trading losses in the year 1999/2000, which it had already been estimated that the relevant partnership would incur in that tax year.
In his self-assessment tax return form for 1999/2000, Mr De Silva made amended carry-back claims to set off his share of partnership losses in 1999/2000 against his general income in previous years so as to claim a repayment of tax for those years.
Mr Dokelman also claimed tax relief in a similar manner. In his self-assessment tax return form for 2000/01 he made a claim for the losses which he had incurred as a partner in some of the partnerships in the tax year 2000/01 against his general income in 1999/2000 and 1997/98.
In each case the taxpayer claimed relief for his share of the partnership losses as those losses had been stated in the partnership tax returns before they were substantially reduced when HMRC amended the partnership tax returns after entering into the partner settlement agreement.
HMRC had initially accepted Mr De Silva's claims for relief and credited him with £22,400 and £42,000. After the partnership claims were determined in the partnership settlement agreement, HMRC wrote to the taxpayers to intimate that their carry-back claims in their personal tax returns would be amended in line with the lower figures for the partnership losses which had been agreed in the partnership settlement agreement. HMRC informed Mr De Silva that he had to pay additional tax of £17,176.80 and £32,400. HMRC informed Mr Dokelman, who had not been given credit for the partnership losses, that those losses available for a claim for 2000/01 were reduced to the levels agreed in the partnership settlement agreement. HMRC's letters to Mr De Silva were dated 16 September 2011 and 17 November 2011. Their letter to Mr Dokelman was dated 28 October 2011.
The taxpayers have challenged HMRC's decisions which were set out in those letters by a claim for judicial review. They assert that HMRC are obliged to give effect in full to their claims to carry back the partnership losses because HMRC did not open an enquiry into the claims under Schedule 1A to the TMA in order to challenge them and are now barred by the passage of time from doing so. They submit that their case is supported by a judgment of this court in Revenue and Customs Comrs v Cotter [2013] UKSC 69; [2013] 1 WLR 3514; [2013] STC 2480 (" Cotter"). The Upper Tribunal (Sales J) in a decision dated 15 April 2014 ( [2014] UKUT 170 (TCC); [2014] STC 2088) rejected their claim. The Court of Appeal (Arden, Gloster and Simon LJJ) in a judgment dated 2 February 2016, in which Gloster LJ gave the leading judgment, dismissed the taxpayers' appeal ( [2016] EWCA Civ 40; [2016] STC 1333).
The taxpayers now appeal to this court. Their submission in summary is that their claims for relief by carrying back losses are not claims made in their self-assessment tax returns under section 8 of the TMA but are to be regarded as "stand-alone" claims for relief which are not made in tax returns and which HMRC could challenge only under Schedule 1A to the TMA. They renew their submission that HMRC had failed to operate those procedures to challenge their claims and are now out of time to do so. They submit that their claim for relief is not affected by the power of HMRC to amend the partnerships' tax returns or their individual tax return forms to give effect to the partnership settlement agreement.
The answer to this appeal lies in the provisions of the TMA (i) which deal with the making and processing of claims for relief and (ii) which specify what a taxpayer must include in his tax return. I will look first at those provisions before summarising what HMRC have done in these cases. When I refer to sections or Schedules below without specifying the Act, I refer to sections of and Schedules to the TMA.
The provisions of the TMA in so far as they concern income tax are dealing with an annual tax and this court has held in Cotter that a tax "return" in the context of sections 8(1), 9, 9A and 42(11)(a) refers to the information in the tax return form which is submitted for "the purpose of establishing the amounts in which a person is chargeable to income tax and capital gains tax" for the relevant year of assessment and "the amount payable by him by way of income tax for that year" ( section 8(1) TMA). I will return to section 8(1) when I address the provisions mentioned in (ii) in para 11 above.
The provisions which deal with the making and processing of claims for relief are section 42 and Schedules 1A and 1B.
Section 42(1) provides that, unless otherwise provided, section 42 shall have effect in relation to a claim for relief to be given. Subsection (2) provides that where an officer of HMRC has given a notice to a person, whether an individual (section 8), a trustee (section 8A) or the partner of a partnership (section 12AA), requiring him to make and deliver a tax return,
"a claim shall not at any time be made otherwise than...
To continue reading
Request your trial
-
R (on the application of Amrolia); Singh v Revenue and Customs Commissioners
...section 30 of the Taxes Management Act 1970 (“ TMA”). Following the decision of the Supreme Court in R (de Silva) v Revenue and Customs Commissioners (Cotter Solutions Ltd. Intervening) [2017] UKSC 74, [2017] 1 W.L.R. 4384, the claimants accept that the defendants had power in certain circ......
-
R (on the application of Rowe and Others) v R & C Commissioners; R (on the application of Vital Nut Company Ltd and Others)
...Since the hearing of this appeal, the Supreme Court has unanimously dismissed the appeal from this Court's decision in De Silva: see [2017] UKSC 74. Both parties were given the opportunity to file any further submissions but both decided that there was nothing further that they wished to ad......
-
Inverclyde Property Renovation LLP and Another
...155 TMA were mandatory; That Mr Patrick Hodge's, now Lord Hodge, JSC, analysis in R (on the application of De Silva) v R & C Commrs [2017] BTC 37 at [12] giving the opinion of the Supreme Court which refers to the provisions of the TMA so far as they concern income tax is different to his a......
-
Cumming-Bruce v R & C Commissioners
...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......