Revenue and Customs Commissioners v Benham (Specialist Cars) Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 11 October 2017 |
| Neutral Citation | [2017] UKUT 389 (TCC) |
| Date | 11 October 2017 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2017] UKUT 0389 (TCC)
Upper Tribunal (Tax and Chancery Chamber)
Mr Justice Warren, Judge Colin Bishopp
Laura Poots, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the appellants
Keith Gordon, instructed by RSM UK Ltd, appeared for the respondent
Corporation tax – Declaration under TCGA 1992, s. 153A (business assets roll-over relief) ceasing to have effect – s. 153A(4) providing that all necessary adjustments shall be made – Whether that provides for a freestanding power – No – Whether decision notice by HMRC can be treated as discovery assessment – No – Appeal dismissed.
The Upper Tribunal held that an HMRC amendment to the taxpayer's corporation tax self-assessment which re-instated rolled-over chargeable gains where no actual roll-over claim had been made was invalid.
The Upper Tribunal upheld the decision of the First-tier Tribunal (FTT) that TCGA 1992, s. 153A(4) did not give HMRC free-standing powers to tax chargeable gains, following the expiry of a declaration of intention to roll-over the gains under TCGA 1992, s. 153A, for which no actual claim for roll-over relief was made. To do so would have required a valid discovery assessment in accordance with FA 1998, Sch. 18.
The taxpayer incurred trading losses in its 2007 accounting period, some of which were set off against other income by way of a claim, under ICTA 1988, s. 393A. In the same period, the taxpayer also realised chargeable gains on disposals of relevant business assets. The 2007 return also included a declaration of intent, under TCGA 1992, s. 153A, to acquire new assets into which the realised chargeable gains would be roll-over. Consequently, the taxpayer's 2007 corporation tax self-assessment did not include any tax in respect of the realised chargeable gains.
The taxpayer incurred further trading losses in its 2008 accounting period which, in principle, were available for carry back against the 2007 chargeable gains under ICTA 1988, s. 393A. The time limit for such a claim was 31 December 2010 but no claim was in fact made by the taxpayer.
No new assets, into which the 2007 gains could be rolled over, were acquired within the required period ending 31 December 2010 and the declaration under TCGA 1992, s. 153A subsequently ceased to have effect on 31 December 2011. HMRC issued a document (the Disputed Decision) on form CT620 AMD headed “Corporation tax – Amendment to a company tax return”, the intention of which was to amend the taxpayer's 2007 self-assessment by re-instating the 2007 chargeable gains. No allowance was made for the 2008 losses for which no s. 393A claim had been made. The taxpayer appealed to the FTT which held that the Disputed Decision was invalid.
The matters for determination by the Upper Tribunal were:
- 1. Does TCGA 1992, s. 153A provide a freestanding right for HMRC to make or amend an assessment to bring the chargeable gains into the charge to tax?
- 2. If not, and the only assessment power available to HMRC was under the discovery assessment rules, does the Disputed Decision amount to a discovery assessment?
- 3. Is the taxpayer entitled to make a claim for relief in respect of the 2008 losses?
On point 1, the Upper Tribunal upheld the FTT decision, mainly because of the absence of a right of appeal against an amendment to the taxpayer's self-assessment, had TCGA 1992, s. 153A in fact contained the necessary powers.
On point 2, the Upper Tribunal held that the Disputed Decision was not a discovery assessment because:
- it was described as an amendment not an assessment;
- because its purported function was to give notice to what HMRC had actually done i.e. to have made amendments, not to make an assessment of a further amount to make good to the Crown a loss of tax;
- because there was a material difference between the making of an amendment (not subject to a right of appeal) and an assessment (subject to a right of appeal); and
- because the taxpayer is entitled to know from the face of the Disputed Decision the nature of the decision addressed to him.
No finding on point 3 was necessary in the light of the first two decisions.
The main issue to be addressed was whether TCGA 1992, s. 153A(4) gave HMRC a free-standing right to make an assessment or to amend a company's self-assessment return to bring chargeable gains into the charge to tax on the expiry of a notice of intention to roll-over chargeable gains. The answer is no. All it does is authorise the use of existing powers of assessment or amendment in Finance Act 1998, Sch. 18. One might have had some sympathy for HMRC's position, were it not for the fact that they were attempting to bring the chargeable gains into tax in 2007 whilst simultaneously denying relief for those gains by way of the carry-back of losses from 2008, admittedly after the carry-back time limit had expired.
The decision also contains useful further comment on the conditions required for the raising of a valid discovery assessment. On the facts presented, the Disputed Decision did not amount to a discovery assessment.
[1] This is an appeal against a decision of the First-tier Tribunal (Judge John Walters QC and Ms Caroline de Albuquerque) (“the FTT”) released on 9 May 2016 (“the Decision”). The FTT allowed the appeal of the Respondent, Benham (Specialist Cars) Limited, (“Benham”) against the decision of the Appellants (“HMRC”) requiring payment of corporation tax of £622,134 in respect of Benham's accounting period running from 1 January to 31 December 2007 (“the 2007 Accounting Period”).
[2] It is helpful, we think, to set out the relevant legislation before turning to the facts. It is found in a combination of the Income and Corporation Taxes Act 1988 (“ICTA”), the Taxation of Chargeable Gains Act 1992 (“TCGA”) and the Finance Act 1998.
[3] section 393(1) ICTA as it stood in respect of the 2007 and 2008 Accounting Periods provided as follows:
Where in any accounting period a company carrying on a trade incurs a loss in the trade, the loss shall be set off for the purposes of corporation tax against any trading income from the trade in succeeding accounting periods; and (so long as the company continues to carry on the trade) its trading income from the trade in any succeeding accounting period shall then be treated as reduced by the amount of the loss, or by so much of that amount as cannot, under this subsection or on a claim (if made) under section 393A(1) be relieved against income or profits of an earlier accounting period.
[4] Section 393A(1) ICTA provided as follows:
…, where in any accounting period ending on or after 1st April 1991 a company carrying on a trade incurs a loss in the trade, then, …, the company may make a claim requiring that the loss be set off for the purposes of corporation tax against profit (of whatever description) –
- of that accounting period, and
- if the company was then carrying on the trade and the claim so requires, of preceding accounting periods falling wholly or partly within the period specified in subsection (2) below;
and, subject to that subsection and to any relief for an earlier loss, the profits of any of those accounting periods shall then be treated as reduced by the amount of the loss, or by so much of that amount as cannot be relieved under this subsection against profits of a later accounting period.
Subsection (2) is not material for present purposes.
[5] Section 152 TCGA provides for roll-over relief in respect of the replacement of business assets. Subsections (1) and (3) are relevant for present purposes and provide as follows:
(1) If the consideration which a person carrying on a trade obtains for the disposal of, or of his interest in, assets (“the old assets”) used, and used only, for the purposes of the trade throughout the period of ownership is applied by him in acquiring other assets, or an interest in other assets (“the new assets”) which on the acquisition are taken into use, and used only, for the purposes of the trade … then the person carrying on the trade shall, on making a claim as respects the consideration which has been so applied, be treated for the purposes of this Act –
- as if the consideration for the disposal of, or of the interest in, the old assets were (if otherwise of a greater amount or value) of such amount as would ensure that on the disposal neither a gain nor a loss accrues to him; and
- as if the amount or value of the consideration for the acquisition of, or of the interest in, the new assets were reduced by the excess of the amount or value of the actual consideration for the disposal of, or of the interest in, the old assets over the amount of the consideration which he is treated as receiving under paragraph (a) above,
…
(3) … this section shall only apply if the acquisition of, or of the interest in, the new assets takes place, or an unconditional contract for the acquisition is entered into, in the period beginning 12 months before and ending 3 years after the disposal of, or of the interest in, the old assets, or at such earlier or later time as the Board may by notice allow.
[6] Section 153 TCGA makes provision for roll-over relief where assets are only partly replaced.
[7] Section 153A TCGA (“section 153A”) makes provision for provisional application of section 152. It provides materially as follows:
(1) This section applies where a person carrying on a trade who for a consideration disposes of, or of his interest in, any assets (“the old assets”) declares, in his return for the chargeable period in which the disposal takes place –
- that the whole or any specified part of the consideration will be applied in the acquisition of, or of an interest in, other assets (the new assets) which on the acquisition will be taken into use, and used only, for the purposes of the trade;
- that the acquisition will take place as mentioned in subsection (3) of section...
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