Spring Salmon & Seafood Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 30 November 2015 |
| Neutral Citation | [2015] UKFTT 616 (TC) |
| Date | 30 November 2015 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge Jennifer Dean, Mr Peter Sheppard FCIS FCIB CTA AIIT
Mr Michael Upton, Advocate, appeared on behalf of the Appellant
Mr Iain Artis, Advocate, instructed by the Office of the Advocate General, appeared on behalf of the Respondents
Corporation tax – Appeal against amendments made by closure notices – Denied claim for terminal loss relief – Appeal dismissed.
The First-tier Tribunal held that closure notices issued by HMRC in respect of the disallowance of a terminal loss relief claim were valid.
This appeal to the First-tier Tribunal (FTT) considers whether a claim for terminal loss relief was made in a tax return or separately to that tax return. The parties accepted that if the claim had been made in the tax return, then an HMRC enquiry into the tax return, raised under FA 1998, Sch. 18, para. 24, would have validly encompassed an enquiry into the terminal loss relief claim, and that closure notices issued by HMRC would have been effective to deny any tax relief arising as a consequence of the terminal loss claim. If the claim was not made in a tax return, the parties accepted that HMRC's enquiry into the claim should have been opened under TMA 1970, Sch. 1A and that the closure notices were ineffective to deny relief by way of the claim, subject to the provisions of ICTA 1988, s. 343(4A).
A substantial part of the losses comprised in the terminal loss relief claim related to the amortisation of goodwill under the intangible fixed assets rules which had already been disallowed in the earlier FTT judgment of Spring Salmon & Seafood Ltd TAX[2013] TC 02723. An appeal of that decision to the Upper Tribunal in Spring Salmon & Seafood Ltd v R & C Commrs TAX[2014] BTC 529 was dismissed on the basis that the FTT judge did not err in her conclusion that unless and until the HMRC closure notices were successfully challenged, those closure notices were effective to deny the terminal loss relief.
In a decision very much dependent on the complicated circumstances of the case, the FTT held that the matters giving rise to the loss, and which were essential to the claim, formed part of documents which had been submitted to HMRC by the Appellant. That was so notwithstanding that the box for trading losses of the current or a later accounting period under ICTA 1988, s. 393A on the return had not been completed. The tax properly chargeable in the year to which the return related could not be understood without the computation, letter and financial documents supplied by the Appellant and the loss fed into or formed part of the assessment of the tax due in the relevant year to which the return related. Accordingly, the FTT judged, distinguishing R & C Commrs v Cotter TAX[2013] BTC 837 and R (ex parte de Silva and Dokelman) v R & C Commrs TAX[2014] BTC 514, that the claim was contained in the Appellant's tax return and that the HMRC closure notices which referred to the Appellant's accounts and computations disallowed the claim notwithstanding that the notices did not make express reference to the terminal loss claim. The HMRC enquiries were valid and the closure notices unequivocally set out the disallowance of the claim. The FTT also confirmed, with regard to the operation of ICTA 1988, s. 343, that the effect of that section is that the remainder of the terminal loss relief claim is restricted to the 12 month period immediately preceding the accounting period in which the loss was incurred.
The background to this appeal is extremely complicated and has been the subject of other tax litigation unrelated to the specific points at issue in this case. The judgment is to be welcomed as it prevents the taxpayer relying on a legislative technicality to avoid the disallowance of a terminal loss relief claim in circumstances where the underlying losses on which the claim was based had already been disallowed.
[1] These are appeals against HMRC's conclusions upon the closure of enquiries into the Appellant's corporation tax self-assessments for the following periods:
i) period ended 31 July 2002 (the 2002 period);
ii) period ended 31 July 2003 (the 2003 period);
iii) period ended 31 July 2004 (the 2004 period); and
iv) period ended 31 January 2005 (the 2005 period).
[2] The grounds of appeal in respect of the 2002 period and the 2003 period can be summarised as follows: the appellant is entitled to intangibles relief in respect of goodwill acquired in July 2002 from a non-related party. HMRC are bound by the terms of a closure notice issued to S&R Thomas Partnership on 12 December 2007 which agreed the value of the goodwill acquired. Any tax arising in respect of the 2002 period and the 2003 period has been settled under the terms of agreement with HMRC dated 24 May 2004. HMRC failed to open an enquiry into the amendment made by the Appellant to its corporation tax self-assessment for the 2003 period and as such the losses for the period are final. Further and in the alternative, the Appellant submitted a terminal loss claim affecting the 2002 period and the 2003 period on 30 August 2006 which had the effect of reducing the corporation tax profits to nil; the claim fell within Schedule 1A of the Taxes Management Act 1970 (TMA) and as HMRC failed to open an enquiry into the claim the profits are nil. The partners of S&R Thomas Partnership were the brothers Roderick Christopher Thomas (50%) and Stuart James Thomas (50%). The two are referred to as Messrs Thomas hereafter.
[3] In respect of the 2004 period and the 2005 period the Appellant contends that the respective closure notices did not state in clear and unambiguous terms that the terminal loss relief claim was being disallowed either wholly or in part. The notices were void and invalid on the basis that the terminal loss relief claim was not contained within a return nor was it made or given effect by being included in a return; the claim was accordingly governed by Schedule 1A TMA 1970 (Schedule 1A) and not Schedule 18 of the Finance Act 1998 (Schedule 18).
[4] The background to this appeal is by no means straightforward and before we turn to the substantive matters it may assist the reader to set out a brief overview of the Appellant's history. We should note that Messrs Thomas have been engaged in litigation over the course of a number of years involving themselves individually and the various companies with which they are associated. We do not intend to set out the various disputes which are helpfully summarised at Appendix 2 of Judge Reid QC's decision in Spring Salmon & Seafood Ltd TAX[2014] TC 04002.
[5] The Appellant was incorporated on 13 March 1998 as Tunevoice Ltd and commenced trading as seafood suppliers on or about 1 May 1998. The Company's name was changed to Spring Salmon & Seafood Ltd on 24 April 1998. Mr Roderick Christopher Thomas is and was throughout the relevant period a named director. Mr Stuart James Thomas became company secretary on 23 May 2004.
[6] There were originally 1,000 £1 shares issued in the Appellant, held by solicitors in Edinburgh as nominees. A further 199,000 shares were issued on 1 July 1998 to Bala Ltd, a company registered in the British Virgin Islands and administered in Guernsey. The 1 share issued in Bala Ltd was issued to the MacLennan Trust, a Guernsey registered trust. On 1 July 1998 the original 1,000 shares in the Appellant were also transferred to Bala Ltd so that from that date the Appellant's issued share capital was wholly owned by Bala Ltd. The MacLennan Trust was a discretionary trust settled by Mr Roderick Thomas' brother-in-law and of which Messrs Thomas were beneficiaries. Bala Ltd was wound up in 2007 and the MacLennan Trust was wound up in 2009.
[7] Spring Salmon Ltd was incorporated in August 1993. The company was said by HMRC to be controlled by Messrs Thomas. At 30 April 1999 100% of the shares were owned by Hans Lindh, the brother-in-law of Messrs Thomas. The Company ceased trading in February 2003 and changed its name to Thomas Lindh Ltd on 23 November 2003.
[8] The S&R Thomas Partnership commenced trading on 1 September 1998 with its activities described as consultants. A review of the partnership records for the periods ended 5 April 1999, 31 July 2000, 31 July 2001 show that all purchases by the partnership in those periods and the final period were from Spring Salmon Ltd. All partnership sales were to the Appellant except towards the end of the partnership's final accounting period to 26 July 2002 when there were some credits from Credenza Seafoods Limited, a company HMRC contend was controlled, or at least 50% owned, by Messrs Thomas. The partnership was sold as a going concern on 26 July 2002 to the Appellant for £2,835,000 of which it was contended by the Appellant that £35,000 represented trading stock and £2,800,000 was goodwill. HMRC noted that there is no goodwill reflected in the accounts of the S&R Thomas Partnership in any period.
[9] Spring Seafoods Ltd commenced trading on 10 March 2004. It changed its name to Spring Capital Ltd on 23 February 2010. Mr Roderick Thomas was, during the relevant periods, a shareholder of the Company and from 12 February 2007 was also the company secretary. He became a director in 2010. Mr Stuart Thomas was a director and shareholder throughout the relevant periods. The Company carried on the trade previously carried on by the Appellant; the circumstances in which it came to do so are not entirely clear to us and, for the purposes of this appeal perhaps do not matter. In Spring Capital Ltd TAX[2015] TC 04273 Judge Brannon described the situation as follows (at [21], [22], [218]–[220]):
As I have said, the manner in which the seafood trade moved from SSS to the appellant is disputed. In a nutshell, the appellant argues that on 22 September 2004 SSS transferred its seafood business to Messrs Thomas. Then, on the same day, Messrs Thomas are said by the appellant to have...
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