The Bampton Property Group Ltd and Others v King (an Officer Appointed by HM Revenue and Customs) and another
| Jurisdiction | England & Wales |
| Judge | Lady Justice Arden,Lord Justice Kitchin,Lord Justice Rix |
| Judgment Date | 21 December 2012 |
| Neutral Citation | [2012] EWCA Civ 1744 |
| Docket Number | Case No: C1/2012/0636 |
| Court | Court of Appeal (Civil Division) |
| Date | 21 December 2012 |
[2012] EWCA Civ 1744
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
(QUEEN'S BENCH DIVISION) (ADMINISTRATIVE COURT)
BLAIR J
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Rix
Lady Justice Arden
and
Lord Justice Kitchin
Case No: C1/2012/0636
Mr Philip Coppel QC, Mr Keith Gordon & Ms Ximena Montes Manzano (instructed by Winston & Strawn LLP) for the Appellants
Mr Sam Grodzinski QC & Mr David Yates (instructed by HMRC Solicitor's Office) for the Respondent
Hearing dates : 8/9 November 2012
THIS APPEAL IN A NUTSHELL
This is a public law challenge to the decision-making process of the Commissioners for Her Majesty's Revenue & Customs ("HMRC"). The decision in question was to refuse the appellants, all members of a property investment group of companies, headed by a publicly-listed company called Daejan Holdings plc ("Daejan"), an extension of time to make claims to offset losses against profits and thereby reduce their tax bill. Those losses thereby became, as it is sometimes said, "stranded". The respondent, Mr King, is the officer of HMRC who took the decision in question. For simplicity, I have treated HMRC as the respondent.
The Daejan group had not itself made these losses. It had acquired the right to use them by purchasing the share capital of defunct corporate members of Lloyd's, which had made losses, under a tax mitigation scheme known as the Lloyd's loss-buying scheme.
The proceedings contain two sorts of challenge.
Initially, members of the Daejan group (referred to below as "the appellants") brought judicial review proceedings to challenge the reasons given by HMRC for their refusal of an extension of time. The appellants contended that Daejan had made an innocent error and that therefore they should have had an extension of time.
In the course of those proceedings, the appellants obtained directions for the disclosure of documents by HMRC. On disclosure, they found what appeared to be a smouldering gun. The documents that they obtained from HMRC showed that HMRC had known about the error from the outset, and not drawn it to the appellants' attention. HMRC did not take that matter into account in making their decision not to extend time. So the appellants enlarged their claim to include a challenge to the decision on the basis that HMRC had failed to notify Daejan of the error and that that matter ought to have been taken into account in the appellants' favour on its application for an extension of time.
In a carefully reasoned judgment, Blair J rejected the appellants' challenges and refused to set aside HMRC's decision. There was, he explained, no error in the decision. The appellants appeal from that decision.
For the reasons detailed below, I consider that the appellants' challenges to the decision of Blair J also fail. In the particular circumstances of this case, HMRC were not obliged to point out that Daejan's claim to use these losses, made in time, contained an error. As a result, the appellants failed to make a claim for loss relief in time, and HMRC were entitled to refuse to extend time.
I need first to explain (in brief) the statutory framework for claims for relief against losses, HMRC's policy on late claims, the factual background up to HMRC's decision and HMRC's Charter for its customers and (so far as relevant) Code of Practice. This case has taken on a new shape since the judicial review challenge was originally formulated and so I shall not adhere rigidly to the grounds of appeal and will take the arguments in what seems to me to be now the logical and clearest way of presenting them.
DISCLOSURE OF PARTICIPATION IN TAX AVOIDANCE SCHEME
Daejan's participation in the Lloyd's loss-buying scheme was notifiable to HMRC pursuant to section 313(1) of the Finance Act 2004. This applied to schemes which the taxpayer expected to result in a tax advantage. "Tax advantage" was defined as including:
"relief or increased relief from … corporation tax, or the avoidance or reduction of a charge to tax".
Daejan accepted that its participation was notifiable, and duly made disclosure to HMRC.
HMRC
HMRC was established as the successor body to the Inland Revenue and HM Customs & Excise in April 2005. Some of the relevant events in this case occurred before that date. However, I will refer throughout to HMRC.
STATUTORY FRAMEWORK: CLAIMS FOR GROUP RELIEF AND CONSORTIUM RELIEF FOR LOSSES
This can be dealt with briefly. The key point is that loss relief is restricted to overlapping periods, as explained below.
Part X of the Income and Corporation Taxes Act 1988 (" ICTA") sets out the circumstances in which members of groups, and consortia, can claim relief against their taxable profits for losses. In particular, a loss-making subsidiary can surrender certain types of corporation tax loss to another company in its group which has made profits. The claimant company can then claim relief, called group relief, to enable it to set the losses against its taxable profits for tax purposes and so reduce its tax bill.
Similarly, consortium relief of this kind ("consortium relief") is available between a member of a consortium (as defined) and a trading company owned by the consortium, subject to a number of restrictions.
To obtain relief, the accounting periods of the surrendering company and the claimant company must overlap. If they do not do so, the losses must be time-apportioned (see section 408 of ICTA) to exclude the non-overlapping periods. Accordingly, where there are differences in the dates on which the accounting periods of the claimant company and surrendering company start or end, loss relief must be restricted to the time-apportioned period in which there is an overlap. In addition, where one of the companies joins the group part way through its accounting period, the period prior to acquisition must be excluded on a time-apportionment basis so that relief is limited to the overlapping period. However, in a group situation, the restriction of loss-relief in relation to one company with profits is not fatal to the further use of the excess losses. Relief against those losses can be taken up by some other company in the group which has taxable profits. In the Daejan group, there were several profit-making subsidiaries available.
At all material times, companies subject to UK corporation tax were required to file a self-assessment return showing their tax position. They could at the same time file any claim for group relief. HMRC has power under schedule 18 to the Finance Act 1998 (" FA 1998") to enquire into and amend any such return. HMRC may, after enquiring into a return, issue a closure notice. The taxpayer has 30 days to appeal against the closure notice (paragraph 34 of Schedule 18 to the FA 1998). On any such appeal, Daejan could have amended its claim for loss relief and the appellants could have claimed to use the losses which Daejan was prevented through time apportionment from using itself.
HMRC's POLICY ON EXTENDING TIME FOR MAKING CLAIMS
There are strict time limits for claiming group relief or consortium relief: the details are not important as it is common ground that, in this case, they expired and that, if the losses were not to become stranded, HMRC would have to be persuaded to extend time. Paragraph 74(2) of schedule 18 to the FA 1998 confers a discretion on HMRC to give an extension of time. On the face of the statute, the discretion is unfettered: subparagraph (2) provides simply that a claim may be made out of time if an HMRC official allows it.
HMRC's policy to applications to extend time is contained in a published statement of practice (" SP"), namely SP 5/01, paragraphs 9 to 13. Those paragraphs are set out in the annex to this judgment.
There is no challenge to SP 5/01 as a policy. The appellants only challenge the way in which it was interpreted and applied in their case.
The final paragraph of the extract from SP 5/01 set out in the annex to this judgment states that HMRC will take into account, if it be the case, that the late claim forms part of a tax avoidance scheme. That means that I need to say a little more about the Daejan group's use of the Lloyd's loss-buying scheme.
The Daejan group invests in property. The Lloyd's loss-buying scheme involved in this case (so far as relevant) the purchase of the share capital of corporate members of Lloyd's, having trading losses, for the sole purpose of using their losses to offset against profits on property investment. It is unnecessary to explain how the scheme works. It has been stopped by legislation.
HMRC take the view that entry into the Lloyd's loss-buying scheme was tax avoidance in this case for the simple reason that, while, if a claim was duly made to offset losses against profits, it would achieve a lawful and effective avoidance of tax, it was not part of the intention behind the legislation that underwriting losses should be used to reduce the tax bills of property investment groups. This view on the part of HMRC is relevant to one of the appellants' challenges to the application of SP 5/01.
FACTUAL BACKGROUND
The judge set out the facts leading to HMRC's decision to refuse an extension of time in considerable detail in paragraphs 2 to 70 of his judgment. I need in...
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