DECISION
1.
The Tribunal of its own motion called a hearing to consider its
jurisdiction in respect of two of the various issues raised by the appellant in
this appeal.
The background
2.
The appellant is a company of which Mr Thomas was a director and which
he represents in this and a number of other appeals and acted on its behalf at
the time of the events at issue in this appeal. The status of his and his
brother’s interest (if any) in the company may be a matter of dispute and I
make no comment on it.
3.
The company filed its corporation tax return for the year which ended in
2001. It declared a liability to tax and paid some £69,864 in tax. No enquiry
was opened into that tax return. I was not given the exact date on which these
events took place but there is no suggestion that the filing of the return or
the payment of tax was late.
4.
In around March 2003, the company filed its corporation tax return for
its accounting year which ended on 31 July 2002 (“the 2002 year end”). At
about the same time, the appellant paid £57,000 in tax in respect of its tax
liability for 2002 year end, although HMRC automatically repaid £6000 of this.
The reason for this was not explained to me and for present purposes does not
matter.
5.
In early 2004, the company reached a contract settlement with HMRC under
which the company paid £525,000 in tax. Exactly which liabilities were covered
by that contract settlement is now a matter of dispute. I will refer to this
as the 2004 Contract Settlement.
6.
Later in 2004, the company filed its corporation tax return for its
accounting year which ended on 31 July 2003 and to which I will refer as the
2003 year end. It showed a tax liability of £137,637.38. At the same time,
the company filed an amendment to its 2002 return which, as I have said, had
already been filed sometime earlier. The amendment showed a tax liability of
£272,012.95.
7.
Both the 2003 return and the 2002 return as amended claimed relief for
amortisation of goodwill arising out an acquisition. Both tax returns also
showed the remaining tax liability after the amortisation as “paid”.
8.
HMRC’s response was on 28 October 2004 to open an enquiry into both the
2002 and 2003 returns. HMRC disputed the claim to amortisation of goodwill and
disputed whether the tax liability declared by the company had been paid.
9.
It seems the tax inspector sought to amend the “tax paid” figure on both
returns to nil under the § 16 Schedule 18 FA 1998 as an “obvious error”. The
company rejected the amendment as it was entitled to do under §16(4).
10.
On 3 March 2005, the inspector issued jeopardy amendments altering the
tax return to show the tax paid as nil as well as refusing the claim to
amortisation of goodwill.
11.
Backtracking slightly, the company ceased to trade on or before 31
January 2005 but after 31 July 2004.
12.
On 30 August 2006, Mr Thomas wrote to HMRC on behalf of the company.
That letter also enclosed tax returns for its accounting years ending on 31 July
2004 and 31 January 2005. I will refer to these as the 2004 tax return and the
2005 tax return respectively for the 2004 year end and the 2005 year end.
13.
Mr Thomas considers that this letter made an effective claim to
terminal loss relief. This loss relief claim arose (or is said to arise) out
of the amortisation of goodwill already mentioned. The letter also enclosed a
computation and that computation showed that the appellant considered that it
had paid in tax £298,930 in respect of the year ended in 2003 and £221,033 in
respect of the year ended 2002.
14.
I note that, referring back to paragraph [6], in 2003 when Mr Thomas
submitted the 2003 tax return, he considered that the company had paid
£137,637.38 in tax for the 2003 tax year but by 2006 he had changed his views
and in this computation claimed that the company had paid rather larger figures
in respect of its liabilities for 2002 and 2003.
15.
In response, HMRC opened enquiries on 4 January 2006 into the
“corporation tax self assessment period ended” on 31 July 2004 and 31 January
2005. I will refer to these as the “2004 & 2005 enquiries”.
16.
Some time after this the appellant was struck off the Register of
Companies because it was dormant. HMRC (which still had live enquiries into the
company’s tax affairs) applied to the Court of Session for the company to be
reinstated to the Register. Mr Thomas initially opposed the reinstatement but
agreed to withdraw his opposition in return for an undertaking from HMRC. HMRC
agreed and the undertaking was signed on 19 May 2010. I will refer to this as
the 2010 Undertaking.
17.
Closure notices in respect of the 2002 and 2003 year ends were issued on
25 March 2011. I will refer to these as the 2002 & 2003 closure notices.
The closure notices refused the claim to amortisation of goodwill and stated
that HMRC did not accept that the company had already paid the tax due as it
had claimed (apart from the £51,000 in respect of 2002 mentioned in paragraph
4). It also calculated tax liability at a rate of 30% on the basis that the
appellant had associated companies.
18.
At the same time as issuing these closure notices, HMRC also issued
closure notices in respect of its 2004 and 2005 enquiries. These closure
notices, amongst other things, denied the appellant’s claim to terminal loss
relief. I will refer to them as the 2004 & 2005 closure notices.
19.
On 12 April 2011 the appellant lodged with HMRC an appeal against all
four closure notices.
20.
On 11 August 2011 the appellant lodged an appeal with the Tribunal
against the amendments made in the 2002 & 2003 closure notices. That
appeal comprises the proceedings currently before me. It did not lodge an
appeal with the Tribunal against the 2004 & 2005 closure notices. I
consider this point in more detail below.
21.
The appellant’s grounds of appeal stated in its notice in summary are
that:
(a)
It is entitled to the claimed amortisation relief;
(b)
It has paid the tax as claimed in any event.
(c)
The terminal loss relief claim has the effect of reducing its tax
liability.
22.
I examine the grounds in more detail.
23.
Rate of tax: At the hearing Mr Thomas told me that the company
was also appealing the rate of tax of 30% on the basis that, contrary to HMRC’s
views, there were no associated companies. However, this does not appear in
the Notice of Appeal and so the appellant may wish to consider applying to
amend its notice of appeal. I express no view on whether such an application
is (a) necessary or (b) likely to be successful.
24.
Ground 6 in notice of appeal: Secondly, in the notice of appeal
there is a ground of appeal relating to a claimed amendment made to the 2003
return. Mr Thomas no longer appears to rely on this as a ground of appeal: if
I am mistaken in this, he should clarify this to both the Tribunal and HMRC.
25.
Amortisation relief: In respect of the claim to amortisation
relief, there is little to be said at present. It arises out of a claim that a
business was acquired. HMRC’s view appears to be that the transaction was
between connected parties and that the market value was nil. The appellant’s
view appears to be that (a) the transaction was not between connected parties
and market value is not relevant; and in any event (b) HMRC are bound by the
terms of the closure notice issued to the vendors. The vendors were Mr Thomas
and his brother, acting in partnership.
26.
Tax already paid: The claim that the tax had already been paid
arises out of the 2004 Contract Settlement. The company’s position is that
this settled all the company’s outstanding liabilities at the time, including
its tax liabilities for 2002 and 2003 year ends which had not that at point
been returned.
27.
I consider the claim to terminal loss relief in more detail below.
28.
Returning to the time line of events, at some point the appellant took
proceedings in the Court of Session against HMRC claiming repayment of tax paid
in respect of accounting years ended in 2001, 2002 and 2003 on the basis of its
claim to terminal loss relief made in 2006. These proceedings have not yet
been heard: the parties are in the process of amending their pleadings and the
question of the Court’s jurisdiction is yet to be determined.
29.
In the proceedings in the tax tribunal, this Tribunal raised of its own
motion two questions on jurisdiction:
(a)
Does the Tribunal have any jurisdiction to consider the appellant’s
claim that it has already paid the tax that is owing?
(b)
Can the Tribunal consider the question of whether the appellant’s claim
to terminal loss relief is final in the sense of being unable to be challenged
by HMRC?
30.
Logically, the second of these questions comes first. If the claim to
terminal loss relief is deemed to be final by legislation, all the other issues
between the parties may fall away because the size of the claim may wipe out
not only the declared tax liability but the liability that HMRC considers that
the appellant should have declared and paid.
31.
Both parties agree that if the Tribunal has jurisdiction over the
terminal loss relief issue (and they consider it does) then they wish the
finality of the terminal loss relief claim to be addressed as a preliminary
issue. If the appellant wins, it will (says the appellant) avoid the need
for a further hearing, and substantial costs (such as on an expert witness for
the valuation of the goodwill) will be saved.
The law related to the terminal loss claim
32.
The appellant’s case is that it made a claim to terminal loss relief in
its August 2006 letter under Schedule 1A to the Taxes Management Act 1970
(“TMA”).
33.
HMRC appear to accept that a claim to terminal loss relief was made:
the dispute between the parties appears to be over whether (a) the claim was
made under Sch 1A (HMRC contend it was made under s 393A ICTA 88) and (b)
whether it was made or could be made, in the returns for 2004 and 2005.
34.
Schedule 1A relates to claims not included in returns. If a Sch 1A
claim is made, HMRC have power under §5, if exercised within the specified time
limits, to open an enquiry into that claim.
35.
The appellant’s position is that HMRC failed to open an enquiry under
Sch 1A and the time to do so is now expired. If the appellant is right that
the claim was made under Sch1A, and HMRC failed to open a Sch1A enquiry into
that claim within the applicable time limit, the effect may be that the claim
becomes final:
Giving effect to claims…
4. (1)
…. An officer of the Board…shall, as soon as practicable after a claim ….is
made….give effect to the claim…by discharge or repayment of tax.
(2) …
(3) Where any such claim
…. as is mentioned in subparagraph (1) or (2) above is enquired into by an
officer of the Board –
(a) that sub-paragraph
shall not apply until the day on which …the enquiry is completed….
36.
The appellant’s beliefs, as outlined above and on the validity of which
I express no view, explain its proceedings in the Court of Session against
HMRC: it considers that its claim to terminal loss relief has become final
and, since it has not been given effect to by HMRC, it considers that HMRC has
failed in their statutory duty to give effect to the claim as required by §4(1)
of Schedule 1A. It therefore seeks enforcement by the Court of Session of its
claim to tax repayment by HMRC. As all proceedings have time limits, the
appellant was concerned to lodge the proceedings in Scotland before its
(claimed) right to enforcement became time barred.
37.
HMRC consider that the claim to terminal loss relief was made in the
tax returns for 2004 and 2005. They consider that the letter of 30 August 2006
and the computations enclosed with it which accompanied the tax returns were
all part of the tax returns.
38.
They consider that the proper way to challenge the claim was by opening
an enquiry under §24 of Schedule 18 of the Finance Act 1998 (“Sch 18”). Their
case is that they did this. They closed the enquiry (see paragraph [18] above)
on 25 March 2011 under §32 and 34. The closure notice amended the returns by
disallowing the claim for terminal loss relief. Although appeals against the
closure notices were notified to HMRC, those appeals have not been notified to
this Tribunal and HMRC say that the time to do so is now expired.
39.
The appellant states that it has a second challenge to the position on
terminal loss relief: if and to the extent HMRC’s claim that the closure
notices issued on 25 March 2011 in respect of the 2004 & 2005 returns
correctly refused the claim to terminal loss relief, HMRC were, runs the
appellant’s case, in breach of its 2010 Undertaking in issuing those closure
notices. HMRC do not accept this.
40.
But which tribunal or court has the jurisdiction to determine the issue
of the validity and effectiveness of the appellant’s claim to terminal loss
relief? And what is the status of the terminal loss
relief claim in any court of tribunal which does not have jurisdiction to
consider the rights and wrongs of it?
The Jurisdiction of the First-tier Tribunal
41.
Is this issue one over which Parliament gave this tribunal jurisdiction?
42.
Both HMRC and the appellant consider that this Tribunal has jurisdiction
to consider the issue of the appellant’s terminal loss relief claim in these
proceedings. Both think that the Court of Session should be asked to stay its
proceedings pending a determination by this Tribunal in these proceedings of
the rights and wrongs of the terminal loss relief claim.
43.
They were, however, somewhat at a loss to explain how proceedings in
this tribunal would determine the issue of the terminal loss relief in respect
of 2001 as the proceedings in this tribunal relate only to the closure notices
in respect of accounting years ended in 2002 and 2003: the proceedings in the
Court of Session relate to all three years.
The law on this Tribunal’s jurisdiction
44.
The Tribunal is a statutory body and a party must be able to point to a
statutory provision which gives this tribunal jurisdiction to determine an
issue that party wants to be determined by it.
45.
The Taxes Act do not always appear at first glance to state to which
body an appeal should be made. For instance, §48 of Schedule 18 provides:
Appeal against assessment
48. (1) an
appeal may be brought against any assessment to tax on a company which is not a
self-assessment.
(2) Notice of appeal must be given –
(a) in writing,
(b) within 30 days after the notice of assessment
was issued,
(c) to the officer of the Board by whom the notice
of assessment was given.
46.
Similarly §34 provides:
Amendment of return after enquiry
34. (1) This
paragraph applies where a closure notice is given to a company by an officer.
(2) The closure
notice must –
(a) state that, in the officer’s opinion, no
amendment is required of the return that was the subject of the enquiry, or
(b) make the amendments of that return that are
required –
(i) to give effect to the conclusions stated in
the notice, and
(ii) ….
(2A) ….
(3) An appeal may be
brought against an amendment of a company’s return under sub-paragraph (2) or
(2A).
(4) Notice of appeal
must be given –
(a) in writing
(b) within 30 days after the amendment was notified
to the company,
(c) to the officer of the Board by whom the closure
notice was given.
47.
I don’t set it out but the provisions relating to appeal in §9 of Sch 1A
are effectively identical.
48.
All these provisions (as do other provisions) provide that notice of the
appeal is to be given to a particular HMRC officer. But then s 48(1)(a) TMA
comes into play as it brings all appeals made under the Taxes Acts within the
provisions of s 49 – 49I TMA.
49.
These provisions permit appeals notified to HMRC to then be notified to
“the tribunal”. The definition of “the tribunal” is (see s 118(1) and s 47C
TMA) the First-tier Tribunal.
50.
(And for completeness, “Taxes Acts” includes the TMA itself and Sch
18. This is because ‘Taxes Acts’ are defined in the TMA s118(1) as “…this Act
and – (a) the Tax Acts…..”. The Tax Acts are defined in the Interpretation Act
1978 Schedule 1 as “…the Income Tax Acts and the Corporation Tax Acts.” The
“Corporation Tax Acts” are defined in the same schedule as:
“…the enactments relating to the taxation of the
income and chargeable gains of companies and company distributions (including
provisions relating to income tax).”
Sch 18 clearly relates to corporation tax.)
51.
Therefore, these provisions do give the First-tier Tribunal jurisdiction
to hear appeals against any closure notices issued by HMRC. As Lord Walker in Autologic
Holdings plc & othrs [2005] UKHL 54 said of Schedule 18 (in its pre-
April 2009 form):
“[84] … I can discern no parliamentary intention to
alter the general principle embodied in tax law before self-assessment, that
any dispute with the revenue about an individual’s liability to income tax or a
company’s liability to corporation tax is to be determined in the first
instance by the general commissioners or the special commissioners.”
52.
Of course, since Lord Walker said this, the Inland Revenue and the
general and special commissioners have all ceased to exist and, in the case of
the former, been replaced by HM Revenue & Customs, and in the case of the
latter by the First-tier Tribunal (Tax Chamber). However, apart from
substituting the names of the appropriate replacement bodies, what Lord Walker
said in 2005 is still applicable to today.
53.
So I find that Parliament gave jurisdiction to this tribunal
jurisdiction to determine the validity of claims to terminal loss relief and in
particular whether a closure notice has validly amended a claim to terminal
loss relief. The First-tier Tribunal can determine whether:
(a)
The appellant’s claim of 30 August 2006 was made and/or had to be made
under Sch 1A and/or s 393 ICTA;
(b)
Whether HMRC validly opened enquiries and under the correct provisions;
(c)
Whether HMRC’s purported amendment of the claim in the 2004 and 2005
closure notices to nil was effective.
And as Lord Walker in effect said, this tribunal’s
jurisdiction was intended to be exclusive jurisdiction.
54.
It is not so clear that the Tribunal would have jurisdiction to
determine the appellant’s claim in the alternative. This is its claim that,
assuming HMRC’s position that the 2004 and 2005 closure notices effectively
amended the terminal loss claim to ‘nil’, nevertheless the issue of the
closure notices on 25 March 2011 was in breach of the 2010 Undertaking and they
should not therefore be enforced.
55.
This a question of public law and whether legitimate expectations have
been raised. But this tribunal has no inherent, public law jurisdiction. It
has no judicial review function. The most that can be said is that it must (or
at least may) refuse to permit HMRC to rely on an assessment which arose out of
an unlawful act. This is an application of the decision of the House of Lords
in Winder. This is a difficult and perhaps developing area of law and,
other than noting that there is a question of whether such a matter could be
considered by this Tribunal, I express no view. I do not need to because of my
decision below on this Tribunal’s jurisdiction in these proceedings.
56.
Before turning to that, I look at the position of the Court of Session
in case my comments could be of use to it, as least in so far as I can draw its
attention to case law which might be relevant.
The jurisdiction of the courts
57.
I can, of course, make no decision whatsoever on the jurisdiction of the
Court of Session or any other court. A decision that this Tribunal does
have jurisdiction in this matter is not a decision that the Court of Session
does not also have jurisdiction: the jurisdiction of the Court of Session, I
believe, inherent like that of the High Court in England & Wales. Nevertheless, as reflected in the House of Lords’ decision in Autologic, the
Court of Session might regard proceedings as an abuse of process where it is
clear Parliament intended a specialist tribunal to have exclusive jurisdiction
over the matter in issue.
58.
When considering its jurisdiction, it may be relevant for the Court of
Session to look at the decision in Cotter. In that case HMRC started
proceedings in the County Court against the taxpayer Mr Cotter to recover the
tax shown as payable in respect of 07/08 in his tax return in respect of the
same year. In that tax return (by amendment made later) Mr Cotter claimed that
the tax was not due and payable as it was relieved by a terminal loss relief
claim made in the 07/08 tax return but in respect of events in 08/09.
59.
HMRC opened an enquiry into the claim: as in this case, the taxpayer
maintained that the enquiry was not validly initiated. The alleged ground of
invalidity of the enquiry on which the taxpayer relied, in contradistinction to
this case however, was that it was an enquiry into the claim under Sch 1A and
not an enquiry into the return under s 9 TMA.
60.
HMRC’s view was that, pending the closure of that enquiry, the claim was
not final and in the meantime the taxpayer was liable to pay the tax shown on
his 07/08 tax return in respect of his income for 07/08.
61.
The taxpayer applied to have the County Court proceedings struck out on
the basis it did not have jurisdiction to determine whether its claim was
valid: the matter was referred to the High Court for determination and the
decision is recorded at [2011] EWHC 896.
62.
Mr Justice David Williams essentially decided two matters. Firstly, he
decided that:
“[38]. … [the County Court] has jurisdiction to
determine in collection proceedings whether a taxpayer is entitled to include
in his return a claim for relief and so rely on it as a defence to the claim
for immediate payment. I emphasise that this does not enable the court to
determine whether the claim is well-founded but only to determine whether it
can be included in the return at all or must instead be made in some other
way.”
63.
Secondly, he decided that Mr Cotter was not entitled to make the claim
for loss relief in his 07/08 return.
64.
The taxpayer appealed this decision. Lady Justice Arden gave the
unanimous decision of the Court of Appeal at [2012] EWCA Civ 81. The decision
was that the High Court was wrong to consider it had jurisdiction to decide the
question of whether the taxpayer was entitled to claim the relief in its tax
return.
65.
The reason for that conclusion was that the claim was made in the return
and the return on its face appeared to permit such a claim to be made. HMRC
should therefore have challenged it by raising an enquiry into the return.
This would give the taxpayer the right to appeal to the Tribunal the closure
notice and allow the First-tier Tribunal to adjudicate on the question of
whether the claim was valid and validly made:
“[32] … I conclude that the judge was wrong on the
jurisdiction issue in this case. If the Revenue decides to challenge matters
contained in the return in response to the boxes provided, it must use either
the s 9A procedure [the procedure for raising an enquiry into a personal tax
return] or seek to make a correction to the return under 9ZB [the provisions
for correcting a personal tax return for obvious error] (if applicable). This
is so even if the Revenue is correct that, under the relevant statutory
provisions governing loss relief claims, that claim could not be the subject of
relief against liability to tax for the year to which the return relates. In
that case, it is up to the Revenue, if it wishes to achieve the contrary
result, to make sure that the form of the return does not permit such a claim
to be made.”
66.
The Judge declined to comment on the second issue as she considered that
the County Court did not have jurisdiction to consider this issue, and
therefore, effectively on appeal from that court, neither did the Court of
Appeal.
67.
In some respects, Cotter was the mirror image of this case:
HMRC were taking proceedings in the court which required determination of an
issue that Parliament intended to be within the exclusive jurisdiction of this
Tribunal. The Court of Appeal’s view was that it could not do this: it had to
follow the process within the Taxes Act of raising an enquiry on the return.
The effect of its decision appears to be that HMRC’s claim was struck out.
68.
This decision is under appeal and may be heard in the Supreme Court
later this year. In the meantime I am bound by the decision of the Court of
Appeal. Although this is no more than my opinion without any weight, if the
Court of Session follows the Court of Appeal in Cotter, it is likely to
conclude that it does not have jurisdiction to consider the validity of the
terminal loss relief claim in respect of any of the three years before it.
Jurisdiction in these proceedings
69.
Deciding that this Tribunal does have jurisdiction in principle to hear
the matter at issue is not the end of the matter. While this Tribunal does
have jurisdiction to hear, and was intended by Parliament to have exclusive
jurisdiction to hear, matters such as those outlined in the previous
paragraph, it does not mean that the appellant’s claim to terminal loss relief
is something that this Tribunal can determine in the course of these
proceedings.
70.
The Tribunal only has jurisdiction over matters raised in the Notice of
Appeal. The appellant must state in its Notice of Appeal the details of the
decision against which it is appealing (Rule 20(2)). Its notice of appeal
states as follows:
“This is an appeal against HMRC’s decisions to amend
the company’s CT self assessments for P/E 31/7/02 and 31/7/03.”
71.
It then goes on to state the grounds of appeal and I have summarised
these above. One ground is the claim is, as stated, that the terminal loss
relief claim made in August 2006 is now final and wipes out any tax liability
for 2002 and 2003.
72.
Enclosed with the notice of appeal were, as required by this Tribunal’s
rules, the decisions appealed against. The only decisions enclosed were the
2002 and 2003 closure notices of 25 March 2011, the two letters dated 12 May
2011 in respect of the 2002 and 2003 year ends which state HMRC’s view of the
matter following the company’s appeal and which offer a review, and finally
the HMRC review decision letter dated 15 July 2011 which again relates only to
the 2002 and 2003 year ends.
73.
I was not shown HMRC’s reply (if any) to the appellant’s appeal dated 12
April 2011 to the closure notices for 2004 and 2005. It seems that there may
have been one and, from what was said to me at the hearing, the appellant may
have decided not to apply for a review of it or to lodge an appeal with the
Tribunal against it, on the grounds the appellant considered the closure
notices invalid. As I was not presented with the facts I make no decision
about this.
74.
What is clear is that the proceedings before me relate solely to the
2002 and 2003 closure notices. While the terminal loss relief claim is stated
to be one of the grounds of appeal, the 2004 and 2005 closure notices
are not the subject of the appeal. Both parties seemed entirely agreed
on this: as I understand it Mr Thomas’ position is that the 2004 and 2005
closure notices are ineffective and invalid and do not need to be appealed. He
considers them, in effect, void.
75.
Whatever the appellant’s reasons for not challenging the 2004 and 2005
closure notices by lodging with this tribunal an appeal against them, it is
clear that (as long as the correct procedure and time limits were followed) an
appeal could have been lodged. The validity or otherwise of a closure notice
is something that is within the jurisdiction of this tribunal to determine.
Is an invalidly opened enquiry and/or invalidly issued closure notice
void?
76.
The appellant’s case is that this Tribunal or the Court of Session is
bound to find in its favour that its terminal loss relief claim is valid
because the enquiry into it was invalid. What Mr Thomas appears to be saying
is that the closure notices disallowing the terminal loss relief claim were
void: the situation was as if those closure notices did not exist or at least
did not have any effect.
77.
I do not consider that this is right. At best, closure notices may be
“voidable”. This is because it is clear that Parliament provided a route for
challenging closure notices and (as set out above) intended this Tribunal to
have exclusive jurisdiction on tax liability matters. Consistent with that
intention, closure notices must be seen as valid unless successfully challenged
in this Tribunal under the statutory procedure Parliament has provided. Even
if wrong and/or invalidly issued, closure notices are not void.
78.
The decision of Lady Justice Arden in Cotter provides support for
this view: at the passage from [32] cited above she said HMRC ought to have
opened an enquiry into the personal tax return even if they are right that the
claim should not have been included in the personal tax return.
79.
Again, although only considering the question of whether the courts had
concurrent jurisdiction with the tribunal, the majority House of Lords’ view in
Autologic as expressed by Lord Nicholls, strongly suggest that an
assessment is not void because, if so, it would not be necessary to challenge
it:
“[12] Clearly the purpose intended to be achieved
by this elaborate, long-established statutory scheme would be defeated if it
were open to a taxpayer to leave undisturbed an assessment with which he is
dissatisfied and adopt eh expedient of applying to the High Court for a declaration
of how much tax he owes and, if he has already paid the tax, an order for
repayment of the amount he claims was wrongly assessed. In substance, although
not in form, that would be an appeal against an assessment. In such a case the
effect of the relief sought in the High Court, if granted, would be to negative
an assessment otherwise than in accordance with the statutory code. Thus in
such a case the High Court proceedings will be struck out as an abuse of the
court’s process. The proceedings would be an abuse because the dispute
presented to the court for decision would be a dispute Parliament has assigned
for resolution exclusively to a specialist tribunal. The dissatisfied taxpayer
should have recourse to the appeal procedure provided by Parliament. He should
follow the statutory route.
[13 I question whether in this straightforward type
of case the court has any real discretion to exercise. Rather, the conclusion
that the proceedings are an abuse follows automatically once the court is satisfied
the taxpayer’s court claim is an indirect way of seeking to achieve the same
result as it would be open to the taxpayer to achieve directly by appealing to
the appeal commissioners. The taxpayer must us the remedies provided by the
tax legislation. This approach accords with the views expressed in authorities
such as Argosam Finance Co Ltd v Oxby (Inspector of Taxes) [1965] Ch
390, In re Vandervell’s Trusts [1971] AC 912 and, more widely Barraclough
v Brown [1897] AC 615.”
80.
If closure notices could be void, then the courts (rather than
tribunals) would be forever required to determine the validity of them in
enforcement actions: it would not be enough for HMRC to show that the
assessment had not been appealed or if appealed, the appeal had been unsuccessful.
It would also have to show that the closure notice or assessment was not void
from the start. This was clearly not the intention of Parliament.
81.
Mr Thomas may be right (I express no view) that the enquiry
should have been opened under Sch 1A: but if he is right, that does not make
the 2004 and 2005 closure notices void. Parliament gave him a procedure to
challenge them which the appellant has elected not to use: it cannot challenge
them in proceedings related to closure notices issued in respect of earlier tax
years.
82.
Adopting the words of Lord Nicholls, the appellant’s attempt to get
judgment in the Court of Session against HMRC and to bring the issue of the
terminal loss relief claim into its appeals against the 2002 and 2003 closure
notices, are both indirect ways of seeking to achieve the same result as it
would have been open to the appellant to achieve directly by appealing the 2004
and 2005 closure notices to this tribunal. While I cannot speak for the Court
of Session, I am clear that the appellant cannot do this so far as these
proceedings are concerned: it should have used the remedies provided by the
tax legislation. That remedy was to appeal the 2004 and 2005 closure notices
to this Tribunal.
83.
The validity of the 2004 and 2005 closure notices cannot be challenged
in these proceedings because these proceedings solely concern the 2002 and 2003
closure notices.
The status of the terminal loss claim
84.
It follows from this that my view is that, unless and until the 2004 and
2005 closure notices, which denied the claim to terminal loss relief are
successfully challenged by the mechanism provided by Parliament (ie an appeal
against the 2004 and 2005 closure notices to this Tribunal) those closure
notices are effective to deny the relief.
85.
This makes no judgment at all on whether the appellant or Mr Thomas is
in the right of it with regards whether the enquiry was validly opened and/or
validly closed: the simple point is that closure notices are effective to make
the amendments they purport to make to returns and claims to tax reliefs unless
and until they are successfully challenged.
86.
The appellant can only challenge the 2004 and 2005 closure notices in
this Tribunal in an appeal against those particular closure notices. I have
already expressed the view (of no authority, I admit) that the Court of Session
is likely to come to the same conclusion. In other proceedings, such as these
proceedings which are appeals against the 2002 and 2003 closure notices, the
terminal loss relief claim has to be treated as effectively denied because the
closure notices which denied the claim have not been appealed.
87.
It seems to me, although I have not got jurisdiction to decide this,
that the Court of Session is likely to come to the same conclusion: the 2004
and 2005 closure notices may have been voidable but they were not void. As the
procedure for challenging them set out by Parliament has not been followed,
they are effective (for the time being) to deny the claim for terminal loss
relief made in 2001-2003.
88.
And I comment that had I come to any other conclusion, it would permit
the appellant to circumvent the rules clearly laid down by Parliament.
Parliament requires appeals to be properly lodged within certain time limits.
The appellant cannot avoid these by raising the issue in a different appeal or
different proceedings in a different jurisdiction.
89.
My understanding is that it was the appellant’s deliberate choice not
to appeal the 2004 and 2005 closure notices. It was not that the notice of
appeal accidentally failed to mention them as the subject matter of the appeal
nor include a copy of them. It was a deliberate choice, even if misguided.
90.
That is not to say that the appellant could not now seek to challenge
the 2004 & 2005 closure notices: it appears to be out of time to do so but
it might wish to consider an application for permission to appeal out of time.
I express no view on the likely outcome of such an application although no
doubt the Tribunal would take into account that HMRC has been aware of the
appellant’s case that the closure notices were invalid since 12 April 2011. If
the appellant chooses to make such an application for permission, it should
ensure that its application bears a cross reference to the reference number of
these proceedings. If the appellant follows this course, it might be
appropriate to request a stay of these proceedings and proceedings in the Court
of Session, but I express no view on the likely outcome of such a request.
91.
In these proceedings, which relate to the 2002 and 2003 closure notices,
as matters currently stand, the invalidity or otherwise of the 2004 and 2005
closure notices is not a matter which this Tribunal can determine. And indeed
in so far as relevant to proceedings, it must take the 2004 and 2005 closure notices
to be effective to deny terminal loss relief as they have not been challenged.
Tax has been paid
92.
I have decided that the terminal loss relief claim will form no part of
these proceedings. Even if the appellant successfully (a) gets permission to
appeal the 2004 and 2005 closure notices and (b) succeeds in that appeal, then
it would still form no part of these proceedings although it might lead to
repayment of tax that might otherwise be payable as a result of these
proceedings.
93.
In so far as these appeals raise issues on (a) entitlement to claim for
amortisation of goodwill and (b) applicable rate of tax, this tribunal clearly
has jurisdiction and these issues can be the subject of a substantive hearing
in this tribunal. But what about the appellant’s claim that it has paid the
tax?
94.
HMRC’s case is that a question of whether tax has been actually paid is
entirely in the jurisdiction of the applicable Court (whether Scottish or
English & Welsh) and not within the jurisdiction of the tax
tribunal. The tax tribunal has no jurisdiction to enforce liability to pay tax
so, says HMRC, it must follow it has no jurisdiction to determine whether or
not tax has actually been paid.
95.
Mr Stewart considers that his predecessor’s jeopardy amendment mentioned
at paragraph [10] above should not have been issued as tax returns and
enquiries into them are to establish liability to tax rather than how much tax
has actually already been paid.
96.
The appellant’s case is that the tax return required it to state whether
it has paid the tax, an enquiry was opened partly in response to its answer to
this question, and a jeopardy amendment issued to challenge and amend its
answer. The Tribunal, says the appellant, has jurisdiction over anything that
arises on the tax return and/or in respect of which HMRC can open enquiries.
The Box 75 point
97.
Box 75 is the box on the corporation tax return that required companies
to state how much tax had been paid. This is the box which the appellant
completed to show tax paid as set out in paragraph [7]. The 2002 and 2003
closure notices amended the box 75 figure to approximately £51,000 in respect
of 2002 and nil in respect of 2003.
98.
As I have said the source of the Tribunal’s jurisdiction in respect of
amendments to corporation tax returns is stated in §35 of Sch 18:
Amendment of return after enquiry
35. (1) This
paragraph applies where a closure notice is given to a company by an officer.
(5) The closure
notice must –
(a) state that, in the officer’s opinion, no
amendment is required of the return that was the subject of the enquiry, or
(b) make the amendments of that return that are
required –
(i) to give effect to the conclusions stated in
the notice, and
(ii) ….
(2A) ….
(6) An appeal may be
brought against an amendment of a company’s return under sub-paragraph (2) or
(2A).
(7) Notice of appeal
must be given –
(a) in writing
(b) within 30 days after the amendment was notified
to the company,
(c) to the officer of the Board by whom the closure
notice was given.
99.
So by implication the Tribunal has jurisdiction to consider any
amendment made by a closure notice. HMRC’s case in effect is that the Tribunal
does not have jurisdiction to consider an amendment which shouldn’t have been
made by HMRC in the sense that it was an enquiry into a matter (whether tax has
been paid) that could not be the subject of an enquiry.
100. What can be the
subject of an enquiry? Sch 18 §25 provides, as does the equivalent provision
for personal tax returns as cited by Lady Justice Arden in Cotter, that:
“Scope of Enquiry
25. (1) An enquiry into a company tax return
extends to anything contained in the return, or required to be contained in the
return…”
101. Mr Thomas’
position is that the appellant’s statement of tax paid in box 75 was not only contained
in the return but required to be contained in the return in that the
notes to the return said it was compulsory to complete it.
102. Required to
be contained: But was Box 75 legally part of the return? What is a
“return”? By §3(1)(a) a “return” is of “such information, accounts, statements
and reports – relevant to the tax liability of the company….” The return must
include a self-assessment “of the amount of tax which is payable by the company
for that period….” (§7(1) Sch 18). §8(2) provides:
“Except as otherwise provided, references in this
Schedule to the amount of tax payable by a company for an accounting period are
to the amount shown in the company’s self-assessment as the amount payable.”
103. So a return is
anything which shows the amount of tax payable. What does “payable”
mean in this context? Is it the gross amount payable in respect of that year’s
profits, or the net amount payable after payments already made to HMRC have
been taken into account?
104. §8(1) sets out
how the “amount of tax payable” is calculated. Step 1 is to calculate
the corporation tax on the company’s profit for the period; Step 2 is to
give effect to reliefs and set-offs as specified; step 3 is to add on
amounts assessable as if they were corporation tax; Step 4 is to “deduct
any amounts to be set off against the company’s overall tax liability for that
period”. But the next two sub-paragraphs, following the overall scheme of §8
make it clear that the set off is limited to income tax borne by deduction and
certain ACT credits.
105. It seems to me
that this is meant to mirror (with the exception of the ACT point which could
only apply to corporation tax) the provisions for personal tax. In s 9(1) TMA
a self-assessment return is required to include “an assessment of the amount
payable” by the taxpayer. It defines that as “the difference between the
amount in which he is assessed to income tax under paragraph (a) above and the
aggregate amount of any income tax deducted at source and any tax credits to
which [certain sections] applies.
106. So the amount
payable is the amount payable after deduction of certain specified payments of
tax. It does not include deduction of sums paid other than by way of deduction
at source and ACT. Therefore, box 75 (other than in respect of deduction at
source/ACT) was not required to be part of the tax return.
107. Contained in
tax return: Nevertheless, it was clearly contained in the document
that was the return. An enquiry can be into anything contained in a return,
whether or not it was required to be there. Therefore, this Tribunal would
have jurisdiction over HMRC’s amendments.
108. Lady Justice
Arden’s view is binding on this Tribunal if directly on point and persuasive in
a comparable position. Her view, in respect of the claim made on the
taxpayer’s return for terminal loss relief was, repeating the citation above:
“[32] … I conclude that the judge was wrong on the
jurisdiction issue in this case. If the Revenue decides to challenge matters
contained in the return in response to the boxes provided, it must use either
the s 9A procedure [the procedure for raising an enquiry into a personal tax
return] or seek to make a correction to the return under 9ZB [the provisions
for correcting a personal tax return for obvious error] (if applicable). This
is so even if the Revenue is correct that, under the relevant statutory
provisions governing loss relief claims, that claim could not be the subject of
relief against liability to tax for the year to which the return relates. In
that case, it is up to the Revenue, if it wishes to achieve the contrary result,
to make sure that the form of the return does not permit such a claim to be
made.”
109. In other words,
although it was arguable that the claim should not have been made on the tax
return, nevertheless it was made in the tax return, so the proper way of challenging
it was for HMRC to open an enquiry into that return.
110. It seems to me
that the same must be true here. Whether or not HMRC are correct to require
taxpayers to state the tax paid on the tax return, the return does so require
this and the appellant in this case made the claim in box 75 of its return that
it had paid an amount in tax. The way to challenge that was by enquiry into
that tax return. HMRC did this. The appellant has appealed the resulting
closure notice. And the effect is that the tribunal has jurisdiction to
consider the matter. And this is the case even though it seems to me that it
would not have jurisdiction had the information not been included (as it did
not have to be) on the tax return.
Concurrent jurisdiction with courts?
111. This conclusion
is at first glance at odds with the general understanding that the courts have
jurisdiction to enforce payment of tax (or tax refunds) while the tribunal has
jurisdiction to determine liability to pay tax (or be paid tax refunds).
112. The significant
point it seems to me is that the tribunal does not have any general
jurisdiction to decide whether tax has been paid and certainly no jurisdiction
to enforce payment of unpaid taxes or refunds: but it does have jurisdiction
to decide whether an amendment to box 75 by closure notice was correct or not
and thereby implicitly to decide the validity of the taxpayer’s claim to have
paid the tax due.
113. (I note in
passing that there are other circumstances in which the tribunal would decide
whether tax had been paid: for instance where a penalty was imposed for
non-payment of tax, the tribunal would of necessity have to make a finding of
fact of whether the tax had been paid.)
114. Does this lead
to concurrent jurisdiction with the courts? It seems to me, following the
logic, so to speak, of Autologic, that a court might decide that since
the Tribunal does have jurisdiction to decide the claim to have paid the tax in
a case where the claim to have paid the tax was made on a tax return, it would
regard it as an abuse of process for the issue to be raised in the courts. The
matter should only be litigated once.
Can the Tribunal adjudicate upon the meaning of the 2004 Contract
Settlement?
115. While it was Mr
Stewart’s position that the Tribunal did not have jurisdiction to determine
this aspect of the appellant’s claim, and Mr Thomas’ that it did, rather
ironically Mr Stewart put the Spring Salmon & Seafood Ltd SPC 503
case to me which suggests that I do have jurisdiction, while Mr Thomas opined
that the Tribunal would not be able to rule on the interpretation of the 2004
Contract Settlement as that was a matter of Scottish law.
116. This Tribunal
most certainly does have jurisdiction, unless there is an abuse of process (to
which I revert below) to determine any point of contract law which arises in
the course of proceedings to determine tax liability. If the 2004 Contract
Settlement involved a point of Scottish law then this should be drawn to the
attention of the Tribunal before the hearing of the substantive appeal so that
a Judge qualified as a lawyer in Scotland can be appointed to hear the case.
117. Therefore I
consider that the Special Commissioner in that case was right to consider that
he had jurisdiction to decide the meaning of the 2004 Contract Settlement.
And I note that the particular Special Commissioner who decided those
proceedings, now Judge J Ghosh, is qualified as a lawyer in Scotland (§ 47 of his decision). (But I also note in passing that he considered that the 2004
Contract Settlement was probably governed by English law although he did not
determine the issue:
[45] … [the 2004 Contract Settlement] is most likely
governed by English law, certainly on the evidence to hand, since the agreement
was signed in Reading. There is no governing law clause….So far, other than
the place of incorporation of the Appellant and the governing clause of [a
different agreement], no other substantive matter (the place of trading of the
Appellant, the residence of the directors) have been demonstrated to have any
Scots connection…..”)
118. Of much greater
significance is that the Special Commissioner did determine the question of
whether the appellant’s tax liabilities for the years 2002 and 2003 were within
the scope of the 2004 Contract Settlement. His decision was:
“ [48] As noted above, on 24th May 2004 the
Appellant, among others, entered into a Tax Agreement with the Revenue which
recorded a final agreement between HMRC and the Appellant on certain of its tax
affairs. However the Tax Agreement does not extend to the period ended 31st
July 2002, or the period ended 31st July 2003. ….”
119. As I have
determined that this Tribunal does have jurisdiction to consider whether tax
has already been paid, the scope of the 2004 Contract Settlement is a question
which will arise again in these proceedings. While the doctrine of res
judicata, which prevents parties re-litigating issues which have already
been decided in proceedings between them, may not apply to Tribunal
proceedings, raising the issue of the scope of the 2004 Contract Settlement may
nevertheless be an abuse of process by the appellant.
120. I note that this
issue of abuse will have to considered in the substantive hearing in this
appeal. I do not decide it in this hearing. The relevant authorities include Arnold
v National Westminster Bank plc [1991] 2 AC 93 at 105, Society of
Medical Officers of Health v Hope [1960] AC 551 HL, Cafoor v Colombo
Income Tax Commissioners [1961] AC 584 PC, Bennett v C&E Comms No 2
[2001] STC 137 and Durwin Banks (2008 VTR 20695).
Conclusion
121. In so far as the
terminal loss relief claim is concerned, this Tribunal, in the context of these
proceedings, has no jurisdiction to determine the validity of it and it is struck
out as a ground of appeal; further unless and until the 2004 and 2005
notices are successfully appealed, it will (in so far as relevant) treat the
terminal loss relief claim as validly denied by HMRC.
122. So far as the
proceedings in the Court of Session are concerned, I have no jurisdiction and
my opinion can carry no weight; nevertheless I express the view that in the
light of authorities the Court may come to the same conclusion: which is that
it has no jurisdiction to determine the validity of the terminal loss relief
claim and in any event unless and until the 2004 and 2005 closure notices are successfully
appealed, it must treat the terminal loss relief as validly denied by HMRC.
123. So far as these
proceedings are concerned, this Tribunal does have jurisdiction to consider as
a general matter the appellant’s claim that it had already paid its tax liabilities
for the 2002 and 2003 year ends. That issue will proceed to a hearing in this
Tribunal together with the other grounds of appeal (other than the one I have
struck out above and with the possible exception of Ground 6 which the
appellant needs to clarify whether it is pursuing).
124. One of the
issues that the substantive hearing in this appeal will have to decide, as I
make no decision on it at this point, is whether the tribunal has jurisdiction
to consider whether the 2004 contract settlement included the appellant’s tax
liabilities for the 2002 and 2003 year end or whether, because it appears that
this has already been litigated and decided by the Special Commissioner in
proceedings between the same parties, it would be an abuse of process for it to
be raised again and the Tribunal must therefore treat the matter as finally
determined by the Special Commissioner in 2005.
125. There is
therefore no need for a preliminary hearing to consider the question of the
terminal loss relief claim. Either party might wish to consider whether it
wants the “tax has been paid” ground of appeal heard as a preliminary issue as
that is a discrete issue which, if determined in favour of the appellant,
should avoid the need to litigate the question of the amortisation relief claim
which might involve the expense of expert evidence. If either party does wish
it to be decided as a preliminary issue, it should make an application. If no
such application is made within 14 days, I will issue directions for this
appeal to proceed to hearing in its entirety.
126. This document
contains full findings of fact and reasons for the decision. Any party
dissatisfied with this decision has a right to apply for permission to appeal
against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal)
(Tax Chamber) Rules 2009. The application must be received by this Tribunal
not later than 56 days after this decision is sent to that party. The parties
are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax
Chamber)” which accompanies and forms part of this decision notice.
BARBARA
MOSEDALE
TRIBUNAL JUDGE
RELEASE DATE: 24 May 2013
