The taxpayer company made a loss in a particular tax year and sought to carry back that loss and set it off against its declared profits for the previous tax year (“the first self-assessment return”) for corporation tax purposes. The claim to carry back losses was accepted by the revenue, and the tax paid in the previous tax year was repaid. The amount of tax repaid was smaller than the claimed loss, and the balance of the loss remained to be carried forward to be set off against later years. Subsequently, the revenue opened an enquiry into the taxpayer’s first self-assessment return which resulted in a closure notice being issued which amended the first self-assessment return giving rise to an additional liability to corporation tax. The closure notice made no mention of the taxpayer's election to carry back losses from the subsequent tax year, nor to the fact that it had claimed (and by that time had received) a repayment of the tax originally paid. The First-tier Tribunal dismissed the taxpayer’s appeal against the closure notice, concluding, inter alia, that it was not open to the taxpayer to carry back losses additional to those which it claimed to carry back from the loss making tax year. The Upper Tribunal upheld that decision, inter alia, on the basis that the additional claim to carry back losses had been made after the deadline for amendments to the first self-assessment return had passsed.
On the Taxpayer’s further appeal—
Held, appeal dismissed. Although the right to make a claim to carry back loss was conferred on a taxpayer company by section 393A of the Income and Corporation Taxes Act 1988, that provision did not stand alone, but rather was supplemented by other provisions which detailed both how the taxpayer could make a claim and how such a claim was to be given effect to. Pursuant to paragraph 58 of Schedule 18 to the Finance Act 1998, where a taxpayer wished to carry back loss to the previous tax year, the mechanism for giving effect to the claim differed depending on whether it was still open to the taxpayer to amend the earlier return: if it was, the claim was to be treated as doing so. However, where the claim under section 393A was made at a time when it was too late for the earlier return to be amended, it fell to given effect under Schedule 1A to the Taxes Management Act 1970. Thus, in the present case, since the taxpayer’s claim for carry back relief had been made after the deadline for the amendment of the first self- assessment return, the revenue had been right to issue a closure notice which did not take any account of the claim under section 393A and the First-tier Tribunal was equally correct, in determining whether the taxpayer had been overcharged or undercharged by the assessment in the closure notice, to leave the section 393A claim out of account. Instead, the taxpayer’s section 393A claim was given effect as a freestanding claim under Schedule 1A to the 1970 Act which had correctly resulted in repayment of tax that he had made, and there was no mechanism to enable that claim to be reopened on the basis that the profits for the period had subsequently been increased by the revenue on the tribunal (paras 33–35, 39, 40, 58, 59, 60).
Michael Firth (instructed directly) for the taxpayer.
Charles Bradley (instructed by Solicitor, Revenue and Customs) for the revenue.