Wickersham v Revenue And Customs

A loss-relief claim made outside a tax return may be a claim under Schedule 1A to the Taxes Management Act 1970. Notice of an intention to enquire requires no particular formality, but must inform a reasonable taxpayer that HMRC intends to open an enquiry. A claim based on losses arising in a later year remains inchoate until those losses are established through the later-year enquiry. That principle applies to individuals as well as partners. A claim may be sufficiently quantified by stating the loss and the year against which it is to be set, even if the tax repayment or credit is not separately calculated. The claim was nevertheless premature because the underlying loss remained subject to enquiry.

Mr Mark Wickersham claimed £63,188.87 from HMRC, representing income-tax relief arising from capital losses on qualifying shares. The losses arose in 2011/2012 but were carried back against income for 2010/2011 under sections 131 and 132 of the Income Tax Act 2007.

The parties accepted that the carry-back claim engaged Schedules 1A and 1B to the Taxes Management Act 1970. HMRC relied on four defences: lack of quantification, timely notice of an enquiry, prematurity because the later-year loss remained under enquiry, and the alleged exclusion of a freestanding credit from Schedule 1A.

1. Disposition. The claim was dismissed.
2. The claim was sufficiently quantified. The entry of £171,531 in box 3, together with the identification of 2010/2011 in box 4, indicated the amount of loss claimed and the year against which it was to be relieved. The statutory requirement for quantification was therefore met.
3. Schedule 1A paragraph 5(1) required written notice of an intention to enquire, but imposed no particular form. Applying the reasonable-recipient approach discussed in Flaxmode Ltd v Revenue and Customs Commissioners and R (Sword Services Ltd) v Revenue and Customs Commissioners, the January 2013 letter and its schedule warned the claimant that HMRC intended to open a Schedule 1A enquiry. The use of the future tense did not invalidate the notice. The reference to a separate letter indicated how the enquiry would be opened, rather than creating a requirement for a further notice of intention.
4. The June letter alone was insufficient. It stated that a Schedule 1A enquiry was required and could or should be opened, but did not itself communicate HMRC’s intention clearly enough. Read together with the January letter, however, the correspondence constituted adequate notice.
5. Following R (oao) De Silva v HMRC, a claim for relief based on losses arising in a later year remained inchoate until the later-year loss was established. The principle was not confined to partnerships. The existing section 9A enquiry therefore made the carry-back claim premature. HMRC v Cotter established that the claim was outside the return and engaged Schedule 1A, but did not prevent the claim from being inchoate.
6. Even if the claim produced a freestanding tax credit, it was in substance a claim for discharge of tax and fell within Schedule 1A. This conclusion did not affect the result because the prematurity defence succeeded.