Knibbs & Ors v Revenue And Customs

A taxpayer must use the statutory appeal procedure provided for challenging an HMRC decision. Ordinary civil proceedings seeking substantially the same result are an abuse of process. Expiry of the statutory time limit does not create an alternative civil remedy.

A trade-loss carry-back claim governed by the Income Tax Act 2007 relates to the loss-making year. The express application of Schedule 1B to the Taxes Management Act 1970 requires full information about the claim in that year’s return. HMRC may examine it through an enquiry into that return and may adjust the tax chargeable to recover excessive relief previously given. The prescriptive income-tax calculation does not exclude that adjustment.

Hundreds of taxpayers who had participated in tax-avoidance schemes, mainly involving film investments, claimed to carry purported trading losses back against income from earlier years. The schemes were subsequently held not to have generated the intended losses. The taxpayers contended that, because HMRC had not opened timely enquiries under Schedule 1A to the Taxes Management Act 1970, their claims had become final.

Sir Nicholas Warren struck out their Part 7 claims as legally unsustainable and as an abuse of process. Ouseley J subsequently refused permission to pursue materially equivalent judicial review proceedings. The Court of Appeal considered both matters together.

The central questions were whether the taxpayers had to use statutory appeals or judicial review, and whether post-2007 trade-loss carry-back claims could be examined through actual or deemed enquiries into the returns for the loss-making years.

1. The appeal from Sir Nicholas Warren’s order was dismissed. Where Parliament has assigned a tax dispute to a statutory appeal process, the taxpayer must use that process. A Part 7 or Part 8 claim seeking, in substance, to reverse an HMRC assessment, closure notice or amendment is an abuse of the court’s process. The expiry of an appeal period does not permit an alternative civil challenge. Autologic Holdings plc v Inland Revenue Commissioners [2005] UKHL 54 applied.

2. The First-tier Tribunal could determine on an appeal whether HMRC possessed the statutory power to use the procedure leading to a closure notice. If an individual partner wished to challenge a consequential amendment under section 28B(4) of the Taxes Management Act 1970, for which no statutory appeal existed, the proper procedure was judicial review. The public-law character of the dispute, the short time limits elsewhere in the statutory scheme, the number of affected taxpayers and the absence of unsuitable factual disputes all supported that conclusion.

3. The potential expiry of a limitation period did not justify protective civil proceedings. Schedule 1A required HMRC to give effect to a claim as soon as practicable. While the taxpayer’s entitlement remained under determination in a statutory appeal, it was not practicable to give effect to the claim and limitation time did not begin to run.

4. The claims were also unsustainable on their substantive merits. De Silva v Revenue and Customs Commissioners [2017] UKSC 74 conclusively governed years before the Income Tax Act 2007. It also governed later years. Section 60(2) of that Act expressly subjects trade-loss relief to paragraph 2 of Schedule 1B to the Taxes Management Act 1970. The claim therefore relates to the loss-making year and must be disclosed fully in that year’s return. HMRC may enquire into it under section 9A.

5. The exhaustive calculation in sections 23 and 24 of the Income Tax Act 2007 must be read with section 64 and the express Schedule 1B link. The words “or otherwise” in paragraph 2(6) permit amendment of the tax chargeable for the loss-making year to recover relief given in error. The Tax Law Rewrite Project did not effect, indirectly, the radical change for which the taxpayers contended.

6. Permission to appeal from Ouseley J’s refusal of permission for judicial review was granted. The Court of Appeal determined and dismissed the judicial review applications itself because its resolution of the common tax issues bound the Administrative Court and made remittal purposeless.

• Court of Appeal (Civil Division): Dismissed the appeal from the order striking out the Part 7 proceedings. It granted permission to appeal from the refusal of permission for judicial review, heard the applications itself and dismissed them.
• High Court, Administrative Court: Ouseley J refused permission to proceed with the judicial review application, following Sir Nicholas Warren’s determination of the common issues.
• High Court, Business and Property Courts (Revenue List): Sir Nicholas Warren struck out the Part 7 proceedings as legally unsustainable and as an abuse of process.