R v Commissioners for Her Majesty’s Revenue and Customs

A taxpayer eligible for share loss relief may claim the loss against income for the year of the loss, the previous tax year, or both. Sections 23 and 131–133 of the Income Tax Act 2007 form a clear code governing that entitlement.

Paragraph 2 of Schedule 1B to the Taxes Management Act 1970 does not displace that right. Unlike the provisions governing trade and employment losses, the share loss provisions contain no substantive qualification making them subject to Schedule 1B.

Tax rewrite legislation should ordinarily be construed as an integrated and accessible code. Clear provisions governing tax liability should not be displaced by obscure machinery provisions in another statute without an adequate textual indication.

The taxpayer acquired shares during 2009/10 and disposed of them at a loss during 2010/11. In his 2009/10 return, he claimed share loss relief against his income for that earlier year under sections 131 and 132 of the Income Tax Act 2007.

HMRC treated the claim as relating to 2010/11 under Schedule 1B to the Taxes Management Act 1970. It opened enquiries into the claim and the later return, but did not institute a timely section 9A enquiry into the 2009/10 return. It subsequently demanded tax for 2009/10.

The taxpayer failed on both issues in the Upper Tribunal, whose decision was reported at [2016] STC 334. The Court of Appeal, [2017] EWCA Civ 435, upheld HMRC’s construction of the loss-relief provisions but held that the claim formed part of the taxpayer’s self-assessment and could only have been challenged through a timely section 9A enquiry. The central questions concerned the year to which the claim related and the legal effect of its inclusion in the earlier return.

1. The appeal was dismissed unanimously. Lord Carnwath, with whom Lord Reed, Lady Black and Lord Kitchin agreed, held that the taxpayer was entitled to claim share loss relief against his income for 2009/10. Lady Arden agreed with that conclusion and the disposition.

2. Sections 23 and 131–133 of the Income Tax Act 2007 constituted a clear and self-contained code. They conferred an entitlement to claim share loss relief, permitted the taxpayer to specify the year of the loss or the previous year, and directed that the loss be deducted when calculating net income and tax liability. The express reference in section 132(1) to Step 2 of section 23 reinforced that construction.

3. Paragraph 2 of Schedule 1B to the Taxes Management Act 1970 did not override that entitlement. Although its language, viewed alone, was capable of encompassing the claim, the Income Tax Act 2007 governed substantive liability and took precedence absent a contrary indication. Sections 60(2) and 128(7) expressly made trade and employment loss relief subject to Schedule 1B. Those words were substantive qualifications, not mere signposts. Their absence from section 132 indicated that share loss relief was unqualified.

4. The tax rewrite legislation was intended to restore simplicity, coherence and accessibility. Its provisions should be read as an integrated code, particularly from the standpoint of a reasonably informed taxpayer. Neither legislative archaeology nor speculation about an unexplained drafting omission justified departing from the natural meaning of the enacted language. The courts below had therefore begun from the wrong point by treating Schedule 1B as presumptively applicable.

5. Because the claim lawfully formed part of the 2009/10 return, it could only have been challenged by a timely enquiry under section 9A of the Taxes Management Act 1970. An online form prescribed by HMRC could not deprive a taxpayer of a statutory relief clearly claimed on the face of the return.

6. The court left open the position where a taxpayer includes in an online return a claim which does not lawfully relate to that year. Lord Carnwath considered that the issue had not been fully argued. Lady Arden provisionally considered that such a claim entered in Box 15 would not form part of the statutory return for enquiry purposes. This disagreement did not affect the result.

1. United Kingdom Supreme Court: HMRC’s appeal was dismissed unanimously. The court confirmed the Court of Appeal’s order, but held that the taxpayer also succeeded on the loss-relief issue.

2. Court of Appeal: In [2017] EWCA Civ 435, the taxpayer succeeded overall. The court held that Schedule 1B governed the claim, but that the claim had formed part of the earlier self-assessment and required a timely section 9A enquiry.

3. Upper Tribunal: The taxpayer failed on both issues. The reported decision was [2016] STC 334.