Edward Cumming-Bruce v The Commissioners for HMRC

For a taxpayer who has been required to file a self-assessment return and may still amend it, a quantified capital loss must be included in the return for the year in which it arose. This includes losses carried forward because they exceed that year's gains.

There is no separate preliminary process requiring HMRC to determine whether a notified capital loss is allowable before it can enter the return. An amendment under section 9ZA becomes part of the return. HMRC may therefore enquire into such losses under section 9A, even if the additional losses did not alter the tax payable when the amendment was made.

Edward Cumming-Bruce v The Commissioners for HMRC was an appeal from the First-tier Tribunal. The appellant had amended his self-assessment returns for 2000-01 and 2001-02 to claim substantial capital losses arising from share-option disposals. Those losses were carried forward and used against later capital gains.

HMRC opened enquiries under section 9A of the Taxes Management Act 1970 and later disallowed the losses. The First-tier Tribunal held that the amended losses formed part of the returns, rather than stand-alone claims governed by Schedule 1A. The appellant's separate challenge to a discovery assessment was withdrawn following Tooth v HMRC [2021] UKSC 17.

The sole issue was whether the loss notifications had to be enquired into under Schedule 1A rather than section 9A.

1. Appeal dismissed. The First-tier Tribunal made no error of law in holding that HMRC validly used section 9A of the Taxes Management Act 1970 to enquire into the amended loss claims.

2. Section 16(2A) of the Taxation of Chargeable Gains Act 1992, read with section 42 of the Taxes Management Act 1970, does not establish two stages in which HMRC must first determine whether a capital loss is allowable and only then permit it to be used in a self-assessment. Its function is to import the claim procedure, including quantification and time limits, into capital-loss claims.

3. For a taxpayer who has a self-assessment return and can amend it in time, allowable capital losses for the year must be included in that return. They are aggregated with that year's gains to establish the net capital gains tax position. Losses not used in that year must still be included, since otherwise they cannot be allowable losses capable of being carried forward.

4. An amendment under section 9ZA is part of the return and is not a separate or distinguishable claim. The fact that the additional losses did not alter the appellant's nil capital gains tax liability did not place them outside the return.

5. Cotter v HMRC [2013] UKSC 69 concerned a carry-back claim which, by law, related to a different tax year and could not affect the earlier year's liability. It did not assist the appellant. Its observation that a taxpayer's completed tax calculation forms part of the return supported the use of section 9A here. The reasoning in R (oao de Silva) v HMRC [2017] UKSC 74 and Tooth v HMRC [2021] UKSC 17 was consistent with that conclusion.

6. The contrary construction would make the applicable enquiry power unknowable until after the enquiry, produce potentially ultra vires parallel enquiries, and create incoherence as to the immediate effect and amendment of claims. It was not supported by the statutory scheme or authority.

• Upper Tribunal (Tax and Chancery Chamber): dismissed the taxpayer's appeal and upheld the First-tier Tribunal's conclusion that the amended capital-loss claims were properly enquired into under section 9A of the Taxes Management Act 1970.
• First-tier Tribunal: decided both the enquiry-power issue and the staleness issue in HMRC's favour. The appellant withdrew the staleness ground after Tooth v HMRC [2021] UKSC 17.