Civic Environmental Systems Ltd v The Commissioners for HMRC

The Court of Appeal dismissed the appellant’s challenge to the Upper Tribunal’s decision that a carry-back claim under s.393A Income and Corporation Taxes Act 1988, made after the deadline for amending the earlier-period return, is not to be given effect by treating the earlier-period return as amended. The court held that s.393A confers the right to claim carry-back relief but the mechanism for making and giving effect to such a claim is governed by schedule 18 to the Finance Act 1998 and, where the claim cannot be treated as an amendment of the earlier return, by Schedule 1A to the Taxes Management Act 1970. A freestanding claim under Schedule 1A results in repayment or discharge of the tax paid for the earlier period but does not operate to reopen or amend the earlier-period return or the assessment concluded by a closure notice or an appeal under schedule 18.

This appeal concerned a company (Civic Environmental Systems Ltd) which incurred a trading loss in the year ended 30 April 2008 and made a claim to carry that loss back against profits of the year ended 30 April 2007. The company filed its claim in May 2009 and sought repayment of corporation tax previously paid for the 2007 period. Meanwhile HMRC had opened an enquiry into the 2007 return and issued a closure notice increasing the 2007 profits; that closure notice was appealed to the First-tier Tribunal and then to the Upper Tribunal, which dismissed the company’s argument that the later-increased 2007 profits should permit the entire 2008 loss to be treated as carried back.

Parties and procedure: The appellant was Civic Environmental Systems Ltd. The respondent was HM Revenue and Customs. The factual background, return dates and the repayment of £41,371.95 are set out in the judgment. The First-tier Tribunal concluded that additional income should be treated as arising in 2007; the Upper Tribunal dismissed the appellant’s appeal on the carry-back point; the company appealed to the Court of Appeal.

Nature of the claim: The appellant sought to have the whole 2008 trading loss set off against increased 2007 profits as determined on appeal, thereby recovering additional tax paid or preventing additional tax owed.

Issues framed:

• Whether a s.393A ICTA 1988 carry-back claim made after the time for amending the earlier-period company return must be given effect by treating the earlier-period return as amended when HMRC or a tribunal subsequently increases the earlier-period profits; and
• Whether a freestanding claim under Schedule 1A to the Taxes Management Act 1970, which leads to repayment/discharge, can be reopened or have its effect increased if the earlier-period profits are subsequently revised by HMRC or the tribunals.

Court’s reasoning and conclusions: The court analysed s.393A ICTA 1988 together with the return and enquiry regime in schedule 18 Finance Act 1998 and the provisions of Schedule 1A TMA 1970 for claims not included in returns. It concluded that where a carry-back claim is made in time to be treated as an amendment of the earlier-period return, the self-assessment mechanism and subsequent enquiries and appeals operate to adjust both the earlier-period profits and the effect of the carry-back. But where a claim is made after the amendment window for the earlier return has closed, paragraph 58 of schedule 18 directs that the claim is to be dealt with under Schedule 1A TMA 1970 as a freestanding claim. That results in repayment or discharge of tax paid for the earlier period to the extent the claim requires, but does not permit the later reopening or amendment of the earlier return or assessments concluded by closure notices or appeals under schedule 18. On that basis the Court of Appeal dismissed the appeal and affirmed the UT’s approach.

This is an appeal from the Upper Tribunal. The appeal is dismissed. The court held that a s.393A ICTA 1988 carry-back claim made after the time for amendment of the earlier-period company return is not to be given effect by treating the earlier return as amended; instead it is dealt with as a freestanding claim under Schedule 1A TMA 1970, producing repayment/discharge of tax already paid but not reopening or amending the earlier-period return or assessments made under schedule 18 FA 1998.

FTT decision (Judge Tony Beare and Mr Charles Baker) released 26 November 2020 (decision increased 2007 profits and disallowed further carry-back); Upper Tribunal (Marcus Smith J and Judge Jonathan Richards) [2022] UKUT 84 (TCC) dismissed the appellant’s carry-back appeal; appeal to Court of Appeal from the Upper Tribunal leading to this judgment [2023] EWCA Civ 722.