Rettig Heating Group UK Limited (in liquidation), R (on the application of) v The Commissioners for HMRC

A company is not within the first example in paragraph 10 of HMRC’s Statement of Practice (05/01) merely because it believed known profits were outside the charge to tax. The question is whether, when the time limit expired, it was unaware of profits against which relief could have been claimed. A taxpayer’s decision to exclude profits from its return is not a circumstance beyond its control.

The second example concerns unresolved discussions with HMRC about the amount of profit or loss. It does not extend to a legal challenge about whether known profits are taxable, and the discussions must have begun before the time limit expired. A claim to set off a non-trading loan relationship deficit may be made before the relevant profits are brought into charge, although it cannot then be given effect to.

The claimant had received dividends from an Irish subsidiary in the accounting period ending 31 December 2002 and had a non-trading loan relationship deficit. It initially returned the dividends as taxable and claimed relief, but amended its return before the statutory deadline to treat the dividends as exempt. It withdrew the claim and surrendered the deficit as group relief.

Following the foreign-dividend litigation, the claimant sought in 2021 to reduce the group-relief surrender and use part of the deficit against the dividends. HMRC accepted related group-relief and loss carry-back claims, but refused to extend the two-year time limit for the deficit claim under section 83(6) of the Finance Act 1996, applying Statement of Practice (05/01).

The claimant obtained permission for judicial review in the Administrative Court. The claim was transferred to the Upper Tribunal. The central issue was whether HMRC had misconstrued or irrationally applied the Statement of Practice when refusing the late claim.

1. The judicial-review claim was dismissed. HMRC had correctly concluded that neither illustrative example in paragraph 10 of Statement of Practice (05/01) applied. Its refusal to extend time was not irrational.

2. The first example requires factual unawareness, at the expiry date, of profits against which relief could be claimed. It does not require awareness that the profits ought to be brought into charge. The claimant knew of the dividends and had originally claimed the relevant relief against them. Its later decision to treat them as exempt was a decision within its control. That construction also accords with the organising principle that the failure to claim in time must have arisen from reasons beyond the company’s control.

3. The second example applies where the amount of profit or loss depends on unfinished discussions with an inspector, and delay in agreeing the figures is not substantially the taxpayer’s fault. It does not cover litigation about the legal chargeability of known profits. Further, discussions must have commenced before the statutory deadline if they are to be incomplete at that deadline. Filing an amended return is not the commencement of a discussion.

4. The court applied ordinary public-law limits. A discretionary consideration need only be taken into account where it is so obviously material that no reasonable decision-maker could omit it. Irrationality means a decision no reasonable decision-maker could reach. The claimant’s arguments about the duration of the foreign-dividend litigation, the foreign nominal rate, HMRC’s 2020 Business Brief, and the absence of a closure notice did not meet that threshold.

5. Although unnecessary to the disposition, the court held that a claim under section 83 could be made before a closure notice brought the dividends into charge. Such a claim could not be given effect to until tax was charged, but that was different from an inability to make it. In any event, by 2018 the relevant litigation had confirmed that the dividends were taxable and that foreign-nominal-rate credit was available. HMRC could rationally conclude that a claim made only in 2021 was not made as soon as possible under paragraph 13 of the Statement of Practice.

• Upper Tribunal (Tax and Chancery Chamber): Judicial-review claim dismissed. The claim had been brought with permission of the Administrative Court and transferred to the Upper Tribunal on 14 May 2024.
• HMRC decision: HMRC’s decision letter of 5 January 2024 refused to extend time under section 83(6) of the Finance Act 1996 for the late deficit claim.