Roger Murphy v The Commissioners for HMRC

A pre-2007 claim for share loss relief under Income and Corporation Taxes Act 1988, section 574, which carries a loss back to an earlier year is governed by Schedule 1B to the Taxes Management Act 1970. The claim therefore relates to the later, loss-making year, despite its effect on the earlier year.

A claim placed on an electronic return is not made in that return unless it affects the calculation of tax chargeable and payable for that year. It may instead be a standalone claim subject to Schedule 1A. The validity and effect of an enquiry or closure notice depend objectively on what a reasonable recipient, aware of the relevant context, would understand. Numerical errors do not invalidate a notice which clearly denies the whole claim.

The taxpayer claimed share loss relief for a loss incurred in 2006–07 against income for 2005–06. He placed details of the claim on his 2005–06 online return, but the claim did not affect its automated tax calculation. HMRC opened an enquiry into the standalone claim under Schedule 1A to the Taxes Management Act 1970, and a separate enquiry into the 2006–07 return under section 9A. It later issued closure notices denying the relief.

The First-tier Tribunal held that Schedule 1B applied and that the section 9A closure notice was valid, but held that the Schedule 1A enquiry was invalid because the claim had been made in the 2005–06 return: [2024] UKFTT 00537 (TC). The taxpayer appealed the adverse findings. HMRC cross-appealed the finding concerning the Schedule 1A enquiry.

1. The taxpayer’s appeal was dismissed and HMRC’s cross-appeal was allowed. The First-tier Tribunal correctly held that Schedule 1B to the Taxes Management Act 1970 applied to a carry-back claim for share loss relief under section 574 of the Income and Corporation Taxes Act 1988. Under paragraph 2(3), the claim related to 2006–07, the later and loss-making year. The reasoning in R (on the application of Derry) v HMRC [2019] UKSC 19, concerning the differently structured provisions of the Income Tax Act 2007, did not govern the earlier legislation.

2. The Tribunal held that a claim is included in a statutory return only if the information goes to establishing tax chargeable and payable for that return year. The entries on the 2005–06 online return did not affect the tax calculation. The claim was consequently made on the face of, but outside, that return. Schedule 1A applied, and HMRC validly opened its paragraph 5 enquiry. The First-tier Tribunal had erred in treating itself as bound by the Court of Appeal’s decision in Derry; in any event, that decision was distinguishable because the taxpayer there had made a manual adjustment to his self-assessment.

3. Both closure notices were valid. Applying the objective reasonable-recipient test, the notices and their context made clear that HMRC was closing the relevant enquiries and disallowing the whole share loss relief claim. Incorrect credit figures did not alter that conclusion. In the alternative, section 114 of the Taxes Management Act 1970 cured the numerical defects.

4. The Tribunal set aside and remade the First-tier Tribunal’s finding on the Schedule 1A issue. HMRC’s valid Schedule 1A and section 9A closure notices each denied the relief.

• Upper Tribunal (Tax and Chancery Chamber): The taxpayer’s appeal was dismissed and HMRC’s cross-appeal was allowed: [2025] UKUT 165 (TCC).
• First-tier Tribunal (Tax Chamber): The taxpayer’s appeal was dismissed. The Tribunal held the section 9A enquiry and closure notice valid, but held the Schedule 1A enquiry invalid: [2024] UKFTT 00537 (TC). The Upper Tribunal set aside and remade the latter finding.