15 Old Square, Lincoln s Inn London WC2A 3UE. Amanda Hardy QC

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1 15 Old Square, Lincoln s Inn London WC2A 3UE taxchambers@15oldsquare.co.uk Amanda Hardy QC November 2017

2 Rangers: RFC 2012 Plc (in liquidation) (formerly The Rangers Football Club Plc) (Appellant) v Advocate General for Scotland (Respondent) (Scotland) [2017] UKSC 45. On appeal from [2015] CSIH 77. Judges: Lord Neuberger (President), Lady Hale (Deputy President), Lord Reed, Lord Carnwath, Lord Hodge. De Silva: R (on the application of De Silva and another) (Appellants) v Commissioners for Her Majesty's Revenue and Customs) (Respondent) hearing: 22June 2017 (judgment awaited). Judges: Lord Neuberger, Lord Reed, Lord Kerr, Lord Hughes, Lord Hodge. 2

3 RFC 2012 Plc ( RFC ) was a member of a group of companies whose parent company was Murray International Holdings Ltd. By a deed dated 20 April 2001, Murray Group Management Ltd, which was also a member of the group, set up a trust known as the Remuneration Trust ( the Principal Trust ). When a group company wished to benefit an employee it made a payment to the Principal Trust. On payment, the employing company asked the trustee of the Principal Trust to resettle the sum on to a sub-trust and requested that the sub-trust income and capital should be applied in accordance with the employee s wishes. 3

4 The trustee of the Principal Trust had a discretion whether to comply with those requests, but, in practice, the trustee without exception created the requested sub trust. The employee was appointed as protector of the sub-trust with the power to change its beneficiaries. When RFC negotiated the engagement of a footballer, RFC would explain the sub-trust mechanism, in particular, that the prospective employee could obtain a loan of the sum paid to the sub-trust from its trustee which would be greater than the payment net of tax deducted under PAYE if he were to be paid through RFC s payroll. 4

5 The trust fund would be held for the benefit of the beneficiaries of the sub-trust, being members of the footballer s family whom he specified. On the footballer s death, the loans and interest would be repayable out of his estate, thereby reducing its value for Inheritance Tax purposes. RFC used the same mechanisms in paying discretionary bonuses to its senior executives. 5

6 The Income Tax (Earnings and Pensions Act) 2003 ( ITEPA ) governs RFC s liability to income tax on employment income during the relevant tax years from 2003/04 to 2008/09. Section 6 imposes a tax on general earnings. Section 7 defines general earnings by reference to section 62. Section 62(2) provides [E]arnings, in relation to an employment, means (a) Any salary, wages orfee, (b) Any gratuity or other profit or incidental benefit of any kind obtained by the employee if it is money ormoney s worth, or (c) Anything else that constitutes an emolument of the employment. 6

7 The Income and Corporation Taxes Act 1988 ( ICTA ) applied in the tax years 2001/02 and 2002/003. The relevant provisions in ICTA, under which income tax is charged on emoluments, are essentially to the same effect as those in ITEPA. In accordance with the Income Tax (Employments) Regulations 1993 and the Income Tax (Pay As You Earn) Regulations 2003 ( the PAYE Regulations ), employers who pay emoluments or earnings which are assessable to tax are required to deduct income tax from their payments to their employees under the pay as you earn ( PAYE ) regime. 7

8 Under the PAYE Regulations, HM Revenue and Customs Commissioners determined that RFC had failed to pay income tax and National Insurance Contributions ( NICs ) on the sums paid to the trusts as remuneration. The parties to the appeal agreed that the determination of the appeal in relation to income tax governs the liability to NICs. 8

9 The First-tier Tribunal ( the FTT ) (Kenneth Mure QC, Dr Heidi Poon and Scott Rae WS) held (by a majority, Dr Heidi Poon dissenting) that the scheme was effective in avoiding liability to income tax and NICs because the employees had only received a loan of the moneys paid to the trusts. The Upper Tribunal (Tax and Chancery Chamber) (Lord Doherty) upheld the FTT s decision. The Inner House (Lords Carloway, Menzies and Drummond Young) allowed HMRC s appeal. It held that income derived from an employee s work is assessable to income tax, even if the employee agrees that it be redirected to a third party. 9

10 The central issue in this appeal is whether it is necessary that the employee should himself or herself receive, or at least be entitled to receive, the remuneration for his or her work in order for that payment to amount to taxable earnings. Is that the right question? Result: the Supreme Court unanimously dismissed RFC s appeal. Lord Hodge gives the judgment, with which the other Justices agree. 10

11 Lord Hodge: three aspects of statutory interpretation are important in determining this appeal. First, provisions in the tax code imposing specific tax charges do not militate against the existence of a more general charge to tax which may have priority over or qualify the specific charge. Secondly, it is necessary to pay close attention to the statutory wording and not be distracted by judicial glosses which have enabled the court to apply the statutory words in other factual contexts. Thirdly, a purposive approach to the interpretation of the taxing provisions must be adopted. Para [15]. 11

12 As a general rule, the charge to tax on income extends to money that the employee is entitled to have paid as remuneration irrespective of whether it is paid to the employee or to a third party: para [41]. The relevant ICTA and ITEPA provisions do not restrict the concept of earnings by requiring payment to a specific recipient: para [38]. Section 62(2)(b) ITEPA confines the charge on perquisites and profits to benefits received by the employee, but there is no such restriction in section 62(2)(a) or 62(2)(c): para [49]. 12

13 There is nothing in the wider purpose of the legislation excludes from the tax charge remuneration which the employee is entitled to have paid to a third party: para [39]. Parliament has sought to tax remuneration paid in money or money s worth. There is no rationale for excluding from the scope of this tax charge remuneration in the form of money which the employee agrees should be paid to a third party: para [59]. The Privy Council decision in Hadlee v CIR [1993] STC 294 was identified by the court in support of its approach. In that case, a partner in a New Zealand accountancy firm assigned a proportion of his partnership interest to a trust under which his family members were the main beneficiaries: para [50]. 13

14 The Privy Council held that income tax was a tax on income which was the product of the partner s work and services and this could not be avoided by assigning a partnership interest to a third party. The Supreme Court applied the concept to conclude that any explicit or similar reference in the legislation to a payment to an employee should be treated as including a payment to a third party regardless of whether the recipient was the employee, or in this case, a remuneration trust. 14

15 For the purposes of PAYE it is necessary to determine whether there has been a payment of earnings from which deductions were required. Misplaced reliance on judicial glosses in relation to the concept of payment is evident in the case law leading up to the appeal: para [51]. There is no basis for establishing a general rule that a payment is made for the purposes of PAYE only if the money is paid to or at least placed unreservedly at the disposal of the employee: para [54]. The Special Commissioners in Sempra Metals (Sempra Metals Ltd v Revenue and Customs Comrs [2008] STC (SCD) 1062) (and in Dextra (Dextra Accessories Ltd v Macdonald (Inspector of Taxes) [2002] STC (SCD) 413) had erred in excluding payments to a third party from being earnings: paras 55 to

16 In Sempra Metals one of the issues was whether payments by the taxpayer company of senior employees bonuses into an employee benefit trust involved the payment of earnings for the purposes of PAYE. In 1995 the company established the trust by deed of settlement in order to provide tax-efficient benefits to its employees. The employees could choose to take their annual bonuses in cash or have them paid to the trust. Each employee had the choice of taking the amount allocated to him as a loan or leaving it invested in the trust. No application for a loan was ever refused by the trustee. 16

17 After changes were made by FA 2003 which prevented the deduction from profits for the purpose of corporation tax of sums paid into such trusts unless they gave rise to an income tax charge on employment income and a liability to pay NICs, the company replaced the employee benefit trust with a family benefit trust. The beneficiaries of the family benefit trust were members of the employee s family as nominated by the employee and the trust operated in a very similar way to the earlier trust. Counsel for Sempra submitted that the employees had received loans and not earnings or emoluments and the trustee had exercised the discretion subject to which it held the funds. Counsel for HMRC argued that the payments to the trusts became emoluments and earnings when they vested unconditionally in the employees and that occurred when the trustee allocated amounts to the individual employees or their nominated beneficiaries. 17

18 He referred to Garforth for the principle that money placed unreservedly at the disposal of an employee amounted to payment. That was one of the principles which the special commissioners adopted in their reasoning, holding (para 142) that the existence of the trusts, the continuing discretion of the trustee and the existence of the loans, in those cases in which loans were made, meant that the employees were not free to do whatever they liked with the funds allocated to them. They concluded (para 144): When the appellant made payments to the trusts, no transfer of cash or its equivalent was placed unreservedly at the disposal of the employees. That means that there was no payment by the appellant of emoluments or earnings giving rise to an obligation to deduct income tax and pay it to the Revenue. The references to making a relevant payment to an employee or other payee in the PAYE Regulations fall to be construed as payment either to the employee or to the person to whom payment is made with the agreement of the employee: para [58]. 18

19 The sums paid to the trustee of the Principal Trust for a footballer constituted the footballer s earnings: para [64]. The risk that the trustee might not set up a sub-trust or give a loan of the sub-trust funds to the footballer does not alter the nature of the payments made to the trustee of the Principal Trust: para [65]. The discretionary bonuses made available to RFC s employees through the same trust mechanisms also fall within the tax charge as these were given in respect of the employee s work: para [66]. Payment to the Principal Trust should have been subject to deduction of income tax under the PAYE Regulations: para [67]. As the sums paid into the Principal Trust were earnings in the first place, the specific provisions of the tax code which deem the benefit of loans to be earnings cannot apply : para[69]. 19

20 This judgment brings to a conclusion a number of years of litigation around Employee Benefit Trusts (EBTs) and disguised remuneration. Tough line on tax avoidance. While it is of direct relevance to employers who have funded EBTs or Employer-Financed Retirement Benefits Scheme (EFRBS), the breadth of the conclusion may also impact more mainstream arrangements such as salary sacrifice and flexible benefits. Effect on disguised remuneration legislation. Key point: remuneration should not be excluded from tax as earnings under s62 ITEPA 2003 where the employee agrees or acquiesces that it should be paid to a third party. FA 2017 changes to benefits but what about excluded/transitional arrangements? 20

21 Any hope?: Lord Hodge acknowledged that, although this was a general rule, it should not follow that every payment made to a third party by an employer should be affected by this treatment. May be more exceptions, Lord Hodge went on to name three situations that would be excluded from this rule, specifically: the taxation of perquisites since ITEPA 2003was enacted; the use of money to give a benefit in kind that is not earnings (it has its own rules); and arrangements by which the employer s payment provides a contingent interest for the employee, rather than an immediately vested beneficial interest (as was held to be the case for employees of RFC). 21

22 Lord Hodge referred to the third exception and stated this was consistent with Forde and McHugh Ltd v HMRC [2014] STC 724. Here, sums paid by an employer, other than out of an employee s salary, and which were to provide contingent benefits to an employee, did not fall within the charge to NICs (this case related to SSCBA 1992) before the contingency occurred and any payment was made. Salary sacrifice? FNs and APNs what to do? 22

23 The appeal concerned the powers of HMRC under the Taxes Management Act 1970 ( TMA ). The TMA governs the procedures for taxpayers to make returns of their income and chargeable gains and to make claims for relief. It also sets out the procedure by which the HMRC can enquire into returns and claims made by taxpayers. The TMA also governs when, and in what amount, a taxpayer is liable to pay tax to the HMRC and when, and in what amounts, the HMRC is liable to make payments to a taxpayer. The provisions in the TMA are fundamental to the operation of the UK tax system as it applies to individuals (including when operating in partnership): certainty is important. 23

24 The Appellants carried on a number of trades as partners in a number of partnerships. Those partnerships realised trading losses. The Appellants made claims to carry back specified amounts of those trading losses to earlier years of assessment. The claims were made on the tax return forms for the year of assessment in which the losses were incurred. The Revenue did not open an enquiry into any of those claims under TMA Schedule 1A. However, the Revenue did open enquiries into the tax returns of the partnerships for the years of assessment in which the losses were incurred. This had the automatic statutory effect of opening an enquiry into the corresponding return of all of the partners in those partnerships (including the Appellants) for the corresponding years of assessment. 24

25 HMRC contended that, in those circumstances, it is not obliged to give effect in full to the claims made by the Appellants. In addition in the First Appellant s case, HMRC contended that he had a liability to repay to HMRC sums previously paid by HMRC to him. Contract agreement. The second issue was that the partnerships in question had appealed against amendments by HMRC to their partnership returns and partnership statements. This appeal was made under TMA section 50. The PSA settled those appeals on terms that the losses stated in the partnership returns and partnership statements should beamended to the figures set out in the PSA. By virtue of TMA section 54, that agreement is treated as a decision of the FTT to that effect. UT held appellants not parties to PSA so of no effect. CA reversed: appellants contractually bound not to assert greater losses. 25

26 At the time relevant to these appeals, the use of losses sustained by individuals, either alone or in partnership, was governed by the Income and Corporation Taxes Act 1988 ( TA 1988 ) Part X Chapter I. The first way in which trading losses could be used was by making a claim to set the losses (or a part of them) against other income of the claimant of the year of assessment in which the loss was incurred. The second possibility was to make a claim to set the losses (or part of them) against income of the immediately preceding year of assessment. Those two types of claim were provided for in TA 1988 section 380: 26

27 380Set-off against general income (1) Where in any year of assessment any person sustains a loss in any trade, profession, vocation or employment carried on by him either solely or in partnership, he may, by notice given within 12 months from the 31st January next following that year, make a claim for relief from income tax on (a) so much of his income for that year as is equal to the amount of the loss or, where it is less than that amount, the whole of that income; or (b) so much of his income for the last preceding year as is equal to that amount or, where it is less than that amount, the whole of that income; but relief shall not be given for the loss or the same part of the loss both under paragraph (a) and paragraph (b) above. (2) Any relief claimed under paragraph (a) of subsection (1) above in respect of any income shall be given in priority to any relief claimed in respect of that income under paragraph (b) of that subsection. 27

28 Section 380 provides for two separate claims for relief. The claim provided for in subsection (1)(a) is sometimes referred to as a sideways loss claim. The claim provided for in subsection (1)(b) is sometimes referred to as a carry back loss claim. It is open to a taxpayer to choose which claim, orwhich combination ofclaims, to make. TA 1988 section 381 provides for an extended carry back loss claim where an individual incurs a loss in the early years of trade. In short, losses sustained in the first 4 years of trade can be carried back for up to 3 years of assessment. The third way in which trading losses can be used is by carrying them forward indefinitely to be set against profits of the same trade (see TA 1988section 385(1)). 28

29 The basic provisions relating to claims are set out in TMA section 42. The relevant provisions of section 42are as follows: 42 Procedure for making claims etc. (1) Where any provision of the Taxes Acts provides for relief to be given, or any other thing to be done, on the making of a claim, this section shall, unless otherwise provided, have effect in relation to the claim. (1A)... A claim for a relief, an allowance or a repayment of tax shall be for an amount which is quantified at the time when the claim is made. (2)... Where notice has been given under section 8, 8A or 12AA of this Act, a claim shall not at any time be made otherwise than by being included in the return under that section if it could, at that or any subsequent time, be made by being so included.. 29

30 (5) The references in this section to a claim being included in a return include references to a claim being so included by virtue of an amendment ofthe return; (9) Where a claim has been made (whether by being included in a return under section 8, 8A or 12AA of this Act or otherwise) and the claimant subsequently discovers that an error or mistake has been made in the claim, the claimant may make a supplementary claim within the time allowed for making the original claim. (11) Schedule 1A to this Act shall apply as respects any claim... which (i) is made otherwise than by being included in a return under section 8, 8A or 12AA of this Act, (11A) Schedule 1B to this Act shall have effect as respects certain claims for relief involving 2 or more years of assessment. 30

31 TMA Schedule 1B para 2 deals specifically with carry back loss claims: Loss relief 2(1) This paragraph applies where a person makes a claim requiring relief for a loss incurred or treated as incurred, or a payment made, in one year of assessment ( the later year ) to be given in an earlier year of assessment ( the earlier year ). (2) Section 42(2) of this Act shall not apply in relation to the claim. (3) The claim shall relate to the later year. (4) Subject to sub-paragraph (5) below, the claim shall be for an amount equal to the difference between (a) the amount in which the person is chargeable to tax for the earlier year ( amount A ); and (b) the amount at which he would be so chargeable on the assumption that effect could be, and were, given to the claim in relation to that year ( amount B ) 31

32 (6) Effect shall be given to the claim in relation to the later year, whether by repayment or set-off, or by an increase in the aggregate amount given by section 59B(1)(b) of this Act, or otherwise. This paragraph applies to claims under TA 1988 section 380(1)(b) and 381(1). Schedule 1B paragraph 2(2) disapplies the requirement in section 42(2) that a claim should be made in a return. In fact, a carry-back loss claim cannot be part of the return for either the later year or the earlier year. Paragraph 2(3) then provides that the claim relates to the later year. This is relevant to the time limits for opening an enquiry into the claim (see TMA Schedule 1A para 5(2)(b) at paragraph 17 below). It has nothing to do with the question whether the claim must (or can) be part of a return for the later year. 32

33 The amount of any carry-back loss claim is a sum computed in accordance with paragraph 2(4). Paragraph 2(6) then provides that effect shall be given to the claim either by repayment of that amount, set-off of that amount or by an increase in the payments on account treated as made by the taxpayer (under TMA section 59B(1)(b)) by that amount. Effect could be given to the claim by a combination of two or more of those options. Paragraph 2(6) also refers to giving effect to the claim otherwise. HMRC is required to give effect to the claim ( shall ). Further, effect must be given to it unless there is a valid enquiry into the claim. If a claim is validly amended, the Revenue must give effect to the amended claim. 33

34 TMA Schedule 1A concerns claims made otherwise than in a return (see TMA section 42(11)). This Schedule will apply to all carry-back loss claims as those claims cannot be part of a return. Schedule 1A provides a complete code for: (a) making the claims; (b) enquiring into the claims; (c) amending the claims; and (d) giving effect to the claims. 34

35 Schedule 1A paragraph 4 is a key provision in the appeal: 4(3) Giving effect to claims and amendments Subject to sub-paragraphs (1A), (3) and (4) below, and to any other provision in the Taxes Acts which otherwise provides, an officer of the Board or the Board shall, as soon as practicable after a claim other than a partnership claim is made, or such a claim is amended under paragraph 3 above, give effect to the claim or amendment by discharge or repayment of tax. Where any such claim or amendment as is mentioned in sub- paragraph (1) or (2) above is enquired into by an officer of the Board - (a) that sub-paragraph shall not apply until the day on which, by virtue of paragraph 7(1) below, the enquiry is completed; but (b) the officer may at any time before that day give effect to the claim or amendment, on a provisional basis, to such extent ashe thinks fit. (4) Nothing in this paragraph applies in relation to a claim or an amendment of a claim if the claim is not one for discharge or repayment of tax. 35

36 Under Schedule 1A paragraph 5: (i) a notice of an intention to enquire under paragraph 5 must be given in writing to the person who made the claim; (ii) the time limit for opening such an enquiry cannot expire before a year after 31st January next following the year of assessment to which the claim relates. In the case of a carry-back loss claim, the claim relates to the year of assessment in which the loss accrues (i.e. the later year) (see Schedule 1B para 2(3)). This is precisely the same time limit as would apply for opening an enquiry into the taxpayer s individual tax return for that year of assessment (see TMA section 9A(2)(a), section 8(1A) and section 9(6) below); 36

37 In Cotter, the taxpayer made a carry back loss claim. The loss was incurred in the year 2008/2009. A claim was made to carry that loss back to the year 2007/2008. The claim was made on the tax return form for the earlier year (2007/2008). HMRC opened a Schedule 1A enquiry into the claim. The taxpayer argued that, since the claim was on the return form for 2007/2008, it was not a claim made otherwise than in a return and so Schedule 1A did not apply. The taxpayer further argued that the appropriate course of action would have been for the Revenue to open an enquiry, under TMA section 28A, into his return for the year 2007/2008. The taxpayer failed before David Richards J but succeeded in the CA. 37

38 The Supreme Court allowed HMRC s appeal. The purpose of an individual tax return was to establish the amounts of income tax and capital gains tax chargeable for a year of assessment and the amount of income tax payable for that year of assessment (i.e. the self-assessment). Therefore, for the purposes of TMA sections 8(1), 9, 9(A) and 42(11)(a) the return refers only to the information in the tax return form which is submitted for the purposes of the self-assessment for that tax: para [25]. It was common ground in Cotter that the carry back loss claim did not affect the self-assessment for the year 2007/2008: para [17]. It followed that HMRC could only enquire into the claim under Schedule 1A. An enquiry into the return, under section 9A or section 12AC, would not enable the Revenue to enquire into the claim as it was not part of the return. 38

39 The Supreme Court accepted HMRC s argument that not everything which appears in the tax return form is part of the return : paras [21-22]. Cotter was only directly a decision on the return for the year to which the loss was carried back (i.e. the earlier year). However, the principle set out at para [25] must equally apply in relation to the return for the year in which the loss is incurred (the later year). The carry back loss claim does not have any effect on the selfassessment for either the later year or the earlier year of assessment. Applying the principle established in Cotter, a carry back loss claim (under either section 380(1)(b) or 381) cannot form part of the return for either of those years of assessment. 39

40 Stated the first issue as: In this case, [the Revenue] opened enquiries into the partnership returns in proper time. The question is whether that had the effect, where it was later agreed under the partnership settlement agreement that the losses included in the partnership returns were to be reduced, of allowing [the Revenue] to re-state the tax shown to be due from the claimants in their relevant individual self-assessment returns : para [27] Right question? The answer to the question posed by the UT at UTD paragraph 27 is no. Common ground that the quantum of the loss did not affect the self-assessment in each Appellant s tax returns for the year in which the loss was incurred. The Appellants self- assessments would remain exactly the same whether, for example, the true loss was 100% of the loss claimed or was 23% of the loss claimed. 40

41 UT asserted that the carry back loss claim was not a simple stand alone claim for relief made outside a return but was an inchoate claim for relief which, as a matter of substance, will only be validated when the partnership losses are included in the partner s individual return for the later period, reflecting the partnership statement for that period : para [39]. A carry back loss claim is a claim to carry back a quantified loss to a specified prior year of assessment. The quantum of the loss claimed is part of the claim (see TMA section 42(1A)). That claim is valid (and must be given effect to) unless it is amended in accordance with the statutory provisions for amending claims. An amendment of the return and self-assessment has no effect on the carry back loss claim. 41

42 UT also appeared to consider that an enquiry into the carry-back claim had to be launched within the relevant time limit applied to the earlier stage when a claim to carry-back losses were intimated to them : para [47]. The claim related to the later year, the time limit for opening an enquiry ran by reference to the later year. As a result, the time limit for opening an enquiry into the carry-back loss claim was exactly the same as the time limit for opening an enquiry into the return for the year in which the loss was incurred. UT and the significance of the decision in Cotter. True that Cotter concerned a carry-back loss claim made on the tax return form for the earlier year. The Supreme Court held that the claim was not part of the return for that year although it appeared on the tax return form (in that case by amendment). The reasoning by which the Supreme Court reached that conclusion which is relevant. 42

43 Lord Hodge held, para [25] the word return may have a wider meaning in other contexts within the 1970 Act but, in my view, in the context of sections 8(1), 9, 9A and 42(11)(a) of the 1970 Act, a return refers to the information in the tax return form which is submitted for the purpose of establishing the amounts in which a person is chargeable to income tax and capital gains tax for the relevant year of assessment and the amount payable by him by way of income tax for that year : section 8(1) 1970 Act... This reasoning applies equally to the later year. The carry-back loss claim does not affect the amounts in which the person is chargeable to income tax or capital gains tax for the later year of assessment or the amount payable by him by way of income tax for that later year. Therefore, it is not part of the return for the later year for the purposes of, in particular, TMA section 9A (which provides the power to enquire into a return ) and section 42 (11)(a) (which introduces Schedule 1A). 43

44 Court of Appeal Decision para [2]: 2. The Appellant s case in essence is that the Revenue had one lawful and early opportunity to challenge the Appellants assertion of entitlement to relief by means of useable losses of the relevant film partnerships against their income tax bill. The Appellants contend that the Revenue did not take that one chance within the relevant time limit and were barred from any other challenge to the claims made; accordingly, it follows, so that the Appellants submit, that the Appellants claims for loss relief became final and binding and must be allowed by the Revenue. The reference to an early opportunity : same view as the UT. Same view of relevance of Cotter. 44

45 Sole purpose of a return (as opposed to the tax return form) is to provide the information which is submitted for the purpose of establishing the amounts for which a person is chargeable to income tax and capital gains tax for the relevant year of assessment and the amount payable by him by way of income tax for that year (see TMA section 8(1) and Cotter at paragraph [25]). The amounts chargeable and payable referred to in section 8(1) make up the self-assessment. Therefore, the information in the return is only the information which is required to produce the self-assessment. The figures in the return and self-assessment are binding on HMRC and the taxpayer unless they are amended by one or other of the relevant statutory provisions. Those provisions are TMA sections 9ZA, 9ZB, 9B, 9C, 28A, 50 and 54. There is no other way in which a return or self-assessment can be amended. The same principles apply to partnership returns. 45

46 The figure for a partner s share of the overall partnership profits/loss is part of the individual partner s return. In order to compute the individual partner s self- assessment, it is necessary to know whether the individual partner had a share in a partnership profit (and if so, what that profit was) or a partnership loss. In the case of a loss, there would be no figure to add into the selfassessment. However, the figure for a partnership loss in the individual partner s return is not a claim for relief. A claim for relief for that loss (or part of it) is a separate matter which may, or may not, be part of the return. 46

47 A claim, under TA 1988 section 380(1)(a), to set trading losses against other income of the same year of assessment is part of a taxpayer s return. A sideways loss claim under that provision reduces the amount of income chargeable to income tax (and therefore the amount of income tax payable) for that year of assessment. However, a carry-back loss claim, under TA 1988 sections 380(1)(b) or 381, does not affect the self-assessment for that year and so is not part of the return. That is why tax practitioners, and the Revenue, refer to a carry-back loss claim as a stand-alone claim which gives rise to a free-standing credit. A carry-back loss claim operates entirely outside the return and the self- assessment. 47

48 A claim under either TMA section 380(1)(b) or section 381 is conclusive, and the Revenue must give effect to it unless it is amended under a relevant statutory provision. The carry-back loss claim can only be amended under TMA Schedule 1A paragraphs 3 and 7. It cannot be amended under TMA section 28A as the claim (even if it appears on the face of the tax return form) is not part of the return. HMRC has no power to amend any of the carry-back loss claims made by either the First or Second Appellant. The amendment of the Appellants returns, under section 28B(4)(a), had no effect on the carry-back loss claims. Therefore, the Revenue is under a continuing obligation to give effect to the carry-back loss claims made by the Appellants. 48

49 (1) To consider wider arguments of public policy to ensure for all taxpayers and HMRC that the self assessment regime is interpreted in clear, certain and unambiguous terms, following the intention of Parliament and Cotter. (2) To ensure legal certainty, including the interaction with legislation introduced in FA 2014 in relation to FN and APNs. To ensure that as a matter of public policy the Exchequer is protected. 49

50 DISCLAIMER Neither these notes nor the talks based on them nor anything said in the discussion session(s) constitute legal advice. They are simply an expression of the speaker's views, put forward for consideration and discussion. No action should be taken or refrained from in reliance on them but independent professional advice should be taken in every case. 50

51 Recent Supreme Court Tax Cases 15 Old Square, Lincoln s Inn London WC2A 3UE taxchambers@15oldsquare.co.uk Amanda Hardy QC T: +44 (0) F: +44 (0) DX: LDE 386 November 2017