“We refer to the recent Tax Case of Mansworth v Jelley and the Inland Revenue press release issued on 8th January, 2003. We enclose revised calculations of the capital losses realised on the disposal of the Oakdene Limited shares acquired by way of exercise of options under an unapproved share option scheme in 2000/2001 and 2001/2002. We also enclose details of the amendments to be made to the appropriate boxes of the 2000/2001 and 2001/2002 Capital Gains Pages 3 and 8.”
“I would, however, confirm that the capital gain losses of£1,499,985 are agreed and may be carried forward. I will be processing the 2002 amendment shortly.”
“(1) Subject to any exceptions provided by this Act…a person shall be chargeable to capital gains tax in respect of chargeable gains accruing to him in a year of assessment… (2) Capital gains tax shall be charged on the total amount of chargeable gains accruing to the person chargeable in the year of assessment, after deducting— (a) any allowable losses accruing to that person in that year of assessment, and (b) so far as they have not been allowed as a deduction from chargeable gains accruing in any previous year of assessment, any allowable losses accruing to that person in any previous year of assessment.” (a) any allowable losses accruing to that person in that year of assessment, and (b) so far as they have not been allowed as a deduction from chargeable gains accruing in any previous year of assessment, any allowable losses accruing to that person in any previous year of assessment.”
“(1) Subject tosection 72 of the Finance Act 1991 and except as otherwise expressly provided, the amount of a loss accruing on a disposal of an asset shall be computed in the same way as the amount of a gain accruing on a disposal is computed. (2) Except as otherwise expressly provided, all the provisions of this Act which distinguish gains which are chargeable gains from those which are not, or which make part of a gain a chargeable gain, and part not, shall apply also to distinguish losses which are allowable losses from those which are not, and to make part of a loss an allowable loss, and part not; and references in this Act to an allowable loss shall be construed accordingly. (2A) A loss accruing to a person in a year of assessment shall not be an allowable loss for the purposes of this Act unless, in relation to that year, he gives a notice to an officer of the Board quantifying the amount of that loss; and sections 42 and 43 of the Management Act shall apply in relation to such a notice as if it were a claim for relief.”
“(1) For the purpose of establishing the amounts in which a person is chargeable to income tax and capital gains tax for a year of assessment, and the amount payable by him by way of income tax for that year, he may be required by a notice given to him by an officer of the Board (a) to make and deliver to the officer, on or before the day mentioned in subsection (1A) below, a return containing such information as may reasonably be required in pursuance of the notice, and (b) to deliver with the return such accounts, statements and documents, relating to information contained in the return, as may reasonably be so required. (1AA) For the purposes of subsection (1) above ̶ (a) the amounts in which a person is chargeable to income tax and capital gains tax are net amounts, that is to say, amounts which take into account any relief or allowance a claim for which is included in the return;..” (a) to make and deliver to the officer, on or before the day mentioned in subsection (1A) below, a return containing such information as may reasonably be required in pursuance of the notice, and (b) to deliver with the return such accounts, statements and documents, relating to information contained in the return, as may reasonably be so required. (a) the amounts in which a person is chargeable to income tax and capital gains tax are net amounts, that is to say, amounts which take into account any relief or allowance a claim for which is included in the return;..”
“(1)…every return under section 8…of this Act shall include a self-assessment, that is to say— (a) an assessment of the amounts in which, on the basis of the information contained in the return and taking into account any relief or allowance a claim for which is included in the return, the person making the return is chargeable to income tax and capital gains tax for the year of assessment; (b) an assessment of the amount payable by him by way of income tax, that is to say, the difference between the amount in which he is assessed to income tax under paragraph (a) above and the aggregate amount of any income tax deducted at source and any tax credits to which section 231 of the principal Act applies… (2) A person shall not be required to comply with subsection (1) above if he makes and delivers his return for a year of assessment (a) on or before the 31st October next following the year, or… (3) Where, in making and delivering a return, a person does not comply with subsection (1) above, an officer of the Board shall if subsection (2) above applies, and may in any other case (a) make the assessment on his behalf on the basis of the information contained in the return, and (b) send him a copy of the assessment so made.” (a) an assessment of the amounts in which, on the basis of the information contained in the return and taking into account any relief or allowance a claim for which is included in the return, the person making the return is chargeable to income tax and capital gains tax for the year of assessment; (b) an assessment of the amount payable by him by way of income tax, that is to say, the difference between the amount in which he is assessed to income tax under paragraph (a) above and the aggregate amount of any income tax deducted at source and any tax credits to which section 231 of the principal Act applies… (a) on or before the 31st October next following the year, or… (a) make the assessment on his behalf on the basis of the information contained in the return, and (b) send him a copy of the assessment so made.”
“(1) A person may amend his return under section 8…of this Act by notice to an officer of the Board. (2) An amendment may not be made more than twelve months after the filing date. (3) In this section “the filing date” means the day mentioned in section 8(1A)…of this Act.”
“(1) This section applies if a return is amended under section 9ZA of this Act…at a time when an enquiry is in progress into the return. (2) The amendment does not restrict the scope of the enquiry but may be taken into account (together with any matters arising) in the enquiry. (3) So far as the amendment affects the amount stated in the self-assessment included in the return as the amount of tax payable, it does not take effect while the enquiry is in progress and— (a) if the officer states in the closure notice that he has taken the amendment into account and that— (i) the amendment has been taken into account in formulating the amendments contained in the notice, or (ii) his conclusion is that the amendment is incorrect, the amendment shall not take effect; (b) otherwise, the amendment takes effect when the closure notice is issued.” (a) if the officer states in the closure notice that he has taken the amendment into account and that— (i) the amendment has been taken into account in formulating the amendments contained in the notice, or (ii) his conclusion is that the amendment is incorrect, the amendment shall not take effect; (b) otherwise, the amendment takes effect when the closure notice is issued.”
“(1) Subject to any provision in the Taxes Acts for a claim to be made to the Board, every claim shall be made to an officer of the Board. (2) No claim requiring the repayment of tax shall be made unless the claimant has documentary proof that the tax has been paid by deduction or otherwise. (3) A claim shall be made in such form as the Board may determine. (4) The form of claim shall provide for a declaration to the effect that all the particulars given in the form are correctly stated to the best of the information and belief of the person making the claim.”
“(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 in 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)…” (a) the amount in which the person is chargeable to tax for the earlier year (amount A); and (b) the amount in 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)…”
“…the very nature of the system means that a notification/claim, to have losses treated as allowable losses, is logically a priori their inclusion in the self assessment of the tax due, as understood in the light of Cotter. Only allowable losses may be offset against gains in any particular year. To be included in a given year’s computation, the losses must first be notified/claimed as being allowable losses. Is such notification within the scope of the s9A enquiry being an enquiry into the self-assessment as explained by Lord Hodge. It is submitted the answer must be “no”
“As Mr Sherry noted under s16(2)(A) TCGA a loss does not become an allowable loss unless notice is filed, however the inclusion in the return is treated by HMRC as being notice and this is specifically stated in the notes accompanying the tax return. Whilst of course a separate claim could be made later, the clear intent is as far as possible to encompass capital gains within the annual self-assessment regime; including any previously notified directly. The structure being to aggregate all gains and losses within the tax year and either have a chargeable gain or a loss to carry forward.”
“This requirement that a claim be included in a tax return was an innovation in theFinance Act 1994 , which amended the TMA extensively to provide for the introduction of self-assessment. Section 42 as initially enacted had provided as a general rule that claims should be made to an inspector of taxes within time limits specified in section 43, also as initially enacted.”
“For the purposes of subsection (1) above ̶ (a) the amounts in which a person is chargeable to income tax and capital gains tax are net amounts, that is to say, amounts which take into account any relief or allowance a claim for which is included in the return;..”
“[24] Where, as in this case, the taxpayer has included information in his tax return but has left it to the Revenue to calculate the tax which he is due to pay, I think that the Revenue is entitled to treat as irrelevant to that calculation information and claims, which clearly do not as a matter of law affect the tax chargeable and payable in the relevant year of assessment. It is clear from sections 8(1) and 8(1AA) of TMA that the purpose of a tax return is 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. The Revenue’s calculation of the tax due is made on behalf of the taxpayer and is treated as the taxpayer’s self assessment (section 9(3) and (3A) of TMA). [25] The tax return form contains other requests, such as information about student loan repayments (page TR2), the transfer of the unused part of a taxpayer’s blind person’s allowance (page TR3) or claims for losses in the following tax year (box 3 on page Ai3) which do not affect the income tax chargeable in the tax year which the return form addresses. The word “return” may have a wider meaning in other contexts within TMA. But, in my view, in the context of sections 8(1), 9, 9A and 42(11)(a) of the TMA, 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) TMA). [26] In this case, the figures in box 14 on page CG1 and in box 3 on page Ai3 were supplemented by the explanations which Mr Cotter gave of his claim in the boxes requesting “any other information” and “additional information” in the tax return. Those explanations alerted the Revenue to the nature of the claim for relief. It concluded, correctly, that the claim under section 128 of ITA in respect of losses incurred in 2008/09 did not alter the tax chargeable or payable in relation to 2007/08. The Revenue was accordingly entitled and indeed obliged to use Schedule 1A of TMA as the vehicle for its enquiry into the claim (section 42(11)(a)). [27] Matters would have been different if the taxpayer had calculated his liability to income and capital gains tax by requesting and completing the tax calculation summary pages of the tax return. In such circumstances the Revenue would have his assessment that, as a result of the claim, specific sums or no sums were due as the tax chargeable and payable for 2007/08. Such information and self assessment would in my view fall within a “return” under section 9A of TMA as it would be the taxpayer’s assessment of his liability in respect of the relevant tax year. The Revenue could not go behind the taxpayer’s self assessment without either amending the tax return (section 9ZB of TMA) or instituting an enquiry under section 9A of TMA.”
“Where the taxpayer chooses to let the Revenue calculate the tax due but includes a claim for relief in a tax return form (whether from the outset or by amendment) which is clearly not relevant to the calculation of tax for the particular year of assessment, the Revenue may ignore the claim in its calculation of the tax under section 9(3) of TMA. It treats it as a claim made otherwise than in a return and Schedule 1A to TMA applies.”
“the Revenue is entitled to treat as irrelevant to that calculation information and claims, which clearly do not as a matter of law affect the tax chargeable and payable in the relevant year of assessment”: see [24] of Cotter. (4) That was the position in Cotter, because the carried back loss related to Year 2. Mr Cumming-Bruce’s position was different: the MvJ losses were not excluded from consideration “as a matter of law”
“It is noteworthy that under subsection (1)(a) the information which is required is not simply the amounts in which the person is chargeable to income tax and the amounts payable by him for the year of assessment but information ‘for the purpose of establishing’ those amounts.”
“Cotter was concerned with a claim made by an amendment of a tax returnform relating to Year 1 which intimated a claim for a loss that would occur in Year 2. That claim had, and could have, no bearing on the amount of tax chargeable and payable by Mr Cotter in respect of Year 1: paras 16 and 17 of Cotter. At that stage it was a stand-alone claim to which Schedule 1A applied. The case did not address the possibility of a section 9A enquiry into the tax return in Year 2. HMRC commenced their Schedule 1A enquiry into the claim before the end of Year 2, thereby precluding any enquiry into the claim under section 9A if it were (as it ought to have been) contained in the Year 2 tax return at a later date: Schedule 1A, paragraph 5(3)(b). By contrast, in this case the taxpayers’ claims were made in their tax returns for Year 2 (paras 5 and 6 above). Cotter gives no support to the taxpayers in this appeal.”
“It was held that by virtue of Sch 1B [Mr Cotter’s] claim, though referred to in his amended 2007/08 tax return, must be treated as relating to the following tax year, and not therefore as part of the “return” in the relevant sense, that being limited to the information required to establish his liability for the year in question. More directly relevant to the present case, however, is a passage in Lord Hodge's judgment commenting (obiter) on the position if Mr Cotter had made the calculation of liability himself, rather than leaving it to HMRC to do so.”
“This court there held that, if an item does not fall to be taken into account for the purpose of calculating the tax payable by the taxpayer submitting the form, it is to be left out of account and does not constitute part of the “return” for the purposes mentioned.”
“[212] On the Appellant’s interpretation of Cotter, how would HMRC know whether to make enquiries under section 9A TMA 1970 or schedule 1A until the enquiry was concluded and a determination made as to how much, if any, of the losses were to be allowed? [213] Only in coming to conclusions at the end of the enquiry as to what losses would be allowed, could HMRC know whether any part of any losses claimed affected the tax to be paid in the specific year of assessment (ie. whether the amendment was part of a return). If the tax to be paid was affected, HMRC would only know that the claim should have been enquired into under section 9A after it had concluded the enquiry. Conversely, only once they had decided whether to allow losses which would not affect the amount of capital gains tax to be paid for that year (but might only affect the tax payable for later years) could HMRC know that the claims should have been enquired into under schedule 1A as standalone claims. That would be a perverse interpretation of the legislation.”