Hadee Engineering Co Ltd & Others v The Commissioners for HM Revenue & Customs [2022] UKUT 00084 (TCC) [2022] UKUT 00084 (TCC)
[37]Turning to the TMA, it is true that words of Schedule 1B taken on their own would be apt to apply to a claim under sections 132-133. However, I do not regard that as enough to displace the clear provisions of the ITA in respect of liability. I do not see this as turning so much on whether one set of provisions is more specific than the other, but rather on the fact that the ITA is in principle the governing statute in respect of tax liability, and as such should take precedence in the absence of any indication to the contrary. We do not, however, agree that Derry supports the conclusion that the issue before us can be determined by an analysis of whether paragraph 4 of Schedule 1A of TMA, or s393A of ICTA, should appropriately be labelled as “machinery” or “the governing statute in respect of tax liability”. Rather the task, as a close reading of Derry demonstrates, is to construe the statutory provisions involved. Derry concerned a claim for share loss relief. The taxpayer had claimed the relief in the 2009-10 tax year by deducting it from his “total income” for that year. Section 23 of the Income Tax Act 2007 (“ITA”) specifically mentioned share loss relief as an item that was to be deducted from total income in this way. HMRC argued that, despite the express reference to share loss relief in s23 of ITA, other provisions of ITA demonstrated that the relief should not have been given by reduction of 2009-10 total income, but rather should have been treated as governed by Schedule 1B of TMA. The Supreme Court’s decision was that the clear stipulations set out in s23 of ITA should prevail over contrary indications that were more obscure. TMA’s status as a set of provisions dealing with management was not determinative but rather was an ingredient in the process of ascertaining Parliamentary intention, as demonstrated by the following extract from Lord Carnwath’s judgment:[36]Having taken such care to walk the taxpayer through the process of giving effect to his entitlement as part of his tax liability for the year specified by him, it would seem extraordinary for that to be taken away, without any direct reference or signpost, by a provision in a relatively obscure Schedule of another statute concerned principally, not with liability, but with management of the tax. We accept HMRC’s argument that in the circumstances of this case, CES’s claim was governed by the provisions of Schedule 1A of TMA for the following reasons:(1) Unlike the situation considered in Derry, s393A cannot fairly be read as a comprehensive provision. Section 393A is dealing with a situation where profits of an earlier accounting period have been calculated, but subsequently a loss in a later accounting period is carried back so as to reduce taxable profits of the earlier period to less than they were thought to 25 be. The mere statement in s393A that profits of the earlier accounting period are to be reduced cannot deal with all the complexities arising from that situation. In particular, where tax has been paid by reference to profits of the earlier period as they were originally thought to be, a reader of s393A would realise that there may well need to be some refund or credit of that tax. Moreover, some additional provisions would be needed to displace the normal position, provided for by the self-assessment regime enacted subsequent to s393A, under which a tax return becomes final 12 months after it is filed unless there is an amendment or enquiry into that return.(2) Therefore, while a reader of s23 of ITA considered in Derry would not necessarily have realised that there was more to the situation than met the eye, a reader of s393A would do so.(3) Parliament has designated Schedule 1A of TMA as containing the provisions to apply when, as here, the claim is made after the deadline for amending the tax return for the earlier period. Paragraph 4 contains specific provisions that require (i) HMRC to act as soon as practicable and (ii) to “give effect to” the claim by making a discharge or repayment of tax which must necessarily be of a specific amount. It is not clear how HMRC could comply with the obligations imposed by paragraph 4 if the true obligation was that imposed by s393A, namely to wait and see what the profits of the earlier period finally turned out to be following the determination of any statutory appeals to the FTT.(4) If CES’s interpretation were correct, there would be both a discharge or repayment of tax under Schedule 1A and a reduction of profits under s393A. Parliament could not have intended both consequences to flow. In our judgment, the better interpretation is that Schedule 1A sets out provisions that give effect to the reduction of profits specified by s393A. In arguing against this analysis, CES submits that Parliament could not have intended whether full statutory effect is given to s393A to depend on the mere “happenstance” of whether a claim to carry back a loss was made before or after the deadline for amending the earlier period’s return. However, we regard that as a relatively weak indication since Parliament has quite clearly legislated in paragraph 58 of Schedule 18 of FA 1998 to provide for carry back claims made before this deadline to be treated differently from carry back claims made afterwards. CES also pointed out that by paragraph 3(1)(b) it had just one year to amend its claim. It argued that the interpretation set out in paragraph 89 would make it difficult to exercise that right effectively. It could scarcely have been expected to realise within just one year that the FTT would increase its profits for the 2007 accounting period and so could not have acted in time to secure the full carry-back of the loss for the 2008 period that Parliament prescribed. We see the logic of this point. However, in our judgment, it is simply the result of the time limit that Parliament has imposed. It does not demonstrate that the interpretation we have set out in paragraph 89 is incorrect. 26 Disposition The taxpayers’ appeals are dismissed in their entirety, save as regards the point at paragraph 70 above, where we have invited the parties to consider an adjustment to the penalty imposed on Mr Lowe to reflect the points made in paragraphs 69 and 70 above. If this matter cannot be resolved, either party may apply to the Upper Tribunal for a determination of Ground 10. Any such application must be made no later than 21 days from the release of this decision in final form. Signed On Original MR JUSTICE MARCUS SMITH JUDGE JONATHAN RICHARDS RELEASE DATE: 17 March 2022
Cited in 2 later judgments