UT/2024/000060 - [2024] UKUT 00315 (TCC)

Under this ground, the claimant submits that HMRC misinterpreted the reference to a company being “unaware of profits against which the company could claim relief” at the expiry of the time limit (in paragraph 10 of the SP). A company was not aware of such profits in circumstances where it considered that a sum was not a profit that was required to be brought into the charge to tax. That was true even if the company was not certain about such chargeability under law because of ongoing litigation or was aware HMRC might disagree. HMRC’s view that the claimant was aware that there “could have been profits against which [the claimant] could claim relief” given the claimant’s doubts as to the treatment of overseas dividends misinterpreted the unawareness requirement. HMRC submit there was no misinterpretation as paragraph 10 addresses the factual awareness of profits being in existence rather than the “conviction” of the taxpayer in the legal treatment of profits. HMRC argue the SP is only assessing the first step of taking the amount of company’s profits for the period on which corporation tax is chargeable rather than the second step of giving reliefs or set-offs available, for example double tax relief. The claimant had always known the amount of dividends and by 2018 was aware of the exact amount of profits falling within the first step of the calculation.

As usefully highlighted by the submissions of Mr Firth KC, who appeared for the claimant, the complaint of misinterpretation effectively incorporates two elements: 1) What test was actually applied (an issue of fact) 2) What was the correct test? HMRC’s response focusses on disputing 2) and does not elaborate on 1). (As the claimant’s pleaded reply in its claim notes, HMRC do not appear to defend the decision’s reliance on the claimant’s awareness that there “could” have been profits against which the claimant could claim relief.)