UT/2024/000060 - [2025] UKUT 00143 (TCC)

The Claimant also draws further support for its argument that a claim could not be made until the tax had been adjusted from 2025 Post-Prudential CA (as mentioned this decision was issued after the hearing but both parties provided written submissions on the decision). The appeals there, as summarised by Falk LJ (at [6] and [15]) centred largely on the applicable procedural mechanisms for taxpayers seeking to rely on their statutory rights under the tax legislation interpreted to conform with EU law so as to generate tax refunds or reliefs and which raised a number of “apparently disparate” issues.

The Claimant points to the fact the Court of Appeal explained repeatedly that it is the closure notice /assessment bringing tax into charge that causes the credit to be insufficient.

The first passage relied on arose in respect of “Issue 1” (which as the Court set out at [73] was not in dispute but provided relevant context for some of the other issues). At [75] the Court endorsed HMRC’s acceptance that if a closure notice was issued which amended the return to treat dividends (which had originally been returned as exempt) as within the charge to tax, then the taxpayer was entitled to claim an FNR credit under s806(2). The Court explained (at [75(c)]) that subsection provided for:

“…an extended six year time limit where "the amount of any credit given under the arrangements is rendered ... insufficient by “reason of any adjustment of the amount of any tax payable ... in the United Kingdom".”

The Claimant relies in particular on the following passages ([at 75(d)]) explaining why HMRC’s acceptance was correct.

“[75(d)] The closure notice adjusts the UK tax payable on the dividend, and this results in the credit given under the arrangements (so far, none) to be insufficient. The causation requirement in s.806(2) (see the reference to "by reason of") is therefore met. The Taxpayer accordingly has a further six years in which to claim the credit.

The Claimant also refers to [154] where the Court explained:

That further passage was in the context of “Issue 7”. As explained at [151] that concerned the situation:

“…where a closure notice brought foreign dividend income previously treated as exempt into charge to tax. As agreed under issue 1, the extended time limit in s.806(2) then applies to allow an FNR credit to be claimed. The question raised by issue 7 is whether an extended time limit is available only in respect of the income previously returned as exempt (or the subject of an in-time amendment to that effect) as determined by issue 1, or whether s.806(2) also applies in respect of other dividends which were (and remained) returned as taxable.”

The basic proposition Mr Firth draws from these passages ([74(d) and [154]), is that it is not until the closure notice adjusts that the insufficiency arises. A claim for credit before income was brought into charge would, he submits, therefore not be a valid claim. In his submission, by the same logic (and consistent with what he says is the ratio in Civic Environmental), a claim to set off a loss or deficit against income that has not yet been brought within the charge to tax is not a valid claim because the thing it asks for cannot be done at the time that claim for set off is made.

Similarly, Mr Firth points to the Court of Appeal’s answer to “Issue 3” (covered at [118] to [131] of the Court of Appeal’s decision) where it was in summary held that a claim for credit for tax withheld was not and could not be regarded as a claim for credit for underlying tax. Mr Firth refers to [127] emphasising the following passages:

“[127] It seems to me that, while it need not be quantified correctly, a claim to HMRC must indicate what is being claimed, not least so that HMRC are able to determine whether or not to accept it without enquiry. If a taxpayer chooses to claim credit for withholding tax, and as in SIG's case makes it clear that that (alone) is what it is claiming, that cannot sensibly be treated as a claim that extends to anything else.” (underlining added)

This shows, Mr Firth argues, that a claim must be for something HMRC are able to give effect to at the time the claim is made (here the set-off of a NTLRD against income) based on whether the claim is correct as a matter of fact and law at that time. It cannot be correct, he says that HMRC would open an enquiry not with a view to promptly determining present correctness but with a view to leaving the enquiry open to see if something happens in the future.

We disagree that these passages sustain the propositions Mr Firth argues for:

Accordingly neither of the authorities, Civic Environmental and now 2025 Post-Prudential CA which the Claimant advances make good the basis for the alleged error. Neither supports the proposition that as a matter of law an in-time claim could not have been made in circumstances where the return had disclosed no chargeable profit.

On the contrary, the statutory framework suggests there was no error on the part of HMRC to the extent it assumed a timely claim could have been made despite the return not returning taxable income.

Section 83(2) FA 1996 allows for a company to make a deficit claim. Section 83(6) prescribes the time limit within which a deficit claim must be made. Section 83(6) also provides that the deficit claim can be made “within such further period as the Board may allow”. The decision on whether to allow a further period is given, without qualification, to HMRC. In our view, it would be extremely odd, and inconsistent with these provisions if, in those cases whether the relevant profits were not originally brought into the charge to tax, no deficit claim could be made until the bringing of the relevant profits into the charge to tax by the service of a closure notice. This would render the ability of HMRC to allow a late claim under Section 83(6) redundant, in what we assume would be at least a substantial number of cases involving late deficit claims. There is nothing in Section 83(6) to suggest that the power to admit a late deficit claim is so substantially circumscribed.

Nor can HMRC’s manuals assist on this part of the grounds concerning legal error and which rightly identify the question is one of law. Mr Firth referred to SACM5005 which stated that it was “…not possible to make a provisional claim…A claim cannot be contingent on something else and the customer either makes a claim or does not.” Leaving aside the question of whether they even applied to the taxpayer (Ms Ruxandu suggested this statement only applied to income tax and capital gains) the manual ultimately only sets out HMRC’s views of the law. In any event, there was no suggestion, and permission was not granted for any ground based on the Claimant having held off putting in a claim because of what the manual said.

Similarly, we cannot draw any significant assistance in the other direction from the example of claim from 2024 Post-Prudential UT which Ms Ruxandu took us to (set out at [247]) of that decision). That was of an in-time claim that was agreed to have been made despite the taxpayer having returned the dividends as exempt. Notwithstanding Ms Ruxandu’s point that such common ground was the basis of other issues in the case, there was no specific judicial consideration of the point.

Finally we return to the point that we have already made; namely that if it were correct that the Deficit Claim could not be made until the return was adjusted, the point is not one which establishes that HMRC made an error of law in relation to its decision on the application of Paragraph 13 of the SP. If the argument is correct, the Deficit Claim, the Decision and the JR Claim were and remain misconceived. In reply Mr Firth argued that the fact the Claimant had in fact made the Deficit Claim did not undermine its position, because the Deficit Claim was made in response to HMRC’s invitation to the Claimant to make a claim. We do not see how this avails the Claimant. At best it would point to HMRC’s invitation being misconceived but that would not be something which fell within the scope of this JR Claim.