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

Ground Five is that “taking account the above factors” (being those referred to in the preceding section and repeated below) HMRC reached an irrational conclusion and there was no breach of the requirement that the Deficit Claim should be made “as soon as possible”.

The factors are that HMRC i) did not issue its Business Brief until January 2020 ii) confirmed in its Brief the FNR required iii) did not invite group relief claims or NTLRD until January 2021 iii) did not agree FNR for the Claimant until April 2021 iv) still have not issued the closure notice. It is also said to be particularly perverse that the group relief and carry back claims were allowed but the NTLRD was not allowed.

In the light of those factors the Claimant submits that the only reasonable conclusion in the circumstances was that there was no breach of the “as soon as possible” requirement and, in any event, the Deficit Claim should not be refused on that ground.

For the purposes of Ground Five it has to be assumed that HMRC did not make the errors of law alleged in Ground Four. It has to be assumed, as we have decided, that HMRC were correct to approach matters on the basis (i) that the Deficit Claim could be made prior to the issue of a closure notice bringing the Dividends into the charge to tax, and (ii) that agreement on the FNR with HMRC was not a pre-condition to the Deficit Claim being made. The question then becomes whether the decision of HMRC that the Claimant had delayed too long and had not made the Deficit Claim as soon as possible after 2018, was one which no reasonable decision-maker could have made.

In seeking to make good its argument that the decision of HMRC did fall into this category, the Claimant seeks to import its arguments, in relation to the earlier Grounds, that HMRC have acted unfairly in this case. The essential problem with this case is a simple one. Once it is accepted that the Deficit Claim could have been made at any time as from 2018, and did not have to wait either for agreement on the FNR or a closure notice, it was essentially a decision for HMRC as to whether the Deficit Claim was made “as soon as possible” after 2018 and as to whether to reject the Deficit Claim on account of the delay until 2021. The matters relied upon by the Claimant come nowhere near establishing that the decision of HMRC was one which no reasonable decision-maker could have made.

The reasons why the considerations were not relevant are the same as the ones we have addressed above under Grounds 3 and 4. As to the factors, for the reasons we have already explained, none either pointed to, still less required a conclusion that there had been no breach of the “as soon as possible” requirement, or to a conclusion that the Deficit Claim should be admitted. That being the case we reject the argument that taking such factors into account means the only reasonable conclusion was that there was no breach:

Mr Firth emphasised the Claimant’s overall submission that it was entirely hypocritical and irrational for HMRC to accuse the Claimant of not acting with sufficient haste in such circumstances, particularly given that HMRC still have not brought into charge the profits and tax against which the NTLRD would be set off. Conversely, he submits it was entirely reasonable for the Claimant to follow the pace set by the litigation and, subsequently, HMRC’s response to that litigation including the publication of its Business Brief in January 2020 setting out its own interpretation and proposed application of the relevant judicial decisions.

We have already addressed these points: it was not necessary for HMRC to bring the tax into charge for a claim to be made (that position arose because of the taxpayer’s choice to return the income as exempt). There is no effectively blanket protection for late claims beyond a two year time limit specified by Parliament, all the more so when there are other time limits which do run from the end of the closure notice.

The question for the purpose of addressing the JR Claim, as Mr Birdling correctly identified, is not whether the taxpayer’s conduct was reasonable but whether HMRC were irrational in refusing the late claim. That admits of the possibility that the taxpayer might have acted reasonably but that a challenge to HMRC’s decision to refuse to extend time could fail nevertheless (because the refusal by HMRC to exercise its discretion was not irrational).

In our view, if it had become necessary to decide this ground, then we would have held that Ground Five failed..