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

Under this ground, the Claimant argues HMRC reached an irrational conclusion on the application of both Examples One and Two in paragraph 10 of the SP and the overall application of the SP. Mr Firth explains this ground only arises if, contrary to the Claimant’s case, the inspector applied the correct test, but that HMRC’s decision that the facts here did not fall within the SP was irrational in the sense that any reasonable inspector diligently considering the content and purpose of the SP would have to conclude the Claimant’s circumstances were ones in which HMRC ought to admit the claim.

(There was no dispute that the relevant legal test for rationality was a straightforward one: could any reasonable decision maker have reached the decision? If the answer was yes then the decision was not irrational. Putting it the other way round, the decision would be irrational if it was one which no reasonable decision maker could have come to.)

The circumstances relied on concern two broad and related issues.

First that it was irrational for an inspector to consider that a claim could or should have been made in circumstances where the tax return did not show profits against which NTLRD could be set off or tax that could be relieved. For various reasons it was irrational, the Claimant submits, to expect it to make the Deficit Claim at any earlier point because it was and remains the position that no valid Deficit Claim can be made until the Dividends have been brought into charge (which has not yet happened because HMRC have yet to issue a closure notice). The reasons advanced were that:

The second broad issue raised under this Ground is one of policy which, the Claimant submits is self-evidently to achieve certainty and finality. In circumstances where, as here, the taxpayer’s self assessment remains open and the reason for the taxpayer to make the late claim only arises as a result of amendments to the self-assessment which HMRC indicated they intended to make (but had not) there was no reason in the light of the purpose of the time limit (finality and certainty) not to exercise the discretion. This policy is, the Claimant points out, reflected in other provisions in FA 1998 Sch 18 such as paragraph 74 (in respect of certain claims for group relief) which provide for time limits that run from the later of various dates including at paragraph 74(1)(b) 30 days after any enquiry into the return is completed. Reference was similarly made by the Claimant to the provisions concerning consequential claims arising out of revenue amendments or assessments (set out in paragraphs 61 to 65 of Schedule 18 FA 1998) where time limits (this time of one year) ran from the accounting period in which the closure notice is issued or assessment made. In Mr Firth’s submission, the existence of such provisions show that there is nothing heretical about the taxpayer being able to make claims because there has been a mistake of law for instance (that could have been made if they had known that in time) after HMRC have adjusted the tax in an amendment made upon closure of the enquiry.

HMRC’s position is that none of these points come close to the high threshold an irrationality challenge requires.