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

Under this Ground the Claimant also revisits its argument that the purpose of the time limit is self-evidently to achieve certainty and finalityin relation to the taxpayer’s self-assessment and makes the criticism that HMRC have not identified any reason for not exercising their discretion in circumstances where the claim only arose because of changes HMRC are yet to make. This puts matters the wrong way round. The Claimant has to demonstrate, in this part of its case, that the Decision on Paragraph 10 of the SP was irrational. There is no separate ground of challenge to the Decision on the basis of a failure to give reasons. For the purposes of Ground Three it has to be assumed that HMRC were right to decide that Example One did not apply. It also has to be assumed that Example Two did not apply. In these circumstances it is for the Claimant to explain why it was irrational for HMRC to refuse to admit the Deficit Claim, out of time as it was. This point thus simply repeats the Claimant’s argument that there was no good reason to expect the Claimant to make a deficit claim until HMRC had issued the closure notice and brought the Dividends into tax. We reject that for the reasons set out above. It is also an argument which, whatever its merits, comes nowhere near establishing that the Decision was irrational.

Finally, under this Ground, it is argued that it was “perverse” for HMRC to refuse to admit the Deficit Claim after permitting the reduction of the group relief claim and the carrying back of Purmo’s loss, leaving the relevant part of the Claimant’s Deficit “stranded”. Again, this argument comes nowhere near establishing that the Decision was irrational. Even on its own merits however, this argument is questionable. The facts are that the Claimant chose to surrender the Claimant’s Deficit to Purmo on the basis that it did not need any of the Claimant’s Deficit which was, in turn, the result of the Claimant’s decision to leave the Dividends out of the charge to tax in the Amended Return. Subsequently, the Claimant sought to reverse this position. The problem which then confronted the Claimant was that the time limit for making the Deficit Claim had long since elapsed. Again, it is important that there is no challenge to the Decision on the basis of legitimate expectation. Nor could there be. It is difficult, if not impossible to see why HMRC’s decision to permit the reduction in the group relief claim and to allow Purmo to carry back a loss to cover this reduction committed HMRC in any way to admitting a deficit claim which was substantially out of time. The question of whether to admit the Deficit Claim, out of time, was a free standing question, which HMRC addressed by reference to the SP. There was no reason why HMRC were obliged to take into account, let alone give any weight to the arrangements between Purmo and the Claimant, in relation to the relevant part of the Claimant’s Deficit. The only relevance of those arrangements is that they put the Claimant into a position where it could attempt to reverse the consequences of its earlier surrender of the Claimant’s Deficit, by making the Deficit Claim.

None of the points accordingly have merit. Recalling that this Ground proceeds on the assumption that the Claimant’s interpretation of Examples One and Example Two is not accepted, the question is what else is there to show the decision was irrational. Moreover and fundamentally, given the nature of this ground as a challenge based on irrationality, we consider that even if the points did have any merit, they would come nowhere near to rendering the Decision to refuse the extension of time one that was irrational.

For the all the reasons set out above our conclusion is that Ground Three fails.