UT (Tax & Chancery) UT-2024-000113 - [2025] UKUT 00165 (TCC)

in Box 23.9 (the “white space”), an explanation of the entry in Box 18.8 in the following terms:

Box 18.8 - This refers to a tax credit arising on a loss from 2006/07 and claimed against income in 2005/06 under s574 ICTA. I claim under TA 1988 s574(1)(b) that an amount equal to the amount of the loss to be set against my income for 2005/06 but not, for the avoidance of doubt, set against my income for 2006/07. The loss is calculated as follows Sales Proceeds 24.22 Less Cost 763,763.98 Loss 763,739.76.

The figure at Box 18.8 was not taken into account in the calculation of the total tax entered at Box 18.3 because the on-line form populated the box automatically and did not take into account the relief claimed under section 574 ICTA. Mr Murphy did not disclose the DOTAS reference number of the scheme in his return.

Thank you for your tax return for the year ended 5 April 2006.

I am writing to tell you that I intend enquiring into your Return. My enquiry will cover your claim under Section 574 Income Corporation Taxes Act 1988.

the capital gains pages show that shares in Harbour Trading Plc were acquired on 13 July 2006, and sold for £24 on 25 July 2006, generating a loss of £763,740.00, which appears in Box 8.2;

Box 8.13B of the capital gains pages shows losses of £763,739 “claimed against income of 2005-06”;

in Box 8.22 of the capital gains pages, Mr Murphy entered the following additional information in the “white space”:

“Additional Information: The shares in Harbour Trading Plc were originally subscribed for by me and then disposed of to a third party, Braye Finance Limited, for there (sic) full market value. Pursuant to an option agreement entered into with Braye Finance Limited, the shares were then sold back to me, within 30 days of the disposal. As a result of the share identification rules, the reacquisition of these shares generated a capital loss of 763,739.76. Claim for loss against the year ended April 5th 2006 was made on the return of income and submitted to the revenue on October 13, 2006”.

The first was intended to be a closure notice under paragraph 7 Schedule 1A TMA in respect of the claim for relief under section 574 ICTA denying Mr Murphy relief under that section. The notice stated:

The second was intended to be a closure notice under section 28A TMA in respect of the enquiry into the return for the tax year 2006/7. The notice stated:

The figures in the closure notices regarding the amount of the credit claimed by Mr Murphy were plainly wrong. The amount of share loss relief claimed by Mr Murphy was £183,140.43 and he had sought to set that full amount against his income for the tax year 2005/6 under section 574 ICTA.

Mr Murphy did not understand the notices that had been sent to him. He requested advice from his solicitors, Reid & Co in an email dated 29 July 2019. Reid & Co. wrote to HMRC on 16 September 2019. In that letter, Reid & Co. argued, inter alia, that Mr Murphy’s claim to carry-back losses under section 574 ICTA was included in the return for the tax year 2005/6 and so any enquiry into that claim should have been made under section 9A TMA. The enquiry under paragraph 5 Schedule 1A TMA was invalid and so the purported closure notice was also invalid.

Reid & Co also wrote to HMRC on 16 October 2019. In that letter Reid & Co. reiterated their argument that the notice of intention to enquire into Mr Murphy’s claim under section 574 ICTA under paragraph 5 Schedule 1A TMA was invalid. Reid & Co. also argued that the closure notices did not meet the test set out in Raftopoulou v HMRC [2018] EWCA Civ 818 (“Raftopoulou”) at [20] and [36] and so were invalid.

Following correspondence between Reid & Co. and HMRC, Mr Murphy appealed against both closure notices on 28 November 2019, with the agreement of HMRC notwithstanding that the appeals were in strict terms out of time.

In a letter dated 14 January 2022, HMRC confirmed their view of the position and offered a review, which was accepted by Mr Murphy. The review was completed on 30 May 2022. In a letter of that date, HMRC varied the closure notices in the following terms:

in relation to the closure notice given under paragraph 7 Schedule 1A TMA: