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

There is no doubt that Schedule 1B TMA applied to trade loss relief claims made under s.380 ICTA.

In Blackburn, the Court of Appeal had allowed for the possibility (without finally determining the point) that a claim to carry back trading losses is a claim which relates to the later year and paragraph 2(3), Schedule 1B TMA applies to s.380 ICTA (see [14-16]).

At [16], Carnwath LJ, as he then was, observed as follows in relation to the possible application of Schedule 1B TMA “(so far as it applies)” to s.380 ICTA:

“16.

This elaborate deeming provision has the effect (so far as it applies) that, where under section 380(1)(b) loss relief is claimed on income in the preceding year, the claim nonetheless “relates” to the later year (para 2(3)). The amount of the claim is computed using the formula in paragraph 2(4), based on the income in the previous year; but it does not affect the tax position in the earlier year (para 2(3)). It gives rise to a “free-standing credit” (in the Revenue’s language) which can be used in any of the ways set out in paragraph 2(6).”

Contrary to Mr Grierson’s submission, the Court of Appeal expressly declined to determine the issue of the applicability of Schedule 1B to s.380 ICTA claims and simply rehearsed the competing arguments at [39]-[41]. The FTT rightly observed at [59] of its Decision that this authority took the arguments in this appeal no further.

However, the Supreme Court in R (on the application of De Silva & Anor) v. HMRC [2017] UKSC 74,[2017] 1 WLR 4384 (“De Silva”) did conclude that Schedule 1B TMA applied to trade loss relief under s.380 ICTA. It held that relief claimed under ss.380 and 381 ICTA must be claimed in Year 2 and effect given to it in that year by virtue of paragraph 2(3) & (6) of Schedule 1B TMA. The Supreme Court noted that “a claim to carry back losses is a claim for relief involving two or more years of assessment and as the taxpayers’ claims are of that nature” (at [17]). Lord Hodge therefore stated at [28]:

“28.

If a taxpayer wished to carry back part of the losses incurred in Year 2 to set off against his income of Year 1 by invoking section 380(1)(b) of ICTA, he would also have to make the claim in his return for Year 2. This is the combined effect of section 8(1AA)(a) and Schedule 1B paragraphs 2(3) and (6). As shown in para 18 above, those paragraphs provide that the claim for relief relates to Year 2 and effect is to be given to that claim in relation to Year 2…”

In Knibbs, the Court of Appeal affirmed De Silva and found that Schedule 1B TMA also requires that the claim for trade loss relief under s.64 ITA be made in Year 2 and effect given in that Year. According to David Richards LJ at [59]:

“59.

This reasoning therefore provides clear authority, at the highest level, that where a claim to carry back trading losses is made, the taxpayer must make a claim in his tax return in respect of Year 2, and state the extent to which the relief claimed has already been given: see [29]. This obligation, one might think, is a natural corollary (our wording, not Lord Hodge's) of the fact that the carry-back claim relates to Year 2, and effect must be given to it in relation to that year: ibid. The obligation is reinforced by the further fact that, if the taxpayer wishes to carry back only part of the losses incurred in Year 2, it is obviously necessary for him to make the claim in his Year 2 return, because only thus can the amount in which the taxpayer is chargeable to income tax in Year 2 be ascertained: see [28]. The same also applies even if the taxpayer has already received full relief in Year 1, by means of a claim under schedule 1A, because that information still forms a necessary part of the Year 2 return. Only in this way can the "net amounts" referred to in section 8(1AA)(a), for which the taxpayer is chargeable to tax in Year 2, be ascertained: ibid.”

Significantly, the Court of Appeal in Knibbs also found that it was bound by De Silva to find that the same applied to pre-2007 claims under s.380 ICTA and that these must be treated in the same way as claims under s.64 ITA: see [30], [35] and [67].

Furthermore, the implication of Knibbs and De Silva is that, prior to the implementation of ITA in 2007, share loss relief under s.574 ICTA was also to be claimed and processed in the same way as employment and trading loss relief under ss.380-381 ICTA. The mechanism for claiming share loss relief under ICTA was similar to that for claiming employment and trade loss relief. ICTA appears to provide for the claims for all three reliefs in similar fashion and a brief comparison of ss.380-381 and s.574 ICTA demonstrates this.

As the FTT noted at [54] of the Decision, Lord Carnwath expressly stated as much in DerrySC at [38]: “This shows, as is common ground, that the pre-2007 law did not draw any material distinction between share loss relief (section 574 ICTA), and trade and employment loss relief (section 380 ICTA).”

Ss.380, 381 and 574 ICTA make no material distinction between the manner in which the three reliefs are to be claimed and none of the provisions make any reference to Schedule 1B TMA but it has nonetheless been found to apply to s.380 ICTA. Contrary to the Appellant’s reliance on Derry SC at [36]-[37], although there is no express reference to Schedule 1B TMA in the ICTA provisions by which the relief is provided, it nevertheless applies by virtue of s42(1) & (11A) TMA.

Mr Grierson submits that there is an inconsistency between the decision in Derry SC on the one hand, and [20] of the decision of the Supreme Court in De Silva and [28] and [70]- [76] of the judgment of the Court of Appeal in Knibbs on the other hand, and the Upper Tribunal is bound to follow the later and higher authority of the Supreme Court in Derry SC which supports the Appellant’s case.

We disagree. There is no inconsistency between any of these authorities.

There is additional support for our conclusion from the statutory analysis. Importantly, s.574(2) ICTA makes specific reference to the priority of share loss relief over other reliefs in ss.380 and 381 ICTA. This also implies that each of the three reliefs would be claimable in the same way. (Footnote: ²)

We therefore agree with the FTT that there was no material difference in the law applicable to the manner in which share loss relief and the other forms of loss relief in ICTA were to be claimed. We also agree with the FTT that, although there is no express reference to Schedule 1B TMA within any of the ICTA loss relief provisions, it nonetheless applies to each because De Silva puts beyond doubt that it applies to s.380 ICTA. There need not be any specific reference to Schedule 1B TMA in the statute which provides the relief itself, ICTA, for Schedule 1B to apply. Schedule 1B TMA is to apply by virtue of s.42(11A) TMA.

There was accordingly no error of law by the FTT in concluding that Schedule 1B TMA applies to s.574 ICTA share loss relief claims as it did to s.380 ICTA trade loss relief claims.