Upper Tribunal Tax and Chancery Chamber

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

Fecha: 08-Abr-2025

There were two issues before the Court

“50.

There were two issues before the Court:

(1)

first, whether the taxpayer was entitled to deduct the relevant loss in calculating his net income for the tax year 2009/10 and his tax liability for that year under section 23 ITA or whether, as HMRC argued, that right was overridden by Schedule 1B TMA so that the loss, although claimed in the tax year 2009/10, was to be treated as “relating to” the tax year 2010/11; and

(2)

second, whether, if it was an error of the taxpayer to make a claim for relief in his tax return for the tax year 2009/10, that claim was nonetheless part of the tax return for that year.”

35.

The FTT at [51]-[52] summarised and quoted the ratio of Lord Carnwath’s judgment on the first issue at [35]-[37] as follows:

“51.
The Supreme Court, with Lord Carnwath giving the leading judgment, found in favour of the taxpayer on the first issue. This was on the grounds that sections 131 to 133 ITA provided a “clear and self-contained code” for the making of claims to share loss relief. Under those provisions, the taxpayer was entitled to make a claim for loss relief and to specify the year in which it was to be applied. The computational provisions of ITA, in particular, section 23 ITA, were equally clear that the amount of the claim was to be taken into account in computing the taxpayer’s “net income” for that year and accordingly in calculating his “tax liability” for that year. Lord Carnwath says this (at Derry [35]):

35.

While it may be true, as Henderson LJ said, that modern tax legislation in general is much more complex than at the time of Lord Dunedin's classic statement, the purpose of the tax law rewrite was to restore a measure of simplicity and coherence to the principal tax statutes. In any event, one does not need high judicial authority to make the obvious point that the first step in the imposition of a tax is to establish (in Lord Dunedin's words) “what persons in respect of what property are liable”. Taken together section 23 and sections 131-132 appear to constitute a clear and self-contained code for the treatment of a claim to share-loss relief such as that of Mr Derry. Sections 132-133 in terms give him an “entitlement” to make the claim, to specify the tax year to which it is to be applied, and to do so by deducting it in the calculation of his “net income” for the purpose of section 23. For good measure section 132(1) provides a specific signpost to Step 2 in section 23. That section in turn makes clear that the “result” of that, and the other steps there set out, is his “tax liability” for the tax year in question.

52.

That entitlement was not overridden by Schedule 1B. The Court noted that there was no specific cross-reference in ITA to Schedule 1B in relation to the provisions regarding claims for share loss relief. This was in contrast to the provisions governing the other loss reliefs – where cross-references to paragraph 2 Schedule 1B are found in s.60(2) ITA in relation to trade loss relief and in s.128(7) ITA in relation to employment loss relief. Lord Carnwath says this (at Derry [36]-[37]):

36.

Having taken such care to walk the taxpayer through the process of giving effect to his entitlement as part of his tax liability for the year specified by him, it would seem extraordinary for that to be taken away, without any direct reference or signpost, by a provision in a relatively obscure Schedule of another statute concerned principally, not with liability, but with management of the tax. Section 1020 makes no specific reference to Schedule 1B, and in any event refers only to "information" in general terms, rather than anything likely to affect the substance of liability. By contrast sections 60(2) and 128(7) are more than mere "signposts", as the judges below characterised them. The words "subject to" are substantive in effect, imposing a qualification on the right otherwise conferred by those provisions. Applying ordinary principles of interpretation, the absence of similar words in section 132 would naturally be taken as indicating that this right is not subject to the same qualification.

37.

Turning to the TMA, it is true that words of Schedule 1B taken on their own would be apt to apply to a claim under sections 132-133. However, I do not regard that as enough to displace the clear provisions of the ITA in respect of liability. I do not see this as turning so much on whether one set of provisions is more specific than the other, but rather on the fact that the ITA is in principle the governing statute in respect of tax liability, and as such should take precedence in the absence of any indication to the contrary. Further, unlike the judges below, I see a significant inconsistency between the two sets of provisions: the first gives the taxpayer an unqualified right to claim a deduction in the previous year; the second in effect removes that right by treating it as relating to the current year. I also see force in Ms McCarthy's reliance on the reference in section 42(11A) to "certain claims" for relief involving two or more years. As she says, this may be read as implying that not all such claims are covered, and that one needs to look elsewhere to identify which. (I do not forget that in Cotter para 14, Lord Hodge proceeded on the basis that section 42(11A) had the "same" effect in respect of employment loss relief as the specific provision in section 128(7), but the point was not in issue and does not seem to have been subject to argument.)”

36.

The FTT at [53] drew upon the distinctions between the share loss relief provisions in ICTA and ITA as highlighted by the Lord Carnwath at [38] in further observations:

“53.
As can be seen from the above extracts, the Supreme Court decision is informed to a significant extent by the structure of ITA. Mr Hall, for HMRC, says that this is a critical factor, and that ITA made a change in the law in that respect, but only in relation to share loss relief. Mr Grierson, for Mr Murphy, says that it is not. He says that the statutes such as ITA which were part of the Tax Law Rewrite Project were intended to restate the law and not to make material changes (see the preamble to ITA). The ITA provisions were simply restating the position that obtained under the earlier provisions including section 574 ICTA.
54.
Lord Carnwath commented on this question in his judgment in Derry SC. He said this (at Derry SC [38]):
38.
The only countervailing consideration, to my mind, is the lack of any obvious explanation, in the statutory history or otherwise, of the different treatment of this form of loss relief. In a post-hearing note Mr Nawbatt gave a detailed account of the treatment of the various forms of loss relief under the previous legislation. 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). Mr Nawbatt was also able to point to some indications in the ITA Explanatory Notes (e.g. in respect of section 1025, which is not directly relevant to the present case) that the authors of the notes may have assumed that share loss relief would be subject to TMA Schedule 1B, in the same way as the other forms of relief. However, taken at their highest, these indications are far from providing a basis for departing from the ordinary principles of statutory interpretation, absent any suggestion that they produce a result which is absurd or unworkable. Indeed, for the taxpayer's liability to be determined by reference to legal archaeology of this kind would negate the whole purpose of the tax law rewrite. It is neither necessary nor appropriate for the court to speculate as to Parliament's intentions to justify a departure from the natural interpretation of the statutory language.””