Case Report: Spring Salmon & Seafood Ltd [2013] TC 02723

[2013] UKFTT 320 (TC)

Decision released 24 May 2021

Corporation tax – appeal against amendments made by closure notices – jurisdiction – claim for terminal loss relief – denied in closure notices relating to other years not under appeal – whether jurisdiction to consider in this appeal – no – claim that tax already paid – amended to ‘nil’ by closure notices under appeal – whether jurisdiction – yes subject to undetermined point on abuse of process

  The First-tier Tribunal decided that it had no jurisdiction to determine the validity of HMRC's closure notices, which denied a taxpayer company's claim for terminal loss relief claim, because the taxpayer did not appeal against those notices. However, the Tribunal had jurisdiction to determine whether the taxpayer had already paid its tax liabilities in the relevant tax years because it had appealed against HMRC's closure notices for those years. The Tribunal also had jurisdiction to determine whether the contract settlement between HMRC and the taxpayer covered the latter's tax liabilities.

Summary

  In March 2003, the taxpayer company filed its corporation tax return for accounting year 2002. In early 2004, it reached a contract settlement (‘the 2004 contract settlement’) with HMRC, under which it paid £525,000 in tax.

  Later in 2004, the taxpayer filed its corporation tax return for its accounting year 2003, which showed a tax liability of £137,637.38. At the same time, the taxpayer filed an amendment to its 2002 return, which showed a tax liability of £272,012.95. Both the 2002 and 2003 returns claimed relief for amortisation of goodwill arising out of an acquisition and showed the remaining tax liability after the amortisation as ‘paid’.

  In October 2004, HMRC opened an enquiry into the 2002 and 2003 returns. They disputed the claim to amortisation of goodwill and disputed whether the taxpayer had paid the tax liability it had declared. They sought to amend the ‘tax paid’ figure on both returns to nil under Finance Act 1998 (‘FA 1998’), Sch. 18, s. 16 as an ‘obvious error’. The taxpayer rejected the amendment which it was entitled to do under FA 1998, Sch. 18, s. 16(4). In March 2005, HMRC issued jeopardy amendments, altering the tax return to show the tax paid as nil and refusing the claim to amortisation of goodwill.

  In August 2006, the taxpayer wrote to HMRC, enclosing tax returns for its accounting years 2004 and 2005. It considered that that letter made an effective claim to terminal loss relief arising out of the amortisation of goodwill previously claimed. The letter also enclosed a computation showing the taxes paid in 2002 and 2003. In January 2006, HMRC opened enquiries into the taxpayer's 2004 and 2005 corporation tax self-assessment periods (‘the 2004 and 2005 enquiries’).

  Some time after that, the taxpayer was struck off the Register of Companies because it was dormant. HMRC applied to the Court of Session for the taxpayer to be reinstated to the Register. The taxpayer agreed to withdraw its opposition against the application in return for an undertaking from HMRC, which was signed in May 2010.

  In March 2011, HMRC issued closure notices in respect of the years 2002 and 2003. The closure notices refused the claim to amortisation of goodwill and stated that HMRC did not accept that the taxpayer had already paid the tax due as it had claimed. HMRC also issued closure notices in respect of its 2004 and 2005 enquiries which, amongst other things, denied the taxpayer's claim to terminal loss relief. In August 2011, the taxpayer appealed to the Tribunal against the amendments made in the 2002 and 2003 closure notices. It did not appeal against the 2004 and 2005 closure notices.

  The taxpayer contended that it made a claim to terminal loss relief in its August 2006 letter under the Taxes Management Act 1970, Sch. 1A. HMRC failed to open an enquiry under that provision, and the time to do so had expired. Thus, the claim to terminal loss relief became final. The Tribunal or the Court of Session was bound to find in its favour that its terminal loss relief claim was valid because the closure notices disallowing such claim were void. Furthermore, the tax return, particularly in box 75, required the taxpayer to state whether it had paid the tax. An enquiry was opened partly in response to its answer to that question, and a jeopardy amendment issued to challenge and amend its answer. Thus, the Tribunal had jurisdiction over anything that arose on the tax return and/or, in respect of which, HMRC could open enquiries.

  HMRC contended that the claim to terminal loss relief was made in the 2004 and 2005 tax returns. The proper way to challenge that claim was by opening an enquiry under FA 1998, Sch. 18, s. 24, which they did. Although appeals against their closure notices for those returns were notified to them, those appeals had not been notified to the Tribunal. The time to do so had expired. Furthermore, the question of whether tax had been actually paid was entirely in the jurisdiction of the applicable court. The Tribunal had no jurisdiction to enforce liability to pay tax so, it should follow that it had no jurisdiction to determine whether or not tax had actually been paid. It also had no jurisdiction to determine whether the 2004 contract settlement covered the taxpayer's tax liabilities for the years 2002 and 2003.

  The Tribunal held that the 2004 and 2005 closure notices were not void; at best, they might be ‘voidable’. The Parliament provided a route for challenging closure notices and intended the Tribunal to have exclusive jurisdiction on tax liability matters. Consistent with that intention, closure notices should be seen as valid unless successfully challenged in the Tribunal under the statutory procedure Parliament had provided.

  The taxpayer's attempt to get judgment in the Court of Session against HMRC and to bring the issue of the terminal loss relief claim into its appeals against the 2002 and 2003 closure notices were both indirect ways of seeking to achieve the same result as it would have been open to the taxpayer to achieve directly by appealing the 2004 and 2005 closure notices to the Tribunal. The taxpayer could not do that so far as these proceedings were concerned. It should have appealed the 2004 and 2005 closure notices to the Tribunal (Autologic Holdings plc & v IR Commrs (Loss Relief Group Litigation) [2005] BTC 402, applied). Thus, the validity of those closure notices could not be challenged in these proceedings because these proceedings solely concerned the 2002 and 2003 closure notices. It followed that the terminal loss relief claim had to be treated as effectively denied because the closure notices, which denied the claim had not been appealed.

  The Tribunal also held that box 75, which required companies to state how much tax had been paid, was clearly contained in the return. Whether or not HMRC were correct to require taxpayers to state the tax paid on the tax return, the return did so require that and the taxpayer in this case made the claim in box 75 of its return that it had paid an amount in tax. The way to challenge that was by enquiry into that tax return, which HMRC did. The taxpayer had appealed the resulting closure notices. The effect was that the Tribunal had jurisdiction to consider the matter.

  Finally, the Tribunal held that it had jurisdiction to determine any point of contract law, which arose in the course of proceedings to determine tax liability. If the 2004 contract settlement involved a point of Scottish law, then that should be drawn to the attention of the Tribunal before the hearing of the substantive appeal so that a judge qualified as a lawyer in Scotland could be appointed to hear the case. However, that issue had already been litigated and decided before the special commissioner in Spring Salmon & Seafood Ltd v R & C Commrs (2005) Sp C 503. Thus, in the substantive hearing in this appeal, the Tribunal would also have to decide whether it would be an abuse of process for this issue to be raised again and the Tribunal must, therefore, treat the matter as finally determined by the special commissioner in 2005.

Comment

  This decision emphasises the rule that the Tribunal's jurisdiction is limited to matters raised in the notice of appeal. A taxpayer's notice of appeal must state clearly the details of the decision against which it is appealing. In addition, closures notices are not void even if they appear to be wrong or invalid. The proper way of challenging their validity is through an appeal to the Tribunal, to which Parliament vested jurisdiction over tax liability matters. In the absence of a successful challenge, the closure notices must be seen as valid and effective.



SOURCE: CCH Online