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Resubmitted return was not relevant to calculation of tax
HMRC were entitled to ignore the taxpayer’s claim for loss relief in the controversial case of Cotter, the Supreme Court has ruled.
The matter centred on Maurice David Cotter, who filed a return for 2007/08 year, with the Revenue calculating an income and capital gains liability of £211,927.77.
His accountants submitted amendments to the return in January 2009, highlighting an employment-related loss of £710,000 in 2008/09, which the taxpayer claimed for 2007/08.
The taxman opened an enquiry under TMA 1970, schedule 1A. Cotter’s advisers responded by saying no taxes were due – but if they were, they would not be payable until the enquiry was complete.
Legal proceedings in the matter began in June 2009, when HMRC sought to recover tax owed via the county court.
The case reached the Supreme Court having passed through the High Court, which found Cotter was not entitled to rely on his application for loss relief as a defence against the Revenue’s demand for payment, and then the Court of Appeal, where the previous decision was overturned.
The Supreme Court unanimously allowed HMRC’s appeal, restoring the relevant provisions of the High Court’s order.
The central question was whether the tax authority should have enquired under TMA 1970, schedule 1A, allowing postponement of the loss relief until completion of an enquiry, or relied on section 9A, meaning the claim for relief would be given effect pending investigation.
The Revenue, which had scrutinised Cotter under sch 1A, said the taxpayer’s claim could not properly be made in the 2007/08 return if it was to be given for a loss arising in 2008/09. The Supreme Court agreed.
It said the taxpayer chose to let the Revenue calculate his tax, but submitted a claim for relief in a form not relevant to the calculation of tax for 2007/08, meaning officials could ignore the application in its calculation.
Judge Lord Hodge said in this ruling that a tax return is the information in the form that is submitted for the purpose of establishing the amounts in which a person is chargeable to income tax and capital gains tax for the relevant year of assessment and the amount payable by him or her by way of income tax for the year.
Treating everything on the return form as the tax return is attractive in its simplicity, but it would expose the Revenue to irrelevant claims that have no merit and serve only to postpone the payment of tax due, he added.
