Software conundrum

Capital gains tax rate calculation

The taxpayer’s accountants calculated his liability to capital gains tax for 2006-07 and 2007-08 at the 20% rate using third-party software based on HMRC’s specifications. HMRC opened enquiries into both returns under TMA 1970 s 9A and issued closure notices amending the rate to 40%. The taxpayer appealed.

One of the issues concerned the interaction of ITTOIA 2005 s 539 (corresponding deficiency relief (CDR)) and TCGA 1992 s 4 and s 6. The taxpayer said his claim for CDR resulted in application of the lower rate of 20%. In essence income could be reduced to a negative amount in determining the unused part of the basic rate band for the purposes of TCGA 1992 s 4(4). HMRC disagreed saying s 6(2) could not produce a negative answer.

The First-tier Tribunal said a taxpayer’s income after the deduction for...