Save content
Have you found this content useful? Use the button above to save it to your profile.
AIA

Mansworth v Jelley judicial review threat

by
11th May 2012
Save content
Have you found this content useful? Use the button above to save it to your profile.

Smith & Williamson is likely to seek a judicial review to force HMRC to honour guidance on when people can claim capital losses on employee share options.

In February HMRC wrote taxpayers who had made claims for capital losses on unapproved employee share options predating 2003. The letter advised taxpayers whose claims were under enquiry to withdraw their claim and asked for a response within 40 days, according to the ICAEW Tax Faculty, which raised concerns about the letter to HMRC.

The precise status of pre-2003 capital loss claims has been at issue since HMRC lost its appeal in the Mansworth v Jelley case, which allowed taxpayers who had exercised their options and then sold their shares to claim a capital loss.

The law was changed on 10 April 2003, so that there was a nil gain/loss position which HMRC believed was more equitable. Prior to the change of law, however, there was a flurry of activity as losses under the court decision were claimed.

The issue resurfaced when HMRC said it received legal advice that its guidance was incorrect, which meant that taxpayers were paying too little CGT because the amount chargeable to income tax on the exercise of the options was being incorrectly deducted from the disposal proceeds. 

HMRC's previous guidance on the subject said that the gain or loss from unapproved employee share options before this date should be calculated by deducting the market value of the shares at the time the option was exercised and any amount chargeable to income tax on the exercise of the option.

Richard Mannion, head of national tax at Smith & Williamson, said it was “looking likely” that it would seek judicial review on behalf of its clients to get HMRC to honour earlier guidance on capital losses. Taxpayers need to prove that they had a “legitimate expectation” that HMRC would stick by its guidance on losses.

HMRC said: “HMRC continues to look carefully at each case in which a customer has provided detailed information. We are not aware of any application for judicial review having been made.”

Judicial reviews on tax are expensive and only taken as a last resort, but tax advisers have become increasingly exasperated over HMRC’s handling of Manworth v Jelley claims for capital losses.

The ICAEW Tax Faculty, which criticised HMRC’s handling of Manworth v Jelley claims for capital losses, said its members may want to consider filing for a judicial review on the matter.

Details of the process can be found in the Appeals reviews and tribunals guidance manual at ARTG 12000 et seq.

Tags:

Replies (0)

Please login or register to join the discussion.

There are currently no replies, be the first to post a reply.