Clarification regarding a time limit

This capital loss was never reported, but there is no time limit.......

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My client suffered a capital loss when his trading company went into liquidation in 2012,  as his director’s loan of £10,000 approx. was never repaid to him. The loss qualifies for relief under the loans to traders rules (s253 TCGA 1992).

My understanding is that there is no time limit for making such a claim, because no time limit is specified in s253 which I find surprising, as my whole career has been based around HMRC’s time limits!

My client is expected to  realise a capital gain in 2018/19 so he intends to offset his historical capital loss against his capital gain. The loss was never reported at the time in 2012/13, but as there is no time limit for claiming loss relief under ‘loan to traders’ rules, then surely there is no problem in claiming for it  now in 2018/19?

 Do readers agree? 

Replies (20)

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By Ruddles
30th Sep 2018 14:59

General time limit?

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By thehaggis
30th Sep 2018 22:24

s16(2A) TCGA 1992

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By Tax Dragon
03rd Oct 2018 07:19

Ruddles and thehaggis make excellent points. But the question was (as the debt is [present tense] irrecoverable) can a claim, as described in s253(3), be made in 2018/19?

Good question.

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Replying to Tax Dragon:
By Ruddles
03rd Oct 2018 08:22

Another good point. I had assumed that the liquidation was concluded some time ago, and the loss crystallised, but perhaps not...

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Replying to cathygrimmer:
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By Tax Dragon
03rd Oct 2018 12:55

The BECOMES point enables HMRC to say no relief is due when you pump money in that was never going to be recoverable. That’s quite a common scenario.

What I think kills the relief in the OP’s case (accepting Ruddles’s point that this is based partly on assumption) is that the debt ceased to exist when the company ceased to exist. There is no outstanding amount as mentioned in s253(3)(a). No amount, no claim.

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Replying to Tax Dragon:
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By cathygrimmer
03rd Oct 2018 13:48

The 'becomes' point is a different issue altogether and one I wasn't addressing on the assumption that the OP sounded as if he understood the way the relief operated but just wasn't sure about the time limit. Assuming this loan had 'become' irrecoverable (i.e. wasn't irrecoverable when made) and met all the relevant conditions, the date the loss arises is the date the claim is made (though it can be up to 2 years earlier) as specified in TCGA 1992 s253(3). I don't see that the liquidation changes the fact that the individual has made a qualifying loan and the outstanding amount of the principal (i.e. the amount that hasn't been repaid) has become irrecoverable.

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Replying to cathygrimmer:
By Ruddles
03rd Oct 2018 13:56

If the company no longer exists, then "the individual made a qualifying loan and the outstanding amount of the principal (i.e. the amount that wasn't repaid) became irrecoverable." Subtle, but important, differences in the wording. As Tax Dragon suggests, if there is no amount outstanding, there is nothing to claim.

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Replying to Ruddles:
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By cathygrimmer
03rd Oct 2018 14:50

According to that logic, if a company goes into liquidation, you need to actually put in a claim to HMRC under s253 after the liquidation period commences (because they are unlikely to accept the debt is irrecoverable before then) but before the company ceases to exist. The latter date could easily be before the end of the tax year in which the claim would arise and before you could submit a tax return. HMRC seem happy to announce that 'after the loan has become irrecoverable there’s no time limit in which to make the claim' so I think I'll stick with my interpretation and we can agree to differ!

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Replying to cathygrimmer:
By Ruddles
03rd Oct 2018 15:02

No problem with agreeing to differ. I take your point, but there is, IMO, nothing to prevent a claim being made after the company has ceased to exist - so long as it is within the general 4-year time limit for claims. That is the point that scuppers the claim in this case.

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Replying to Ruddles:
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By cathygrimmer
03rd Oct 2018 15:24

But the legislation says 'Where a person who has made a qualifying loan makes a claim and AT THAT TIME a) any outstanding amount of the principal of the loan has become irrecoverable etc'. So if your argument is that the loan ceases to exist when the company ceases to exist, no claim, whether within 4 years or not, could be made once the company had been liquidated because there would not 'at that time' be any outstanding amount of principal and the claim would not be a valid one.

Ooh - I do like a good debate about the interpretation of legislation - how sad is that!

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Replying to cathygrimmer:
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By Tax Dragon
03rd Oct 2018 16:01

I agree with your view of Ruddles's argument and (bizarrely) not with Ruddles's own view.

As you say, s253 has a built-in 2-year clause – measured from when you make the claim (not when the “loss” arose). Suppose the company expired in 2015/16, then Ruddles would apparently say that a claim today was in time (the “loss” was under four years ago) but, per s253, the loss could not have been before 3 October 2016.

We know that a negligible value claim can be made only so long as the asset in question is held. I read s253 as having a similar effect – relief can only be claimed while there is an amount outstanding. Once the debt is extinguished, so is the chance to make a claim. Specifically, as I’ve already said, s253(3)(a) is fabricated on the basis that there IS an outstanding amount.

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Replying to Ruddles:
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By Tax Dragon
03rd Oct 2018 15:34

You should not think of this as a claim to relief for a loss.

The debt itself is an exempt asset and there is no "loss". S253 stands on its own merits.

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Replying to Tax Dragon:
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By cathygrimmer
03rd Oct 2018 17:46

An interesting point but the negligible loss legislation refers to the 'owner of an asset' - so doesn't apply when the individual is no longer the owner. I can't see that s253 has a similar restriction as I don't interpret the wording as requiring current 'ownership' of the debt. But if you do interpret it in the same way then you would presumably take the view that no claim can be made - at all - once the company no longer exists as this is the only way that relief can be obtained (unlike the negligible loss claim where relief is still available because there is a real loss - it is just a timing issue). As you say, s253 stands on its merits - it essentially creates a deemed capital loss. If you can't create that deemed loss under s253 because you don't have an existing qualifying loan at the date of the claim, it wouldn't matter if the company was liquidated 10 years ago or the day before the claim was made, there would be no valid claim. In Crosby v. Broadhurst the fact that the loan had actually been formally waived/released - i.e. had ceased to exist - before the s253 claim was made didn't prevent relief being available so I can't see why a company liquidation would.

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Replying to cathygrimmer:
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By Tax Dragon
03rd Oct 2018 18:04

And there's this: https://www.accountingweb.co.uk/any-answers/negligible-value-claim

Maybe I have been overly pedantic for 14 years.... (or have I become overly pedantic for 14 years?:-))

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Replying to Tax Dragon:
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By cathygrimmer
03rd Oct 2018 18:10

I think pedantry is the norm in our business - I suffer from it myself! That and not liking to be wrong - which is why I'm still debating this when I should be cooking dinner! Just found an article from August 2006 by Ken Moody which supports my view and in which he says 'HMRC used to take the view that the loan must still be in existence at the time the s 253 claim is made' so clearly that was once the case. And it means that, if I'm wrong, at least I'm wrong in good company!

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By Tax Dragon
03rd Oct 2018 19:19

As an aside, I would like to see the same... well, they wouldn't be Commissioners now... hear the case of HMRC v OP in the present case. It's all very weĺl substituting what might have seemed like pragmatism for what was undoubtedly pedantry, but the result appears to be (as you point out) that it doesn't matter whether the liquidation was last week, last year or 10 years ago. Is that what parliament intended?

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By cathygrimmer
04th Oct 2018 10:40

Possibly not but, let's face it, they've had plenty of time to tidy up that bit of legislation to impose a stricter time limit if they wanted to. It wouldn't be the first time legislation has changed when a Tribunal didn't go HMRC's way! Though I don't think a Tribunal would take a different view now because, as we've established, to exclude claims once the firm has been liquidated would mean a claim might need to be made well before the end of the tax year to which it relates and provide a short window of opportunity. I suspect that when a claim is made in respect of a loan made to a company that was liquidated years ago, HMRC may take some persuading that the conditions were met as to the use to which the money was put unless the claimant had retained compelling evidence.

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By Mike Smith1
06th Oct 2018 11:59

Thank you for your views Ms Grimmer, TaxDragon and Ruddles.......very helpful. I think I will make a belated notification of the capital loss to HMRC, by submitting an amended return for 2012/13, and take it from there.

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Replying to Mike Smith1:
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By cathygrimmer
08th Oct 2018 09:26

You can't submit an amended 2012/13 return now. In any case, you are not claiming the loss in 2012/13, you are claiming it in the year in which the claim is made (which was the whole point of our discussion above about time limits - if you had to claim it in 2012/13, you would be out of time). If you haven't submitted your client's 2017/18 tax return, you could claim it in that or you could claim it in the 2018/19 tax return. Either way, I would include full details of when and how the 'loss' arose.

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