The upper tribunal has confirmed that HMRC must accept a company's capital allowance claims which were submitted outside the normal time limit but within a tax enquiry period.
Dundas Heritable Ltd ran pubs and bars. It claimed capital allowances for the years ended 31 March 2012 and 2013.
By its own admission, those claims were made outside the normal window to make a capital allowances claim. That period is generally understood to be two years from the end of the accounting period (FA 1998, Sch 18, para 82(1)(a)).
HMRC opened an enquiry, rejected the claims and issued a closure notice with the amended assessment.
In response, the company appealed to the first-tier tribunal (FTT) that the claims were made in time because a capital allowances claim may be made “if notice of enquiry is given into that return, 30 days after the enquiry is completed” (FA 1998, Sch 18, para 82(1)(b)).
In other words, because HMRC challenged the claim it was brought within time.
The FTT (TC06476) agreed that the company’s capital allowance claims should stand and noted that:
- Nothing in statute or HMRC guidance says a claim that is considered during an enquiry must have been filed within the normal two-year window; and
- It was well established that if HMRC opened an enquiry, the taxpayer should be able to claim all relevant reliefs as were then available.
Four possible dates
The interesting part of the FTT judgment is the observation that the legislation lists four possible deadlines for the submission of claims (FA 1998, Sch 18, para 82(1)), and a claim was valid if it was lodged “at any time” before the last of those four dates.
These four deadlines are:
- The first anniversary of the filing date (ie two years from the year-end)
- 30 days after the enquiry was completed
- Where HMRC amends the return - 30 days after HMRC’s amendment
- Where an appeal is brought against the amendment – 30 days after the day on which the appeal is determined
The company’s claims were made well before the second permitted date. Also because HMRC had amended the returns, the third deadline also came into play.
This meant the company could also submit a claim up to 30 days after HMRC’s amendment. Theoretically, at the time of the hearing, the company could even have relied on the fourth deadline which allows it to make new claims up to 30 days after the appeal was decided.
Impossible to be late
In effect the FTT decision said that it was practically impossible for a company’s claim to be submitted out of time because HMRC had three options when faced with a late claim:
- To accept it explicitly or by doing nothing
- To amend it by correcting obvious errors or omissions, which the company could reject; or
- Open an enquiry, in which case the claim would benefit from new, extended deadlines
Whilst seemingly flying in the face of common sense, the decision was perfectly logical given the wording of statute. However, HMRC was not happy and appealed to the upper tribunal (UT).
HMRC put forward a convoluted technical argument to the UT. In response, the company’s submission was simple: the legislative wording was clear - a claim was in time if it was submitted at any time before the last of the four dates mentioned, and that was the end of the matter.
Unsurprisingly, in my view, the UT agreed with the company and upheld the FTT decision, establishing a binding legal precedent in the process.
Despite the apparently counter-intuitive outcome, the UT concluded it was reasonable to consider the four dates listed in statute to be Parliament’s view of an appropriate period of time to claim allowances. The UT noted that this “cannot in our view be described as an absurdity”.
For commercial property purchases, the decision does not override the separate two-year time limits from the completion date of the sale and purchase to satisfy the pooling requirement, or fixed value requirement, or both (CAA 2001 ss 187A and 187B).
But given HMRC’s dissatisfaction with the meaning of FA 1998 Sch 18 para 82 it will be interesting to see whether the self-assessment legislation is amended.