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The fact that you cannot submit the returns online and that HMRC will probably "correct" any paper returns and offer a revised assessment based on their own calculation (since their staff will just bung the figures into their own system) means that amending may be a waste of time. Sadly Self Assessment seems to be a misnomer in that regard.
If HMRC are not successful with their appeal the likelihood is they will themselves review and amend all the earlier assessments as they did recently with various other tax calculation errors.
Perhaps it would be better to do nothing yet except advise affected clients of the situation and tell them to wait for the result of the appeal. This situation reminds me somewhat of Mansworth Jelly in the way back when and this issue could rumble on for a while.
I have a few to put a claim in for.
Any for 2018/19 I will file the tax return online (which will currently be 'incorrect') then put a paper amendment/appeal in ready for the UT outcome.
Don't want to miss the boat with these claims.
Although 2011/12 is out of date and HMRC would argue 'practice prevailing' I expect to refuse such claims.
EDIT - any way to make claims pre 2015/16?
My own view is that overpayment relief claims should be made for 2015/16 and 2016/17. HMRC will reject on the basis of "practice generally prevailing" (PGP) but see Turners (Soham) Limited TC/2016/3270 for a recent case reviewing the PGP criteria: I think HMRC will struggle to persuade a Tribunal that their incorrect top slicing caclulations were PGP.
For years 2010-11 to 2014-15 I would submit late overpayment relief claims citing ESC B41.
Have you had any experience of HMRC refusing the ESC B41 late claims, we have a case re 2010/11 and they have basically refused as out of time.
It says
Judge Mosedale agreed with HMRC: the chargeable event gain counts as income, and if the adjusted net income exceeds £121,200 (for 2015/16) then the personal allowance is withdrawn.
BUT it says
Judge Mosedale agreed with Silver that HMRC wanted to overcharge the taxpayer by about £20,000.
So my question is WHY? I can't see that it's clear here and I am a bit confused. Its clear there is no PA, so what is the ''twist'' argument about?
Please someone put me out of my misery :)
The tax liability under s23 ITA 2007 can only benefit from the tapered PA but the top slicing relief calculation requires us to calculate hypothetical tax on the hypothetical basis that only one slice is included and in that hypothetical calculation Judge Mosedale agrees that the hypothetical PA will be based on the hypothetical income including just one slice.
Hypothetical Personal Allowance?
Short Explanation:
The Judgement in Silver v HMRC 2018, is fair, but the basis of reasoning may be undermined, esp as there doesn't seem to be any consideration given to the intentions of the restriction on the personal allowance, brought about by ITA2007/FA2009.
Just because a calculation allows for one parameter to be hypothetical, does not necessarily permit or render all other parameters to be treated as being hypothetical.
Long Explanation:
Looking at ITTOIA 2005 s535, the hypothetical aspects are due to the treatment of the chargeable event gains, which can be broken into slices, to then be used to calculate the top slicing relief.
The legislation does not explicitly provide for any other type of manipulation, or provision to treat other parameters or values as being hypothetical unless stated, i.e. it does not treat the personal allowance, PA, as being a hypothetical value.
Therefore, the calculation is definitely hypothetical, but is only hypothetical in so far as the legislation directs, which is the fragmentation of any chargeable gains, encashment lump sum etc, into fractional slices.
*As the PA , at the time of ITTOIA 2005 s535 was enacted, was unrestricted, and there was no need to explicitly state whether or not the PA needed any special treatment in order to make the top slicing relief work as intended.*
*Just because a calculation allows for one parameter to be hypothetical, does not necessarily permit or render all other parameters to be treated as being hypothetical.*
The intentions of the ITTOIA 2005 s535 is clear. However this needs to be juxtaposed with the calculation steps in ITA2007, and ITA2007/FA2009's new treatment of the PA, due to the amendments/insertions of section 35(2) - (4), made by FA 2009 section 4.
Some conclusions in regards to the new treatment of the PA may be obvious from the start, i.e. to limit and restrict the PA for incomes over a certain level.
In addition to this, the ITA2007 explicitly lays out the calculation steps, the determination of the personal allowance value, and then reliefs and reductions at predetermined steps. It should also be noted that ITTOIA 2005 s535 is also explicitly referred to by ITA2007, at a specific step of the calculation of the tax liability. i.e. step 6.
Given that at the time of of the PA restrictions introduced by FA2009;
a. The TSR legislation was already known
b. The step at which the TSR is to be calculated was defined in ITA 2007
b. The prior use of the PA in conjunction with the TSR was also known
One could state that, as these were all known, any exceptions would have been explicitly stated and defined, save for any unintentional oversight.
The question is whether or not the intentions of the introduction of the restrictions to the PA and its redefinition as a calculated value, was also to have its new effect felt everywhere it was/is to be used, including having an effect on the TSR, ITTOIA 2005 s535 relief.
If the intension was to restrict the use of the PA everywhere, including for top slicing relief, there wouldn’t be any reason to additionally state anything.
However if there was an oversight, and the intention was to modify the definition/treatment of the personal allowance, exclusive of its use when calculating top slicing relief, then this has to be argued.
Michael Morris
Hypothetical Personal Allowance?
Short Explanation:
The Judgement in Silver v HMRC 2018, is fair, but the basis of reasoning may be undermined, esp as there doesn't seem to be any consideration given to the intentions of the restriction on the personal allowance, brought about by ITA2007/FA2009.
Just because a calculation allows for one parameter to be hypothetical, does not necessarily permit or render all other parameters to be treated as being hypothetical.
Long Explanation:
Looking at ITTOIA 2005 s535, the hypothetical aspects are due to the treatment of the chargeable event gains, which can be broken into slices, to then be used to calculate the top slicing relief.
The legislation does not explicitly provide for any other type of manipulation, or provision to treat other parameters or values as being hypothetical unless stated, i.e. it does not treat the personal allowance, PA, as being a hypothetical value.
Therefore, the calculation is definitely hypothetical, but is only hypothetical in so far as the legislation directs, which is the fragmentation of any chargeable gains, encashment lump sum etc, into fractional slices.
*As the PA , at the time of ITTOIA 2005 s535 was enacted, was unrestricted, and there was no need to explicitly state whether or not the PA needed any special treatment in order to make the top slicing relief work as intended.*
*Just because a calculation allows for one parameter to be hypothetical, does not necessarily permit or render all other parameters to be treated as being hypothetical.*
The intentions of the ITTOIA 2005 s535 is clear. However this needs to be juxtaposed with the calculation steps in ITA2007, and ITA2007/FA2009's new treatment of the PA, due to the amendments/insertions of section 35(2) - (4), made by FA 2009 section 4.
Some conclusions in regards to the new treatment of the PA may be obvious from the start, i.e. to limit and restrict the PA for incomes over a certain level.
In addition to this, the ITA2007 explicitly lays out the calculation steps, the determination of the personal allowance value, and then reliefs and reductions at predetermined steps. It should also be noted that ITTOIA 2005 s535 is also explicitly referred to by ITA2007, at a specific step of the calculation of the tax liability. i.e. step 6.
Given that at the time of of the PA restrictions introduced by FA2009;
a. The TSR legislation was already known
b. The step at which the TSR is to be calculated was defined in ITA 2007
b. The prior use of the PA in conjunction with the TSR was also known
One could state that, as these were all known, any exceptions would have been explicitly stated and defined, save for any unintentional oversight.
The question is whether or not the intentions of the introduction of the restrictions to the PA and its redefinition as a calculated value, was also to have its new effect felt everywhere it was/is to be used, including having an effect on the TSR, ITTOIA 2005 s535 relief.
If the intension was to restrict the use of the PA everywhere, including for top slicing relief, there wouldn’t be any reason to additionally state anything.
However if there was an oversight, and the intention was to modify the definition/treatment of the personal allowance, exclusive of its use when calculating top slicing relief, then this has to be argued.
Michael Morris
At the time of writing, there were problems with the server and posts were queued. Now duplicated.