Key Facts
- •Appeal against two closure notices relating to tax years 2005/06 and 2006/07.
- •Disputed relief under section 574 ICTA for losses from the 'Excalibur' tax avoidance scheme.
- •Tax at issue: £183,140.43.
- •Scheme's failure established in previous Kerrison v HMRC cases.
- •Dispute centers on validity of HMRC enquiries and closure notices.
- •Claim for relief reflected in Mr. Murphy's tax returns for 2005/06 and 2006/07.
- •HMRC initially issued enquiry notices under paragraph 5, Schedule 1A TMA (2005/06) and section 9A TMA (2006/07).
- •Closure notices issued by HMRC contained errors.
- •Mr. Murphy's claim was for carry-back of losses under section 574 ICTA.
Legal Principles
Validity of HMRC enquiries and closure notices; whether claims were made 'in' or 'on' a return.
Taxes Management Act 1970 (TMA), sections 9A, 28A, Schedule 1A, Schedule 1B; Income and Corporation Taxes Act 1988 (ICTA), section 574; Income Tax Act 2007 (ITA), sections 131-133.
Effect of errors in closure notices; application of section 114 TMA.
Raftopoulou v HMRC [2018] EWCA Civ 818; HMRC v Mabbutt [2017] UKUT 289 (TCC); TMA, section 114.
Whether a taxpayer is entitled to deduct losses in computing income tax liability and include the claim in their tax return.
Derry v HMRC [2019] UKSC 19; HMRC v Cotter [2013] UKSC 69; R (on the application of de Silva) v HMRC [2017] UKSC 74.
Whether a claim made 'on' but not 'in' a return requires an enquiry under Schedule 1A TMA or section 9A TMA.
HMRC v Cotter [2013] UKSC 69; R (on the application of Derry) v HMRC [2017] EWCA Civ 435; Derry v HMRC [2019] UKSC 19.
Whether HMRC can enquire into a carry-back claim through an enquiry into the return for the year the loss arose.
R (on the application of de Silva) v HMRC [2017] UKSC 74.
Outcomes
Appeal dismissed.
Mr. Murphy's claim was not made 'in' his 2005/06 return, but was 'in' the return in accordance with Derry CA, invalidating the Schedule 1A TMA enquiry and closure notice. However, HMRC's enquiry into the 2006/07 return under section 9A TMA was valid and the closure notice, while containing errors, was effective to disallow the claim under section 574 ICTA.