UKSC 69
On appeal from:  EWCA Civ 81
Cotter (Respondent) v Commissioners for Her Majesty's Revenue & Customs (Appellant)
Lord Neuberger, President
JUDGMENT GIVEN ON
6 November 2013
Heard on 3 October 2013
Ingrid Simler QC
(Instructed by Her Majesty's Revenue and Customs)
Ximena Mantes Manzano
(Instructed by JMW Solicitors)
LORD HODGE (with whom Lord Neuberger, Lord Sumption, Lord Reed and Lord Toulson agree)
(i) the main tax return in box 19 on page TR6 under "Any other information";
(ii) the capital gains summary in box 14 on page CG1 in which the figure of £314,583 was inserted, and under "Any other information" in box 35 on page CG2; and
(iii) the "Additional Information" pages.
"I acknowledge that my interpretation of the tax law applicable to the above transactions and the loss (and the manner in which I have reported them) may be at variance with that of [the Revenue]. Further please note that although I have reported (and hereby claim the loss pursuant to section 128 ITA 2007) in box 3 above I wish to make it clear that the deduction I am claiming on my return is not necessarily what you may regard as 'relief now for 2008-09 trading, and certain capital losses' – for these reasons I assume you will open an enquiry."
The tax provisions governing employment loss relief
"128 Employment loss relief against general income
(1) A person may make a claim for employment loss relief against general income if the person –
(a) is in employment or holds an office in a tax year, and
(b) makes a loss in the employment or office in the tax year ("the loss-making year").
(2) The claim is for the loss to be deducted in calculating the person's net income –
(a) for the loss-making year,
(b) for the previous tax year, or
(c) for both tax years.
(See Step 2 of the calculation in section 23.)"
"This Chapter is subject to paragraph 2 of Schedule 1B to TMA 1970 (claims for loss relief involving two or more years)".
Section 42(11A) of TMA provides the same: Schedule 1B to TMA has effect in respect of claims for relief involving two or more years of assessment. It is not disputed that Schedule 1B applies to Mr Cotter's claim for relief.
"(1)This paragraph applies where a person makes a claim requiring relief for a loss incurred or treated as incurred, or a payment made, in one year of assessment ("the later year") to be given in an earlier year of assessment ("the earlier year").
(2) Section 42(2) of this Act shall not apply in relation to the claim.
(3)The claim shall relate to the later year.
(4) Subject to sub-paragraph (5) below, the claim shall be for an amount equal to the difference between –
(a) the amount in which the person is chargeable to tax for the earlier year ("amount A"); and
(b) the amount in which he would be so chargeable on the assumption that effect could be, and were, given to the claim in relation to that year ("amount B").
(5)Where effect has been given to one or more associated claims, amounts A and B above shall each be determined on the assumption that effect could have been, and had been, given to the associated claim or claims in relation to the earlier year.
(6)Effect shall be given to the claim in relation to the later year, whether by repayment or set-off, or by an increase in the aggregate amount given by section 59B(1)(b) of this Act, or otherwise. ...."
Whether the Revenue acted legally by instituting an enquiry under Schedule 1A
"anything contained in the return, or required to be contained in the return, including any claim or election included in the return," (Schedule 9A, paragraph (4)).
He argued that section 42(11) excluded the possibility of a Schedule 1A enquiry. That sub-section provides:
"Schedule 1A to this Act shall apply as respects any claim which –
(a) is made otherwise than by being included in a return under section 8, 8A or 12AA of this Act".
How the system works