England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
MR JUSTICE STEWART

		Royal Courts of Justice Strand, London, WC2A 2LL
		19/06/2014

APPENDIX A
APPENDIX B


Sir Stanley Burnton:

Introduction

1. This is my judgment on the appellants' renewed application for permission to appeal against the order made by Stewart J refusing them permission to apply for judicial review of the decision of the respondents in their letter dated 28 March 2013 ("the Decision Letter") in which they refused to exercise their statutory discretion to permit adjustments to claims made for corporation tax group relief outside the ordinary statutory time limits for such claims provided for in the Finance Act 1998.
2. The application for permission to apply for judicial review was made at a hearing before the Judge, on notice to the respondents, on 17 December 2013. Both sides were represented by leading and junior counsel. The Judge reserved his judgment, and handed it down on 20 December 2013.

The facts

3. I can take the relevant facts from the Judge's clear judgment, in which he referred to the first appellant as "North":

"4. The claim concerns the accounting periods ending 31 March 2007 and 31 March 2008. In these periods North was profit making. Therefore on 30 March 2009 North made group relief claims in respect of trading losses and other deductions which had accrued to other members of the Guardian Media Group ("the Group"), none of whom is a claimant. The group relief claimed in the year ending March 2007 was nearly £22 million. This reduced North's profits chargeable to corporation tax to £564,937. For the year ending March 2008, North claimed group relief of just over £16 million reducing its profits chargeable to corporation tax to zero.

5. In the following year, period ending 31 March 2009, North was again profitable but its business was deteriorating fast. As a result a purchaser was sought and the sale of North's trade and assets to Trinity Mirror was completed on 28 March 2010. This sale led to the cessation of North's trade and generated a trading loss of over £30 million for the period ending 31 March 2010. Had it not been for the group relief claims made for the periods ending March 2007 and March 2008, North would have been able to carry losses back to the period ending March 2007 under the terminal loss relief provisions. However, the already claimed group relief against profits, for the periods ending 31 March 2007 and 31 March 2008, left only £564,937 worth of profits available to be relieved by North as terminal loss relief.

6. The ordinary time limits for changing the group relief position for the periods ending March 2007 and March 2008 ended on 31 March 2009 and 31 March 2010 respectively. In summary North's case is:

(i) As of 31 March 2009 the Group did not know that North's business was going to be sold. The sale in March 2010 was because of commercial pressure and was not structured to achieve any tax advantage.

(ii) All, or the great majority, of the group relief claimed by North could have been claimed by other members of the Group, including GMGP and GMGI, thereby reducing their liabilities to corporation tax. As regards the overall tax position for the Group, there was no advantage in North, as opposed to GMGP or GMGI, claiming the group relief.

(iii) The Group first approached HMRC in August 2010 to enquire whether HMRC would be prepared to allow late withdrawals and claims for group relief so that North could then claim terminal loss relief. By December 2010 the computations of the losses in the period ending 31 March 2010 had been completed. After discussions, HMRC's letter of 23 March 2011 indicated that HMRC would not permit the late withdrawals and claims. Formal claims were then submitted on 30 March 2011. The claims sought to withdraw, to the extent of nearly £18 million (2007) and nearly £12 million (2008), the group relief claims. Further it was proposed that the group relief would be claimed by GMGI for 2007 and GMGI and GMGP for 2008. The net result of this proposal would be:

(a) North, by utilising terminal loss relief and just over £4 million group relief in each year, would have no profits chargeable to corporation tax.

(b) There would be a repayment of just under £9 million for tax already paid by GMGI and GMGP in 2007 and 2008.

(iv) The First Defendant refused the late withdrawals and claims, in her letter of 28 March 2013.

7. The relevant legislation is paragraph 74 of Schedule 18 to the Finance Act 1998 ("the 1998 Act"). HMRC's policy setting out how HMRC's statutory discretion to extend time limits for making or withdrawing a claim for group relief is contained in their Statement of Practice 5/01, "CTSA: Claims to loss relief, capital allowances and group relief – outside limit ("SP5/01"). Paragraph 74 and the material paragraphs of SP5/01 are contained in Appendix A to this judgment."

8. By operation of paragraph 74(1)(a), in conjunction with paragraph 14 of Schedule 18, for all the claimants the relevant time limits for making or withdrawing claims were 31 March 2009 for the period ending 31 March 2007, and 31 March 2010 for the period ending 31 March 2008."

The statutory discretion

4. The discretion in question is conferred by paragraph 74(2) of Schedule 18 to the Act. So far as material, paragraph 74 is as follows:

"Time limit for claims

74(1) A claim for group relief may be made or withdrawn at any time up to whichever is the last of the following dates—

(a) the first anniversary of the filing date for the company tax return of the claimant company for the accounting period for which the claim is made;

(b) if notice of enquiry is given into that return, 30 days after the enquiry is completed;

(c) if after such an enquiry an officer of Revenue and Customs amend the return under paragraph 34(2), 30 days after notice of the amendment is issued;

(d) if an appeal is brought against such an amendment, 30 days after the date on which the appeal is finally determined.

(2) A claim for group relief may be made or withdrawn at a later time if an officer of Revenue and Customs allows it."

5. As can be seen, the discretion is unqualified. However, HMRC have published their policy for extending time limits under this provision, in Statement of Practice 5/01. The Judge set out the relevant parts of this Statement of Practice in Appendix A to his judgment, and I shall do the same.

The decision letter

6. I set out the relevant parts of the Decision Letter in Appendix B to my judgment.

The appellants' submissions

7. In summary, the appellants' submissions are as follows:

i) The respondents failed to apply paragraph 10 of the Statement of Practice, as correctly construed, in relation to the period ended March 2007.

ii) The respondents misapplied paragraph 12 to their claim for 2008 and failed to apply it to their claim for 2007, or gave no reasons for their refusal to extend time for 2007.

Discussion

8. At the outset of his submissions, Mr Grodzinski referred to correspondence prior to the Decision Letter, in which HMRC took points that do not appear in that Letter, and which the appellants contend were bad points. He suggested that the decision may have been influenced by these points.
9. I reject this suggestion. The Decision Letter is clearly a carefully considered and reasoned document, and there is no good reason to find or to suspect that the decisions were made for reasons other than those set out in it.
10. The appellants contend that their reasons for failing to make the necessary claim within the statutory time limit were clearly matters beyond their control. In respect of 2007, they could not have made their claim in time because the sale of the business of North had neither taken place nor been anticipated when their time limit expired.
11. In agreement with the Judge and the respondents, I do not think it possible to construe paragraph 10 of the Statement of Practice as applicable to claims arising as a result of events occurring after the applicable time limit. Such events are never within the control of the taxpayer, simply because the future is always unknown. On the appellants' construction, such events are always within paragraph 10 and should, or at least may, give rise to an extension of time. This is what the Judge considered to be unarguable. I agree. Furthermore, the various examples given in the Statement of Practice of the application of paragraph 10 are all, it seems to me, of cases in which the financial consequences of events prior to the expiry of the time limit were unknown or unquantified for good reason; none points to the application to paragraph 10 to subsequent events or their consequences. I see no arguable error of law in the respondents' interpretation and application of paragraph 10.
12. The respondents gave extensive reasons for rejecting the claim under paragraph 10 in respect of 2008, and the appellants sensibly did not seek to submit that the respondents' decision in this respect was unlawful.
13. The principal reasons for the rejection by the respondents of the appellants' claims under paragraph 12 were in the main stated by reference to their decision in relation to the application of paragraph 10 to 2008. The Decision Letter rejected the contention that there was insufficient time (it was a very short time indeed, less than a fortnight) following the sale of the business of North to make the claim for 2008, essentially because the respondents had been advised much earlier of the possibility of a terminal loss arising, and had access to a finance team, a tax team and independent tax advisers who could have made the claim on the appellants' behalf before the expiry of the time limit. This was a strict application of the Statement of Practice, but it cannot be said to be irrational or unfair.
14. The respondents also considered other factors. The first was the appellants contention that their late claims were put together without undue delay. Mr Grodzinski criticised the Decision Letter as inadequately reasoned in this respect, since although it stated that this argument was taken into account, it did not state whether it was taken into account in favour of or against an extension of time. I think that this is to demand too much of an administrative decision. In my judgment, this argument could only be taken into account in favour of an extension, and I read the letter as stating that it was so taken into account. This is also how the Judge read the letter.
15. Another criticism of this part of the Decision Letter is made in relation to the passage dealing with the size of the tax saving in question. That should have been one of the factors considered, but should not have been considered in isolation. However, the letter rejected the appellants' reliance on this as not "in itself" being a reason to accept late withdrawal.
16. I do not think that the Decision Letter should be read so literally. As I have already stated, I read the letter as stating that the argument that the late claims were put together without undue delay was taken into account in favour of the appellants. Secondly, the Statement of Practice understandably refers to the consequences for the company if the claim is refused as a relevant factor. This envisages a case in which the solvency of a company, or its business, may depend on the claim. It does not refer to the amount as such as a relevant factor, for reasons that should be obvious. If the amount of the claim were itself a factor, there would be discrimination between the small and the large taxpayer.
17. Lastly, the appellants point out that the reasons given for rejecting an extension under paragraph 12 apply to 2008, but could not apply to 2007. In particular, the appellants could not be criticised for having failed to follow advice or to take appropriate advice before the expiry of the time limit, since the events leading to that advice had not occurred. It seems that this contention was not made to the Judge, I think for good reason. Having rejected the application of paragraph 10 to 2007, it would have been irrational of the respondents to reject the claim under paragraph 12 for 2008 but to accept a claim for 2007, in respect of which the claim for an extension was even more out of time. There were no features in relation to 2007 that had not been taken into account in relation to 2008, and the only factor in favour of the appellants for 2007 was the amount in question, which had been rejected by the respondents as a matter that should lead them to extend time.
18. For the above reasons, this renewed application will be refused.
APPENDIX A

Paragraph 74 of Schedule 18 to the Finance Act 1998

"(1) A claim for group relief may be made or withdrawn at any time up to whichever is the last of the following dates—

(a) the first anniversary of the filing date for the company tax return of the claimant company for the accounting period for which the claim is made;

(b) if notice of enquiry is given into that return, 30 days after the enquiry is completed;

(c) if after such an enquiry an officer of Revenue and Customs amend the return under paragraph 34(2), 30 days after notice of the amendment is issued;

(d) if an appeal is brought against such an amendment, 30 days after the date on which the appeal is finally determined.

(2) A claim for group relief may be made or withdrawn at a later time if an officer of Revenue and Customs allow it."

Statement of Practice 5/01

"Board's approach to extending time limits for making claims

9. The time limits allowed for making claims to loss relief, capital allowances and group relief under CTSA and the further provisions described above should generally be adequate and the Commissioners for Her Majesty's Revenue and Customs will not make routine use of its powers to accept claims made outside these limits. But the Commissioners for Her Majesty's Revenue and Customs recognise that there may be exceptional reasons why a claim is not made within the time specified. Applications to allow further time in accordance with the powers referred to at paragraph 1 above will be considered with the assistance of the following criteria.

10. In general, the Commissioners for Her Majesty's Revenue and Customs' approach will be to admit claims which could not have been made within the statutory time limits for reasons beyond the company's control. This would include, for example, cases where:

• at the date of the expiry of the time limit, the company or its agents were unaware of profits against which the company could claim relief, or

• the amount of a profit or loss depended on discussions with an Inspector which were not complete when the time limit expired, and the delay in agreeing figures is not substantially the fault of the company or its agents.

In such cases the Commissioners for Her Majesty's Revenue and Customs' approach will be to admit late claims up to the amount of the profit or loss in question. Where the claim involves the withdrawal of an existing claim and the making of a fresh claim, the Commissioners for Her Majesty's Revenue and Customs' approach will be to admit these to the extent of the profit or loss in question. Claims which go beyond this and affect profits which were not in dispute at the time of expiry of the statutory time limits will not be within this approach.

Reasons beyond the company's control would also include a claim where all of the following four features were present:

• an officer of the company was ill or otherwise absent for a good reason;

• the absence or illness arose at a critical time and prevented the making of a claim within the normal time limit;

• there was good reason why the claim was not made before the time of the absence or illness;

• there was no other person who could have made the claim on the company's behalf within the normal time limit.

11. The Commissioners for Her Majesty's Revenue and Customs would not, however, regard the following as reasons beyond the company's control:

• oversight or negligence on the part of a claimant company or its agent

• failure, without good reason, to compute the necessary figure

• the wish to avoid commitment pending clarification of the effects of making a claim

• illness or absence of an agent or adviser to the company.

12. There may be cases falling outside the general approach outlined in paragraph 10 where it would nevertheless be unreasonable, given the overall circumstances of the case, for the Commissioners for Her Majesty's Revenue and Customs to refuse a late claim. It is likely that such cases will involve a combination of factors, but the following criteria may be relevant:

• the reason why a claim is late – where the reason does not in itself warrant admission of the claim under the approach outlined above, it will still be taken into account by the Commissioners for Her Majesty's Revenue and Customs in assessing the circumstances as a whole

• the extent to which it is late

• the consequences for the company if the claim is refused

• any particularly unusual features.

For the purpose of this paragraph and those above, if the late claim forms part of a scheme or arrangement, the main purpose or one of the main purposes of which is the avoidance of tax (including the payment of tax), then that will be taken into account in the Commissioners for Her Majesty's Revenue and Customs' approach."



APPENDIX B

"Parliamentary Intention

Before I discuss the provisions of paragraph 74(2) Sch 18 FA1998 and SP5/01, I need to refer to Parliament's Intention. You have suggested that it was Parliament's Intention that late withdrawals of group relief claims should be permitted in order to allow terminal loss relief to be given.

HMRC does not accept that this statement is a direct analysis of parliamentary intention in respect of the treatment of terminal loss relief and late claims to group relief. Looking at the relevant statutory provisions, it is clear that there has never been an intention that carry back of terminal loss relief should in any way displace or take precedence over extant claims where the time limits for those claims have expired.

Any combination of claims is a matter of choice for companies, but is of course subject to statutory requirements, including statutory time limits, for the individual claims concerned. Parliament's intention is expressed in statute. If it had been Parliament's intention to enable carry back of terminal loss relief to take precedence over extant claims in the previous periods, this intention would have been enacted in statute. It was not so included in statute; rather Parliament decided that HMRC should decide whether to accept late claims to loss relief, group relief and capital allowances pursuant to the exercise of its discretion.

….

Paragraphs 9 to 11 of SP5/01

Paragraph 9 of SP5/01 indicates that HMRC will not routinely accept a late claim but there may be exceptional reasons that may lead to HMRC doing so. Paragraph 10 indicates HMRC will, in general, admit late claims where a company was prevented from claiming within the normal time limit by reasons outside its control. Paragraph 10 includes examples of cases that HMRC would consider to be circumstances outside a company's control. While these are not exhaustive, they are indicative of the sort of circumstances envisaged by the policy principle in Paragraph 10. Further clarification is provided by Paragraph 11.

Applying paragraphs 9, 10 & 11 to the Late Withdrawal of Claim for 31 March 2007

As the two years in question have different expiry dates for the time limits, it makes sense to consider them separately. For the accounting period ending 31 March 2007 the time limit expired on 31 March 2009, at which point the company and its directors could not be expected to have known about the losses that were to occur in the succeeding year.

The approach set out in paragraph 10 is "to admit claims which could not have been made within the time limits…" for certain reasons including for example …" at the date of the expiry of the time limit, the company or its agents were unaware of profits against which the company could claim relief…"

The circumstances here, however, are not analogous to this criteria. As at 31 March 2009 there were no losses, terminal or otherwise, which could be used to relieve the profits for the year. Instead events which occurred subsequent to the time limits served to present the existing claim in a less favourable light. The fact that the company could not envisage any advantage in withdrawing its group relief claims before the time limit does not oblige HMRC to permit a late withdrawal under the terms of Paragraph 10.

Subject to meeting the particular criteria laid down in statute, claims are a matter of choice for a company. The choice for a company to make and withdraw group relief claims is available until expiry of the statutory time limit and a company will always need to make its choice based on the prevailing circumstances and information available at the time. Clearly, circumstances may change after the expiry of the time limit so that, for example, a claim that was advantageous economically at the time it was made is no longer so. The policy principle set out in Paragraph 10 of SP5/01 is not intended to validate a company making revisions of its claims in such circumstances and the terms of Paragraph 10 would not require HMRC to admit such late claims. If Paragraph 10 were to have such effect the time limits for claims would never be final and there would in fact be no time limits.

Applying paragraphs 9 & 10 to the Late Withdrawal of Claim for 31 March 2008

The time limits for the accounting period ending 31 March 2008 expired on 31 March 2010. By contrast with the previous year, as of this date there were losses which were available to be carried back as terminal loss relief and set against profits for the year ended 31 March 2008.

Accordingly, the questions to be addressed in relation to this accounting period are:

Whether the company was prevented from withdrawing its group relief claims for 31 March 2008 by 31 March 2010 because the company or its agents were unaware of losses that could be used to set off against earlier profits and

If so, whether this was for reasons beyond the company's control.

In essence the company's argument is that, before the final sale on 27 March, it did not have sufficient information about its terminal loss and the quantum of that loss to have taken the necessary actions to have withdrawn the group relief claim.

In our view the evidence presented demonstrates that at 31 March 2010 the company and/or its advisors were aware of the possibility for terminal losses to have arisen in that period; although the evidence is inconclusive as to the quantum of such losses. However, having examined the evidence provided, this situation had not arisen due to any reasons beyond the company's control.

It is agreed that by September 2009 the possibility of a trade and asset sale rather than a share sale had been mooted. By January 2010, by which time Trinity Mirror had become the likely buyer, a trade and asset sale had become a strong possibility if not a probability. In September 2009 the GMG Group tax manager prepared a report referring directly to the possibility of a potential terminal loss arising.

No evidence has been presented to HMRC to indicate that any step was taken as a result of this advice either in September 2009 or subsequently. A Corporation Tax repayment would accrue to the group not by the withdrawal of GMGRM North's group relief claim, to be replaced by the carry back of the terminal loss, but rather by the consequent group relief claims that the other group companies would then be able to make.

As the time limit for 31 March 2008 did not expire until 31 March 2010, GMGRM could have withdrawn its 2008 group relief claims and thus the consequent claims could have been made in anticipation of a possible terminal loss and with no financial penalty to the group even if no terminal loss did finally transpire.

The evidence makes clear that the company was not prevented from withdrawing its claim but rather that it or GMG had failed to undertake the review of its tax position that would have been expected as part of its planned sale of its trade and assets.

A further claim of the company was prevented from withdrawing its Group relief claim is based on the further examples provided in Paragraph 10 of SP5/01.

…

With regards to this, reference has been made to the tax manager taking maternity leave at the crucial time of the negotiations. Additionally, we have been told that there were changes to the group's senior executives from April 2009 until July 2010.

However, GMG is a Group that employed a finance team and a tax team. It also had the benefit of independent tax advisors PWC. There were therefore a number of professionals both in house and independent who could have made the claim on the company's behalf. The loss of the services of its tax manager should not have had a profound effect on the company or impeded its ability to make the appropriate claims. In addition, a 5 month period passed between the tax manager raising the possibility of utilising a terminal loss and beginning of her maternity leave. This suggests that there was adequate time for the necessary steps to have been taken before that leave began.

Paragraph 12 of SP5/01

Paragraph 12 addresses the administrative law requirement that, while a public body may set out a policy for operating an administrative discretion, it must be open to the possibility that circumstances falling outside the policy may nevertheless form a reason to exercise discretion. The public body must give attention to the particular circumstances taking account of all relevant considerations and not taking account of any irrelevant consideration in order to reach a rational and reasonable decision; that is a decision not so unreasonable that no reasonable person properly directing themselves could have taken it. Thus the criteria listed in Paragraph 12 are not exhaustive and their relevance will depend upon the particular circumstances in each case.

Applying paragraph 12 to the Late Withdrawal of Group Relief Claims

You have also made various representations relating to further factors, given the overall circumstances of the case that HMRC might take into consideration.

Your explanations under the heading "The reason why the claim is late" are essentially the same as made in relation to Paragraphs 9 and 10. In essence you have said that there was insufficient time between the signing of the sale and purchase agreement and the period end to withdraw the claims. As I have already explained, this assertion is not accepted.

Under the heading "The extent to which it is late" you recount approaching the group's Customer Relationship Manager (CRM) in August 2010. This was 5 months after the statutory time limit for amending the claim for the period ending 31 March 2008 and 17 months after the statutory time limit for amending the claim for the period ending 31 March 2007. You argue that, having approached the CRM, you then put together the late claims without any undue delay. I have taken this argument into account in reaching my decision.

I note that under the heading "The Consequences for the Company if the Claim is Refused" you have expressed the outcome for the Group rather than the company. You of course note that the Group is unlikely to be able to take advantage of any group relief in the period ended 31 March 2010 itself, as it is loss making overall and unlikely to return to profitability in the very near future.

In considering the outcome for the group as a whole rather than just the company, you have set out the difficult commercial conditions under which the group and indeed the industry is labouring. A repayment of this potential size would naturally be very welcome. However this is not a reason in itself to accept a late withdrawal of claims and provide a repayment of tax to the group. Absent any particularly unusual feature, this repayment cannot be given…."