England and Wales High Court (Administrative Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		24/02/2012

MR JUSTICE BLAIR:

1. This is an application for judicial review of the decision of the defendant, an officer of Her Majesty's Revenue & Customs, refusing to allow the claimants' late claims to group tax relief. There are four grounds of challenge based on a lack of sufficient reasons in the decision letter, legitimate expectation, criticisms of the decision making methodology in the form of irrelevant considerations, and irrationality.

The facts

Background

2. The facts are set out in witness statements of Mr David Yu, who is an accountant with Cohen Arnold, for the claimants, and Mr Paul Jefferies and Mr Alan King, who are or were officers (Mr King is now retired) with Her Majesty's Revenue & Customs ("HMRC"). Mr King was the officer responsible for the challenged decision, and is the defendant in this case. Further evidence was filed on behalf of the defendant prior to the hearing, which I shall mention again in due course.
3. The claimants are each wholly-owned subsidiaries of Daejan Holdings plc (which is one of the interested parties in this case). Daejan Holdings plc is a company incorporated in England and Wales and listed on the London Stock Exchange. Together with approximately sixty other active subsidiaries, it constitutes a substantial and well known property group, engaging in commercial and residential property investment in the UK (and also the USA). For tax purposes, the claimants are members of a group of companies within the meaning of s. 413(3)(a) Income and Corporation Taxes Act 1988. Daejan Holdings plc is the "holding company" within the meaning of s. 413(3)(b).
4. The relevant tax rules are not in dispute in this application. A company is taxed as an independent entity (even if it is part of a larger group). At the material time, provision for group relief was made under ss 402-413 ICTA 1988 (the provisions have since been rewritten in ss 97-188 Corporation Tax Act 2010). Group relief enables companies in either a group or consortium relationship (as defined) to transfer trading losses between companies. A company which wishes to use the losses to offset against its profits for the same period may claim the losses, whilst the company which suffered the losses, rather than carrying them forward against future profits, may surrender them. Group relief may be claimed within a consortium, in which case it is apportioned according to levels of ownership. The rule is that group relief can only be claimed and surrendered between companies for periods in which they were members of the same group.
5. In about 2004, the Daejan group was introduced by KPMG to a tax saving scheme which has been called a "Lloyd's loss buying scheme". It consisted in the purchase of the losses of Lloyd's underwriters. The background (as Mr Yu explains) is that Lloyd's of London have (or had) an accounting procedure whereby losses from an underwriting year can be shown over a period of up to three years for accounting purposes. As explained in the defendant's skeleton argument, there were special rules contained in s. 107(4) Finance Act 2000 for companies carrying on general insurance business. These allowed an insurer which had occurred a commercial loss in year one, to shift this to year two for tax purposes. It was possible, therefore to acquire a shareholding in an insurer which had suffered a commercial loss, on the basis that the loss would be deemed to have been suffered for tax purposes after acquisition, so as to utilise group relief for that loss. This provision was in force between 1 January 2000 and 19 July 2007. It was ultimately accepted by HMRC that it could not challenge the effectiveness of such schemes for tax purposes.
6. However, although the principle is straightforward, its application in particular instances was not necessarily straightforward. Explanations of the general operation of the group relief regime ("consortium relief" being a variant of group relief) so far as relevant to this claim are contained in the witness statements of Mr Yu and Mr King. Where a company surrendering losses is not a member of the consortium at the beginning of the relevant accounting period of the claiming company, the overlapping period must be established, and an apportionment carried out, similarly where there are differences between the accounting periods of the various companies in the group and those of the companies whose shares were being acquired. The surrendered losses have to be applied against the profits of a company with sufficient profits to absorb them, otherwise there is a risk of some of the losses becoming, as it is described, "stranded". The final step therefore is to compare the losses available for surrender with the profits of the claimant company for the relevant overlapping period. There are statutory time limits for the claiming of group relief. This is the background against which the present claim arises.

The acquisition of the shareholdings

7. On 2 September 2004, Daejan Holdings plc acquired a 74.99% shareholding in Arch Holdings Ltd. Because the remaining share capital was held by a single other company, Arch Holdings Ltd thereby became a "consortium company" (within the meaning of s. 406(1)(b) ICTA), and Daejan Holdings plc thereby became the "link company" (within the meaning of s. 406(1)(a) ICTA), being both a member of that consortium and a member of the Daejan Group. On 14 October 2004, Arch Holdings Ltd acquired a 100% shareholding in a trading company called Arch (2004) Ltd. Arch (2004) Ltd realised trading losses of £41,696,201 and £24,463,738 for the years ended 31 December 2004 and 2005 respectively. These transactions made available a group relief claim under the provisions of s. 402(3)(b) ICTA ("a consortium claim") by Daejan Holdings plc in relation to losses surrendered by Arch (2004) Limited. Similarly, as the claimants were all members of the Daejan Group, although not members of the consortium, they could make a consortium claim and offset losses incurred by Arch (2004) Ltd in a relevant period against their profits.
8. The next transaction was as follows. On 17 January 2005, Daejan Holdings plc acquired a 16.7% shareholding in Triteam Ltd which on the same day acquired 100% shareholdings in trading companies called Crowe Corporate Capital Ltd and Crowe Dedicated Ltd, which are the other interested parties in this case. Both of these companies suffered £30,000,000 trading losses for the year ended 31 December 2005, and £30,000,000 and £20,000,000 respectively for the year ended 31 December 2006. Again, the effect of this transaction was to enable Daejan Holdings plc and the claimants to make a claim in respect of losses surrendered by these two companies.
9. At the hearing, there was a dispute between the parties as to whether these transactions should properly be described as "tax avoidance". Mr Philip Coppel QC, counsel for the claimants, submitted that the term "tax avoidance" was inappropriate because there is nothing in the applicable statute that labels as "tax avoidance" claims for group relief such as those made by the claimants. Until 2007, statute permitted these sorts of consortium claim for group relief. In 2007 Parliament, which had previously allowed the claims, changed the legislation so as to make the relief thereafter unavailable. Both when it was available and when it became unavailable, Parliament was not concerned with the intention of the taxpayer entering into the arrangement (the normal statutory touchstone of "avoidance"). The provisions, it was submitted, were intention-blind.
10. Mr David Yates, counsel for the defendant, on the other hand, submitted that Daejan Holdings plc had no commercial interest in acquiring the various shareholdings other than to obtain group relief and to consequently avoid paying significant amounts of corporation tax. Such arrangements constituted avoidance in the view of HMRC.
11. In my view, any doubt on this point is dispelled by the fact that Daejan Holdings plc itself completed supplementary pages of its 2005 return expressly entitled "Disclosure of tax avoidance schemes" under scheme number 166393940, which was the present scheme. (This was done pursuant to arrangements introduced under ss 306-319 Finance Act 2004 which required tax avoidance schemes to be disclosed to HMRC.) That said, I agree with Mr Coppel that what the claimants were doing was perfectly lawful, and that whatever their intention in entering into the transactions may have been, they were entitled to claim group relief—provided of course they were in compliance with the various statutory provisions including time limits. As already indicated, HMRC itself ultimately accepted this view, albeit the loophole was closed in 2007. Equally, it was up to the claimants what relief they did claim.

The errors in the claims for group relief

12. Both parties submitted chronologies, for which I am grateful. Cohen Arnold is the firm of chartered accountants which act in relation to the claimants' corporation tax returns and tax compliance matters. On 29 March 2006, Cohen Arnold submitted tax returns and accounts for Daejan Holdings plc and the claimants for the year ended 31 March 2005. This included consortium claims for group relief in respect of the losses made by the three companies, Arch (2004) Ltd, Crowe Corporate Capital Ltd and Crowe Dedicated Ltd (the "Disclosure of tax avoidance schemes" document was submitted at the same time). This has been described by the parties as the "2005 claim". This claim was made just over a year before the statutory time-limit for making or amending a group relief claim, which as will be seen is the first anniversary of the filing date for the return for the relevant accounting period.
13. It is common ground that Cohen Arnold made errors in over-claiming the amount of relief which Daejan Holdings plc was entitled to. This had to do with mismatches in the accounting periods of the companies involved. So far as presently relevant, the Daejan group prepares its accounts for year ending on 31 March. Arch (2004) Ltd, Crowe Corporate Capital Ltd and Crowe Dedicated Ltd on the other hand prepared their accounts for year ending 31 December. In essence, Mr Yu says that what happened was that the various time apportionments were carried out, but not compared, and it was not realised that Daejan Holdings plc had insufficient profits to utilise all of the losses which the three companies could surrender.
14. Its subsidiaries, on the other hand, did have sufficient profits to utilise these losses. Mr Yu says, and I accept, that had this been realised at the time, other companies in the Daejan group including the claimants would have absorbed the remaining losses. Thus, it is said by the claimants, the amount of group relief claimed within the Daejan group would have been identical to the amount which Daejan itself claimed. But for the identity of one company rather than another company within the group, the overall tax treatment of the group relief would have been identical.

Mr Fletcher notices the errors

15. At this point in time, the HMRC officer handling the matter was Mr Robert Fletcher. By letter memo dated 8 August 2006, he advised Mr Alan Bell (of HMRC's Large Business Section's London office) of the claim for consortium relief. He said that:

"In all, for the period ended 31 March 2005, 39 companies in my group [the Daejan group] are claiming consortium relief from Arch (2004) and/or Crowe Capital and Crowe Dedicated, in an amount totalling approximately £15 million. I would not be surprised to see other group companies putting in claims as well (particularly if the capital loss-buying scheme they have entered fails). Given the time apportionment required here my group has got its sums wrong and I will be able to make some reasonable adjustments even if the scheme works."

16. To similar effect, on 5 September 2006, he emailed Mr Bell saying (inter alia):

"The consortium relief claim by Daejan Holdings is wrong. On a time apportioned basis only £5,500,000 profits are available to be covered by the loss relief. The claim is, therefore, excessive by £2 million or so (this is effectively the relief claimed by Crowe Capital and Crowe Dedicated). Even if this is knocked out, however, there is sufficient capacity in the group for it to be absorbed elsewhere."

17. It was the claimants' case at the hearing that HMRC should now have notified the claimants of this. The submission was put in a number of different ways. It was initially suggested that the passage quoted from the email of 5 September 2006 should have been notified, perhaps omitting the last sentence. It was then submitted that notification should just have been made of the "mistake". The basis for this submission is Code of Practice 14 issued by HMRC called "Corporation Tax Self Assessment Enquiries" which says in a sentence on which the claimants place reliance, "We want to make sure companies do not pay too much or too little tax. Either way, we will tell you if we find something wrong."
18. HMRC's case was that there is no statutory express duty on HMRC to advise a company in relation to group relief claims. No such duty can be implied. HMRC cannot be expected to give advice to assist those engaged in tax avoidance where such advice would directly assist in the furtherance of such avoidance. Such a duty goes against the grain of the scheme and intention of Corporation Tax Self Assessment where Parliament has imposed the obligation on companies to correctly compute, self-assess and make any necessary claims for relief.
19. On this issue, my conclusion is as follows. There is nothing in these two documents that gives rise to an inference that there was an intention on Mr Fletcher's part to mislead the taxpayer. In fact, he says that he would not be surprised to see other group companies putting in claims as well, for which there was at this point plenty of time. Misleading aside, in my view there was no positive obligation on him or on HMRC to notify the group as to a "mistake". The "mistake" was that the claim as formulated did not apportion losses in a way to allow for all the relief claimed. In a commercial setting such as this, the responsibility for formulating a claim for group relief correctly must lie with the group. It was for the group to apportion losses in a way that maximised relief, not the Revenue. There is an additional factor in the present case in that the claim for relief was made under a scheme disclosed as a tax avoidance scheme under the statutory provisions referred to above, and I agree with the defendant that HMRC cannot be expected to assist in maximising such avoidance. As to the Code of Practice, neither the code nor the passage relied on by the claimants are specifically concerned with the complexities of group relief, and nothing in it requires a different conclusion in this kind of situation.
20. For the chronological account, I note that there was a change in personnel at HMRC in late 2006, when Mr Fletcher retired and was replaced by Mr Mike Gray. On 8 December 2006, Mr Gray refers to an email exchange in September in connection to the Daejan Group, and so had clearly seen the email of 5 September 2006. He does not comment on the contents, and there does not seem to have been a substantive response from Mr Bell, and there is no further reference to it in the disclosed material.
21. On 21 March 2007, there were email exchanges between Mr Gray and Mr Malcolm Cree (in Special Civil Investigations), to which the claimants draw attention. It appears that copies of the consents to consortium surrenders submitted were not adequate insofar as they omitted the consent of the consortium members. Mr Gray was "… inclined to point this out to them so they have an opportunity to put it right before the 2 year deadline …". Mr Cree responded, "I suspect our seniors would hang us out to dry if we spotted their error and said nothing until the time had elapsed". It was decided to open enquiries into Daejan Holdings plc's return for the year ended 31 March 2005. It was also decided that the omission as regards consents should be pointed out.
22. By letter of 22 March 2007, Mr Gray wrote to Cohen Arnold informing them of his intention to enquire into Daejan Holdings plc's return for the year ended 31 March 2005. He said:

"A. If you refer to Para 70 Sch 18 FA 1998, a claim to consortium relief is 'ineffective' unless accompanied by copies of consents signed by the consortium members as well as the surrendering company. On looking at the documents submitted, only the consents of the surrendering companies have been submitted. Can you agree that the claims should be disregarded?

B. You should not construe anything that follows as indicative of any attitude HMRC might adopt to a consortium claim outside of the time limit.

Assuming that the deficiency of claims can be rectified within the Para 74 Sch 18 FA 1998 time limit or late claims accepted, I would like to know how you apportioned the estimated losses of the loss making companies and profits of Daejan Holdings Ltd so as to arrive at the maximum amount that might be relieved in the overlapping periods."

23. The last paragraph expressly raises the question as to how the estimated losses of the loss making companies and profits of Daejan Holdings Ltd had been apportioned so as to arrive at the maximum amount that might be relieved in the overlapping periods. This issue was therefore brought to the claimants' attention at a time when the time limit for a claim had been extended by the giving of the notice of the enquiry (see below as to time limits). The claimants could have amended their claim, but when Cohen Arnold replied on 29 March 2007 submitting the consents covering the year ending 31 March 2005, they did not deal with the apportionment matter.
24. Mr Yu explains the detailed nature of the enquiries. He only dealt with the issue of the consent letters, the other issues being dealt with by KPMG. The detailed response came by letter of 6 July 2007, which although in the name of Cohen Arnold, was in fact drafted by KPMG. Under the heading "Method of consortium relief of claims apportionment", the letter says, "We can confirm that claims for consortium loss relief by the above companies were apportioned on a time-apportioned basis". That was how the matter was left as regards the 2005 claim as the enquiry ensued.

The 2006 claim for relief is submitted

25. On 30 March 2007, the Daejan group companies submitted corporation tax self-assessment returns for the year ending 31 March 2006 and a claim for group relief with respect to the losses made by the two Crowe companies ("the 2006 claim"). Once again, due to what the claimants say was the same misapplication of the loss, the amount of group relief claimed by Daejan Holdings plc itself exceeded its entitlement to absorb the losses made by Crowe. Again, to the extent that Daejan Holdings plc claimed for itself more group relief than it could absorb, that difference could have been claimed by other companies in the Daejan group.
26. In his oral submissions, Mr Yates for the defendant said that the error that had been made on this occasion was different from that made in respect of the 2005 claim which had been noted by Mr Fletcher (by now retired) in August 2006. In the case of the 2005 claim, the error went to the utilisation of losses prior to the Arch and Crowe companies joining the group, whereas in the case of the 2006 claim, it was a matter of different accounting periods. That appears to be correct, though Mr Yates accepted that it was similar in nature, and I do not think that much turns on the distinction.
27. The email exchanges of 21 March 2007 referred to in paragraph 21 above show that round this time, HMRC officers were considering the effect of paragraph 74 of Schedule 18 to Finance Act 1998 as to time limits. In summary, a claim for group relief may be made by 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 (the two year rule). If notice of enquiry is given into that return, then the period is 30 days after the enquiry is completed. (I have set the provisions out below.)
28. On 17 April 2007, Mr Cree emailed Mr Steve Coad (who was an HMRC technical adviser) seeking specialist input on the implications generally of the late submission of consortium members' consents to the surrender of group relief which he had been discussing in March with Mr Gray in the emails of 21 March 2007 referred to above. This meant, he said, that the claims were ineffective. But when HMRC opened enquiries into companies which had made consortium claims to group relief, his reading of paragraph 74 of Schedule 18, Finance Act 1998, was that if companies which had made ineffective claims submitted properly formatted claims at any time up to 30 days after issue of the closure notice, then that claim would be in time. Mr Gray, he said, believed the position may be different. This was a discussion in the context of such schemes generally.
29. In his email response of 27 April 2007, Mr Coad agreed with Mr Cree's reading. He said:

"I fear we are on (vanishingly?) thin ice here (hence the confidential marking – please don't copy this around).

The advice that Mike is referring to is in all probability advice that I, or my predecessor in role…, gave in relation to late claims submitted in a late return… In such a case, we face an apparent Catch 22 in that the only effective mechanism for rejecting the patently invalid claim is by enquiry (as correction under para 16 is ineffectual as the company can simply reject the correction; a discovery assessment opens the way for consequential claims under Paras.61-65; and simply dismissing the claim out of hand would be open to judicial review and it is not clear that our vires would be sound) but that very mechanism opens the door to the extended time limits in para. 74(1)(b)-(d) and para 82(1)(b)-(d).

… The purpose of Para. 70 is to ensure that a) the loss making company is protected, and another entity can only take the advantage of its loss "asset" with its permission; and b) to protect the Exchequer from double relief of the loss (or whatever). A late claim is different. We can point to the evident intention of Parliament to draw a line beyond which a claim cannot be made, except to take account of changes in circumstances unforeseen at the time of the original claim (… and enquiry settlement).

It would be hard to use the same argument where the deficiency of the original claim is an apparent procedural oversight, which the companies put right when they were alerted to it.

…

I would also be reluctant to litigate in this context, as any judgement might be decidedly unhelpful for our (much better) arguments in relation to late claims – which is territory I would be prepared to litigate.

That said, I would certainly not draw attention to para 74(1)(b)-(d), and suggest you mutter off-putting words about it if it is mentioned in passing. But I am not hopeful of succeeding and would not want to defend the point very far."

30. Mr Coppel QC suggested that this email exchange was to do with deficiencies in claims in general, and showed that HMRC was concerned not to make available to the claimants information as to apportionment that would enable them to fix the problem noted by Mr Fletcher in August 2006. However, in my view Mr Yates was right to submit that the terms of the email exchange shows that the subject was the effect of non-notification of missing consents to surrenders. The claimants' attention was drawn to that deficiency in their claim by the letter of 22 March 2007. They provided the necessary consents by Cohen Arnold's letter of 29 March 2009.
31. On 24 September 2007, Mr Gray opened an enquiry into Daejan Holding plc's 2006 return, and those of the group companies that had made claims for relief in respect of the Arch and Crowe companies. This includes claimants (1), (3) and (5)-(7). The claimants submit that, "Despite the promise in the Code of Practice, Mr Gray did not draw attention to the specific matter which had been the subject of the Aug-Sept 2006 e-mail exchange [Fletcher - Bell], i.e. the excessive amount which had been claimed by Daejan itself but which could be claimed by others within the Daejan Group".
32. According to the claimants' skeleton argument, "in these enquiries, HMRC raised three queries, namely (1) missing consents from the companies surrendering their losses for the group relief, (2) the quantum of the apportionment of the surrendering companies' losses and Daejan's profits, and (3) the underlying arrangements concerning the losses arising". On this basis, it would appear that the quantum of the apportionment was in fact raised as a query, and the claimants could have amended their claim, but did not do so. In any case, for reasons set out above, in my view there was no obligation on HMRC to draw attention to the points noticed by Mr Fletcher the previous year.
33. On 21 November 2007, the enquiry into claimant (1)'s return for year ended 31 March 2006 was closed. A notice of amendment to its return pursuant to rules which are referred to in the claimants' chronology was issued on 8 January 2008.
34. On 31 December 2007, a syndicate management company wrote to HMRC on behalf of the two Crowe companies rearranging losses for year end 31 March 2005 by reducing group relief surrendered by the one by £25 million and increasing group relief surrendered by the other by £25 million.
35. Throughout much of this period, it appears that HMRC had been investigating "Lloyds loss buying schemes" to see whether they could be challenged in the courts. I agree with the claimants that the material (for example an email of 30 October 2007, "… the scheme is so simple it is hard to trip them up on implementation. Technical arguments are a bit thin, but we are waiting on AAG to decide on using Ramsay ....") shows that such schemes were not regarded sympathetically by HMRC. By November 2007, a legal challenge appears to have been ruled out. The claimants cite an email from Mr Cree to Mr Gray of 6 December 2007, "In short, it appears we have no challenges for the scheme other than making sure the claims follow the usual rules – apportionment, surrender consents submitted etc...".

The closure notices

36. On 1 February 2008, Mr Gray wrote to Cohen Arnold responding to the letter of 6 July 2007. Since the letter founds the claimants' contention as regards legitimate expectation, I shall quote it (so far as relevant) in full:

"DAEJAN HOLDINGS PLC (& Subsidiaries)

Consortium Losses

Thank you for your letter of 6 July. I am sorry for the protracted delay in replying

A Thank you for the bundle of documents. It has been decided not to pursue any challenge to this groups claim to consortium relief provided the claims are in proper form and amount.

B I am content with the format of the claims.

C If you refer back to your letter of 29 March 2006 you will note that you advised that the Arch 2004 Ltd losses in APE 31/1204 amounted to £41,696,201. The shares in Arch 2004 Ltd were acquired by Arch Holdings Ltd on 14 Oct 2004. If my arithmetic serves me the period from 14 October to 31 December amounts to 78 days...Do you agree? If so what adjustments are needed to the various consortium claims?"

37. The claimants say that, "Despite the promise in HMRC's Code of Practice, Mr Gray did not suggest that any of the matters which had been the subject of the Aug-Sept 2006 HMRC e-mail exchange [Fletcher - Bell] might affect the validity of the claims". In this regard, I refer to the conclusions I have already expressed as regards the obligation to notify.
38. Mr Yu says that from this letter he thought that the Inspector had checked the claims for group relief for both the 2005 year and the 2006 year and there were no issues in relation thereto. It is not apparent why he thought that the letter covered the 2006 claim, since this correspondence is only concerned with the 2005 claim, or why he thought that the Inspector had checked the claims for group relief and there were no issues in relation thereto. However, he clearly did, and this is reflected in the release of provisions in the company accounts. He asked Mr Gray to close down the enquiries for both years. On 28 February 2008, he wrote saying, "I look forward to receiving the Closure Notices as soon as possible".
39. On 4 March 2008, Mr Yu wrote again to Mr Gray with regard to the computation of Daejan Holdings plc's tax for the year ended 31 March 2006. This included a revised computation in respect of adjusted claims for consortium relief from the two Crowe companies. He said, "I look forward to receiving your agreement to the above and the issue of the Closure Notice for the year ended 31st March 2006". This (as explained below) was to lead to further discussion in the ensuing months.
40. In the meantime, on 4 and 5 March 2008 Mr Gray issued closures notices for the claimants for the year ended 31 March 2005 and (in the case of claimants (3) to (7)) for the year ended 31 March 2006 as well. Closure notices were not issued in respect of Daejan Holdings plc at this time. Cohen Arnold requested such a notice for the year ended 31 March 2005 by letter of 11 March 2008.

The passing of the time limit for group relief claims

41. It is common ground that by reason of the issue of closure notices (and/or the expiry of the time limit under the "two year rule" so far as the 2006 claim was concerned), at about this time the time limits for the claimants to make group claims passed. The time limits are set down in paragraph 74, Schedule 18, Finance Act 1998, which (until amended by the Commissioners for Revenue and Customs Act 2005), provided that:

"(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 the Inland Revenue 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 the Inland Revenue allow it.

(3) The time limits otherwise applicable to amendment of a company tax return do not apply to an amendment to the extent that it makes or withdraws a claim for group relief within the time allowed by or under this paragraph.

(4) The references in sub-paragraph (1) to an enquiry into a company tax return do not include an enquiry restricted to a previous amendment making or withdrawing a claim for group relief.

An enquiry is so restricted if—

(a)     the scope of the enquiry is limited as mentioned in paragraph 25(2), and

(b)     the amendment giving rise to the enquiry consisted of the making or withdrawing of a claim for group relief."

42. As the claimants point out in their reply submissions, as amended by the Commissioners for Revenue and Customs Act 2005, paragraph 74(2), which is the provision that is most important for this Judicial Review claim, provides that, "A claim for group relief may be made or withdrawn at a later time if an officer of Revenue and Customs allows it". (The reference to "Inland Revenue" has thus been replaced by a reference to "an officer of Revenue and Customs".)
43. According to the claimants' skeleton argument, the "effect of HMRC issuing closure notices for the group companies for the year ending 31 March 2005 was for HMRC to accede to the group relief claim by those companies for that year. The effect of HMRC issuing closure notices for the group companies (but not Daejan Holdings plc itself) for the year ending 31 March 2006 was to leave 30 days for Daejan Holdings plc to make changes as of right to the group relief claims on behalf of the group companies other than Daejan Holdings. Thereafter, extra time had to be sought from HMRC to make those changes." I think that HMRC put the timing slightly differently, but I am content to take the position as set out in the claimants' chronology, namely that the deadline for Daejan Holdings plc to submit amended returns and put in a claim for losses in claimant (1) in respect of the year ended 31 March 2006 was 31 March 2008 pursuant to paragraph 74(1)(a) of Schedule 18. The deadline for the claimants to have submitted an amended consortium relief claim in respect of both years was 3 and 4 April 2008 pursuant to paragraph 74(1)(b). The result (as is common ground) is that the time limits for making a claim for relief expired (at latest) by 3 or 4 April 2008, that is, thirty days after the enquiry was completed by issue of the closure notices.
44. This deadline was, of course, subject to the power to admit a claim later under paragraph 74(2), which is what these proceedings are about.
45. However the parties are not in agreement about a further suggestion in paragraph 63 of the claimants' skeleton argument, namely that, "As a result of Daejan Holdings plc having no capacity to absorb further losses, by closing the enquiries for the other group companies (i.e. the companies in the group that could absorb the losses) HMRC enabled itself to challenge the claim while precluding the Daejan Group from correcting it as of right. HMRC thus gave effect to the strategy trailed in April 2007: see §§50-51 above." (Paragraphs 50-51 of the claimants' skeleton argument set out the two emails of 17 and 27 April 2007 between Mr Cree and Mr Coad which I have dealt with above in paragraphs 28 to 30.)
46. As I have said, these emails had to do with time limits in the context of the requirement for consents to surrenders of losses, an omission which was drawn to the claimants' attention, and corrected in time. Further, as the defendant pointed out, the closure notices were issued at the request of the claimants. In any case, the documents do not in my view support the assertion of a "strategy" to preclude the claimants from correcting claims in time. However, once this case was put, the defendant wished the opportunity to answer what he considered was in effect an allegation of bad faith. I shall come back to this issue in due course.

The 2006 apportionment error comes to light

47. On 28 March 2008, Mr Gray responded to Mr Yu's letter of 4 March 2008 which was the letter sending the revised computation in respect of adjusted claims for consortium relief from the two Crowe companies as regards the year ended 31 March 2006. He said:

"Thank you for your recent letters concerning the revisions to the consortium claims.

I confess I am confused by the amounts claimed in respect of the losses of Crowe Corporate Capital Ltd and Crowe Dedicated Ltd.

The consents reveal that Daejan held a 16.7% interest in the above companies. The CT600C for each for the companies reveal losses in the Year Ended 31 December 2006 of £30,000,000 and £9,947,000 respectively. According to my calculations, 16.7% of those losses amounts to £5,010,000 and £1,661,149 respectively. Can you please explain how you arrived at the figures of £5,050,000 and £3,300,000."

48. On 3 June 2008, Mr Yu and Mr Gray met. On 6 June 2008, Mr Gray wrote to Cohen Arnold saying that, "… upon trying to pull the strands together I remain confused about the Consortium Claims. … because the surrendering companies use a different (31 December) accounting date we need to allocate that profit into two notional periods…". He sets out in some detail his view of the figures, saying, "I have searched in vain my file for a schedule or letter clarifying the losses surrendered by either [of the Crowe companies]. Are you able to assist please?"
49. Mr Yu says that having read the letter, and having checked the computations again, the issue of the over claim for the 2006 year became apparent. He was shocked. At that point, he says, he was not thinking about the 2005 claim at all.
50. On 24 June 2008, Mr Gray and Mr Yu met again, and Mr Yu raised the possibility of a late claim, referring to HMRC's Statement of Practice 5/01 ("SP 5/01") which sets out the revenue's approach to extending time limits for making claims. I set out the relevant paragraphs of SP 5/01 below.
51. By letter of 24 June 2008, Mr Gray referred to the guidance, and said, "If you intend pressing the matter I will need the formal claim/surrender documentation as well as a full justification as to why the Board should exercise their prerogative to accept the late claim".
52. On 4 July 2008, Mr Gray wrote again to Cohen Arnold. He confirmed that the Crowe companies had submitted returns within the statutory time limits, and confirmed the amount of the losses available for surrender. He confirmed that consents had been supplied, and that "the only error I can see is in the quantum of the claims/surrender". He raised further computation queries in relation to Daejan Holdings plc's claims.
53. A lengthy response came by way of letter dated 24 July 2008 this time from KPMG. This letter said:

"I agree the maximum amounts which are now available for surrender, and that £1,162,792 of the losses are currently stranded, owing to the inability of Daejan Holdings ("DH") to claim this amount. However, I do not agree that this loss should not be claimable elsewhere within the group. I should like to make a formal claim for this loss to be set off against profits of Bampton Property Group Ltd ("Bampton") for the year ended 31 March 2006.

54. In other words, KPMG was claiming to set the loss off against the profits of another company in the group, that is, claimant (1), rather than those of Daejan Holdings plc which by now everyone appreciated were insufficient. Among the points made in support, was HMRC's letter of 1 February 2008 (which is set out above) stating among other things that Mr Gray was content with the format of the claims. The letter concluded:

"It would seem that these facts fit well with the intentions of SP 5/01, paragraph 10. The chief reasons why Bampton is now being denied the possibility of claiming the stranded consortium relief is because Bampton's claims time limit has expired. The chief reasons for this are (a) the inordinate length of time it has taken HMRC to agree that the consortium claims are correct in law, and (b) the length of time it has taken HMRC to consider the quantum of the claims. If attention had been directed to quanta while the enquiry was in progress, these facts would have come to light well within the time for Bampton to make a claim. There has at no time been any undue delay on the part of the Company or its agents."

55. Mr Gray responded by letter of 31 July 2008. As regards the HMRC letter of 1 February 2008, he said:

"... Your final sentence implies that I should bear responsibility for the predicament because I didn't spot the errors earlier and bring them to the groups' attention more promptly. Surprisingly you make no mention of the fact that it is the primary responsibility of a company and its advisors to get these matters right. At the time of my letter of 1 February, it was not apparent from what had been supplied to me that DHL's claims from CCCL and/or CDL [i.e. the Crowe companies] were not correctly computed. Moreover I would draw your attention to Cohen Arnold's letter of 13 February 2008 advising that the claims in respect of CCDL and CDL losses were being revisited. The revised claims were not firmed up until 25 March. I see I did raise concerns on the calculations on 28 March. This would have given another window (admittedly small) for the group to look again at the calculations and for Bampton to make a group/consortium relief claim within the time limit contained at Para 74(1)(a)."

56. He concluded:

"I accept that the reason for this correspondence is the fact that Bampton is now time barred from claiming group/consortium relief. The issue under discussion is whether HMRC should exercise its power under Para 74(2) Sch 18 FA 1998 to extend the time limit for any claim to group/consortium relief which might be made by Bampton. As you clearly know SP 5/01 sets out in Paras 9, 10, 11 and 12 the process and factors that will be considered. It currently seems to me that neither of the first two bullets of Para 10 could be said to apply. Do you concede this? If not, it would assist us in arriving at a conclusion if you could clarify why that analysis is incorrect. Moreover it seems that both of the first two bullets of Para 11 could be said to apply.

You assert that the 'chief reasons' for the failure of Bampton to submit a timeous group/consortium claim are delays on HMRC part in connection with agreeing whether the losses of Arch, CDL, and CCCL were in principle available for group/consortium relief and my slowness in pointing out the error in the quantum of the claim by DHL. Are you advancing these points as coming under Para 12 of SP 5/01? Can you please confirm that this is the full strength of your claim to persuade HMRC to exercise its discretion to extend the time limit?"

57. On 2 October 2008, KPMG wrote to Mr Gray saying that their client would like to make a claim for the loss of Daejan Holdings plc of £1,162,792 for the year ended 31 March 2006 to be set off against profits of Bampton (that is, claimant (1)).

When HMRC became aware of the 2006 apportionment error

58. There is an issue as to what should be inferred from this material. In Mr Gray's letter of 31 July 2008, he said in response to KPMG's reference to the HMRC letter of 1 February 2008 that, "At the time of my letter of 1 February, it was not apparent from what had been supplied to me that DHL's claims from CCCL and/or CDL [i.e. the Crowe companies] were not correctly computed".
59. The claimants look at it differently. In their skeleton argument, it is said that by the letter of 6 June 2008, "Mr Gray announced the time apportionment error in Daejan's group claim for the accounting period ending 31 March 2006". In fact, I do not think that this is an accurate reflection of the terms of the letter, which does refer to profits that are not covered by any relief, but as part of an attempt to understand the claimants' view of the figures. In oral argument, Mr Coppel QC for the claimants submitted that there was no obvious catalyst for Mr Gray noting the error at this point in time. However, I consider that Mr Yates for the defendant was correct in saying that the documents show that this happened in the course of responding to the revised computation which had been supplied by Cohen Arnold on 4 March 2008, and that in considering the matter further, Mr Gray became aware of the error.
60. Later on in the claimants' skeleton argument (paragraph 158), the criticism is crystallised, it being stated that the course of action taken was deliberate, and that the thirty day period after the closure notices was allowed to expire before the mistake was pointed out. Mr Gray regarded this as an attack on his good faith, and as I shall explain, he put in a witness statement dealing with the point. He says that although when he took over the Daejan file he could see that Mr Fletcher had identified a problem with the time apportionment of losses in connection with the Daejan claim, he did not understand the exact problem, or appreciate the error raised in Mr Fletcher's emails to Mr Bell of 8 August and 5 September 2006 (these were dealing with the 2005 claim). The first time he became aware of the errors in respect of the 2006 claim was in June 2008. I accept this evidence, not least because it is consistent with the contemporaneous documents.

Mr Gray notices the 2005 apportionment error

61. By letter of 16 October 2008, Mr Gray wrote to Cohen Arnold this time about the 2005 claim saying, "I have been looking again at the group/consortium claim for the Year Ended 31 March 2005. The penny has belatedly dropped that this too may be excessive for much the same reason as 2006...". Again, I am satisfied that this describes what happened. In his letter, Mr Gray went on to say that he realised that this might give rise to a further late claim, and that if this was theoretically possible, and if it was to be pursued, asked for the late claimant(s) to be identified.
62. In the week of 3 November 2008, Mr Gray wrote to Cohen Arnold informing them that he was retiring that week, and that the issues would be taken over by Mr Alan King (the defendant). He left Mr King a handover note, which the claimants criticise on the basis that it contained no reference to Mr Fletcher's 2006 emails. However, the handover note is quite detailed, and appears to me to have been adequate.

KPMG submit revised computations and surrenders related to each year of claim

63. There followed various correspondence, including a request by Mr King on 18 November 2008 for a reply to Mr Gray's letter of 16 October 2008. That was acknowledged by KPMG 15 January 2009 saying that it had taken longer than expected to research the responses to Mr Gray's questions. The substantive response came on 27 February 2009, in which KPMG accepted that the claim for year ended 31 March 2005 was also in error, and expressed the hope that a late claim in respect of 2005 would be accepted under Schedule 18 paragraph 74(2).
64. By letter of 11 March 2009, Mr King confirmed that it was his intention to submit the proposed late claims to his Head Office colleague for consideration. He explains in his first witness statement that he was not convinced that the claimants fell within the terms of SP 5/01, and felt that it would be appropriate to send the case papers to the technical specialist for his consideration. In his letter he added, " … I will not be able to do so until I receive the detailed claims which I understand from your letter will now include Year Ended 31 March 2006 as well as Year Ended 31 March 2005".
65. On 13 March 2009, KPMG submitted revised claimant companies' computations and the surrenders related to each company and each year of claim.
66. On 26 March 2009, Mr King made a "technical submission" to Mr Paul Jefferies, who is a policy and technical specialist with HMRC. Mr Jefferies says in his first witness statement that he has responsibility for maintaining the policy of HMRC's approach to late corporation tax claims and advising on SP 5/01 so it is applied fairly, consistently and according to the facts of each case. He usually becomes involved when an officer faces a particularly challenging case, or has formed the view that a claim should be refused and the company is pressing a claim.
67. The technical submission appears to be made electronically on a template. The claimants make a number of criticisms of it, mainly to do with timing issues, and the omission to record that Mr Fletcher had noticed an error in the 2005 claim in August 2006. In oral argument, emphasis was directed at the reference to tax avoidance, which Mr King set out as a "unusual feature of the case" as follows:

"The agents state that the claims to surrender these losses were not part of the avoidance scheme but I consider this to be nonsense – there would have been no point in purchasing the losses unless they were going to be surrendered. Avoidance schemes rely on getting the documentation correct. In this case they got it wrong and I do not think we should have any sympathy or give them the benefit of SP 5/01."

The claimants submitted that this was an irrelevant consideration, since the arrangement was a perfectly lawful instance of tax planning which HMRC accepted as effective. I will come back to this point when considering the parties' arguments.

68. In June 2009, Mr King agreed to hold over collection of the tax payable by Daejan Holdings plc for the year ended 31 March 2005 pending resolution of the matter. Otherwise, little seems to have happened for some time.

The making of the decision

69. The response to Mr King's technical submission came by email from Mr Jefferies dated 26 April 2010. This commented on the history, stating in particular that oversight is not, in general, a reason to justify acceptance of a late claim. The email set out the timing of the late claims which had been received or raised as a possibility. It did not specifically comment on the issue of tax avoidance. It concluded:

"Considering all the circumstances as presented, it would not appear to be unreasonable for HMRC to refuse the late group relief claim for APE 31/03/06 by BPG [claimant (1)].

Considering all the circumstances as presented, it would not appear to be unreasonable for HMRC to refuse the late group relief claims for APE 31/03/05 by the six companies listed above [the other claimants]."

70. This email was followed two days later by the decision letter dated 28 April 2010 from Mr King to Cohen Arnold which is the subject of this application for judicial review. The letter refers to the fact that advice has now been received from Mr King's Head Office colleague, stating:

"In the circumstances of this case, HMRC refuses the late claim to consortium relief by Bampton Property Group Ltd in respect of the year ended 31 March 2006 and the late claims to consortium relief by the 6 other subsidiary companies listed above in respect of year ended 31 March 2005."

How late were the claims?

71. Since this was raised in oral argument, I should deal with the extent to which the claims were late. The time limits, it will be recalled, expired at latest by 3 or 4 April 2008. The claimants through KPMG intimated an intention to make a late claim in respect of the 2006 year by letter of 24 July 2008. On 27 February 2009, KPMG accepted that the claim for year ended 31 March 2005 was also in error, and expressed the hope that a late claim in respect of 2005 would be accepted. On 13 March 2009, KPMG submitted revised claimant companies' computations and the surrenders related to each company and each year of claim. Although the intention had been made clear earlier, it was this latter step that constituted the formal claims.

The judicial review proceedings

72. On 7 June 2010, the claimants' then solicitors sent HMRC a pre-action protocol letter. The letter set out the basis on which it was contended that the decision conveyed in the decision letter was unlawful, and asked HMRC to reconsider that decision.
73. On 25 June 2010, HMRC's Solicitor's Office replied to the pre-action protocol letter, and appended the email advice of 26 April 2010 received by Mr King from Mr Jefferies which is set out above. The letter concluded, "On receipt of your letter of 7 June 2010 we have re-considered our refusal of the claims, however we believe our grounds are entirely defensible and in accordance with our published guidance in SP 5/01. Therefore, the situation remains that we do not wish to exercise our discretion to admit these claims."
74. The claimants commenced these proceedings by Claim Form filed on 22 July 2010. Although the figure is not in the claim, I was told that the amount of tax which falls to be paid as a result of the rejection of the late claims is a total of £958,328 in respect of the 2005 and 2006 claims together. That therefore is the amount at stake in these proceedings. I should add that according to the defendant's skeleton argument, "The Daejan group has already managed to avoid over £5 million in corporation tax as a result of the schemes referred to above". (The figure is not challenged in the claimants' written submissions in reply, though the relevance of the reference to tax avoidance is certainly disputed.)

Disclosure

75. On 8 October 2010, Burnett J made no order on the claimants' interim application for disclosure. Although raised as an issue in the claimants' skeleton argument, deficiencies asserted as to the defendant's disclosure were not the subject of extensive oral submissions on either side at the hearing. There is a suggestion in the claimants' skeleton argument that the issue may be relevant as regards costs, and in case it is, I shall say no more about it in this judgment. I note that after some disclosure was made, and the parties were in disagreement as to further disclosure, HMRC suggested that independent external counsel review the documents, a suggestion which the claimants accepted. As a result of counsel's views expressed in a note dated 12 April 2011, further documents were disclosed by the defendant.

The "bad faith point" and the defendant's further evidence

76. In accordance with Burnett J's directions, the claimants served their skeleton argument on 17 January 2012. Upon receipt, the defendant took the view that it made serious allegations of bad faith and dishonesty for the first time, and applied for permission to file further witness statements from three HMRC officers in response, namely, a witness statement of Mr Gray, and second witness statements of Mr King and Mr Jefferies.
77. I have referred to this issue earlier when dealing with the claimants' characterisation of the letter of 6 June 2008 from Mr Gray to Cohen Arnold as regards the 2006 claim. The defendant submits that the claimants' skeleton argument raises for the first time the contention that HMRC, in particular Mr Gray, has acted in bad faith. This was not raised in the Statement of Facts and Grounds. It is said that HMRC felt it right and proper for him to be able to comment on the allegations concerning his conduct. The second witness statements of Mr King and Mr Jefferies are filed (it is said) to clarify the exact state of their knowledge in 2009-2010 in relation to the email exchanges of 8 August and 5 September 2006 between Mr Fletcher and Mr Bell on which the claimants have placed considerable emphasis. HMRC submitted that it was necessary to produce this evidence in order that the court can properly understand what documents were considered at the time.
78. The application was opposed by the claimants. The claim, it was submitted, was launched after a full pre-action protocol letter. The Statement of Facts and Grounds set out the claimants' case thoroughly, relying on the same four grounds as found in the claimants' skeleton argument. The claimant sought further documents in the course of the proceedings, culminating in the review by independent counsel in April 2011 which I have mentioned. The documents produced at that time should have been produced earlier. The claimants' skeleton argument made extensive reference to the material HMRC disclosed, and the reference to the material is the only thing that has changed. The claimants' principal point is that they are not making an allegation of "bad faith", just of bad decision-making. It was obvious, it is said, that the claimants would carry out an analysis of the documents when disclosed in order to reinforce their case, which is what their skeleton argument does. The court was asked to exclude the further evidence.
79. In my view, the claimants were right to disclaim any intention to advance a case of bad faith. The rule in legal proceedings is that such an allegation can only be made if the available material properly supports it. The material in this case comes nowhere near supporting such an allegation.
80. There are various passages in the claimants' skeleton argument to which the defendant draws attention. I have already quoted from paragraph 63 which asserts that by closing the enquiries in March 2008, HMRC enabled itself to challenge the claim while precluding the Daejan Group from correcting it as of right, and "thus gave effect to the strategy trailed in April 2007". Later, paragraph 158 states as follows:

"HMRC had earlier issued all the Closure Notices …. It had done so knowing that the effect was to leave 30 days thereafter for in-time correction of errors in the group relief claims and it did so knowing that the misapplication error had been made …. HMRC waited the 30 days before pointing out the mistake to Cohen Arnold for the first time on 6 June 2008 …. There was no good reason for HMRC having waited until then to point out this mistake. It was a repudiation of HMRC's promise in its Code of Practice: "We want to make sure companies do not pay too much or too little tax. Either way, we will tell you if we find something wrong." The reason for its repudiation was HMRC's fixed determination to reject the claims for group relief by whatever means it could get away with."

Paraphrased, this asserts that the course of action taken by HMRC was deliberate, and that the thirty day period after the closure notices was allowed to expire before the mistake was pointed out on 6 June 2008.

81. As regards Mr Gray personally, it is said in paragraph 164 that, "Despite becoming aware of the oversight by Daejan in its 2005 claim, Mr Gray adopted the decision of his predecessor not to alert Daejan to the mistake". In paragraph 167 it is said that Mr Gray knew about the mistake in the apportionment calculation underlying the 2005 claim when opening the enquiry into the 2005 return, and "… his silence deprived the Claimants of an opportunity to make a timely claim to offset the losses against their taxable profits". In paragraph 169 it is said that, "It was only on 16 October 2008 …, 6 months after the date of the Claimants' enquiries, that he decided to alert Daejan of its error. He masked HMRC's long-standing awareness of it by claiming that "the penny has belatedly dropped"". HMRC submits that these passages, and particularly the reference to Mr Gray "masking" the true position, accuse him of lying.
82. In my view, the passages I have quoted from the claimants' skeleton argument do come close to asserting bad faith, but the precise characterisation may not matter for the purposes of the application to adduce the additional witness statements. In R v Secretary of State for the Environment, ex parte Powis [1981] 1 WLR 584, the Court of Appeal laid down the principles applicable to an application by a party to admit fresh evidence. It was said at p. 595-6:

"What are the principles on which fresh evidence should be admitted on judicial review? They are (1) that the court can receive evidence to show what material was before the minister or inferior tribunal…; (2) where the jurisdiction of the minister or inferior tribunal depends on a question of fact or where the question is whether essential procedural requirements were observed, the court may receive and consider additional evidence to determine the jurisdictional fact or procedural error…; and (3) where the proceedings are tainted by misconduct on the part of the minister or member of the inferior tribunal or the parties before it. Examples of such misconduct are bias by the decision making body, or fraud or perjury by a party. In each case the fresh evidence is admissible to prove the particular misconduct alleged…"

83. As Collins J said in Lynch v General Dental Council [2003] EWHC 2987 (Admin) at [19], in judicial review proceedings, the circumstances in which fresh evidence can be admitted are very limited. In that case, whilst appreciating that it was some extension of Powis, he did admit expert evidence, saying at [25], "… its purpose is in reality to explain to the court matters which it needs to understand to reach a just conclusion".
84. In my view, the assertions set out above from the claimants' skeleton argument against HMRC (and Mr Gray in particular) fall within the third category identified in Powis, whether they are categorised as allegations of bad faith or not. Although the court in that case identified the situation where fresh evidence is admissible to prove the particular misconduct alleged, the same must apply to rebut such an allegation. Further, applying Lynch, it appears to me necessary to reach a just conclusion to permit the further witness statements for that purpose. In principle, where in judicial review proceedings criticism is made of the behaviour of officials in a way that touches on their integrity, even if it does not explicitly impugn it, fairness may require that they should have the chance to answer. In the present case, the fact that such criticism was articulated for the first time in the claimants' skeleton argument, justified the late application.
85. As far as the further statements of Mr King and Mr Jefferies are concerned, I consider that these are admissible to show the state of their knowledge in 2009-2010 in relation to the email exchanges of 8 August and 5 September 2006, and what the decision maker did and did not look at, at the time. This falls within the first category identified in Powis. Accordingly, I acceded to the defendant's application.
86. However, I have taken the evidence into account within the limits indicated by the authorities I have cited, and not beyond that. I accept the claimants' submission that the evidence should not be used for the purpose of (as it was put in oral argument) "bettering" the decision. This appears from R v Westminster City Council, ex parte Ermakov [1996] 2 All ER 302 at 315h-j (which has been described as the classic exposition of the relevant law: Hijazi v Royal Borough of Kensington and Chelsea [2003] HLR 72 at [31], Dyson LJ). There the court refers to the admission of evidence in appropriate cases elucidating but not fundamentally altering, confirming but not contradicting, the reasons given at the time.
87. I should now state the facts in the relevant respects. As I have said earlier, there is nothing in the documents to support the claimants' assertion that HMRC deliberately allowed the 30 day period after the closure notices to expire before pointing out the mistake in their claim for relief. The evidence of Mr Gray (and to the extent he was involved, Mr King) confirms that there was no such strategy.
88. As to the Fletcher emails of 8 August and 5 September 2006, Mr Gray says in his witness statement that he could see that Mr Fletcher had identified a problem with the time apportionment of losses when he took over the file, but did not understand the exact problem or appreciate the error. He only became aware of the errors in the 2006 claim in June 2008, and the errors in the 2005 claim in October 2008, leading to his letter of 16 October 2008 which I have cited above. I reject the assertion that he "masked" HMRC's long-standing awareness of it in that letter by claiming that "the penny has belatedly dropped" (see paragraph 61 above). By then, it is common ground that the deadline for the claimants to have submitted an amended consortium relief claim had expired.
89. Mr King says in his second witness statement that he was unaware that Mr Fletcher had spotted an error in August 2006 until he was asked to assist in the disclosure exercise in the course of this litigation. In his second witness statement, Mr Jefferies says that he also was unaware of the Fletcher emails until the disclosure exercise in the litigation. I was told that the claimants did not ask to cross-examine the officers on their witness statements. In the event, I accept their evidence, but make it clear that I would have reached the same factual conclusions without it, since it is consistent with the contemporaneous documents.
90. In summary, I am satisfied that HMRC did not deliberately withhold communication of the mistake that was made by the claimants in the apportionment of the losses in order to defeat the claims for timely relief, which is what the claimants suggest in their skeleton argument, either as regards the 2005 claim, or as regards the 2006 claim. This is important, because a different conclusion may well have led to a different outcome of these proceedings.
91. I now come to the four grounds advanced by the claimants.

Ground 1: The decision letter failed to give sufficient reasons

92. The decision letter dated 28 April 2010 from Mr King to Cohen Arnold refers to the fact that advice has been received by Mr Jefferies, and says that, "In the circumstances of this case, HMRC refuses the late claim to consortium relief by Bampton Property Group Ltd in respect of the year ended 31 March 2006 and the late claims to consortium relief by the 6 other subsidiary companies listed above in respect of year ended 31 March 2005."

The contentions of the parties

93. The claimants' submission is straightforward. The defendant was legally required to give reasons for the decisions made in the decision letter, because without them, it was impossible to see whether he had made a good decision. He failed to give legally adequate reasons for the decision in the decision letter. The effect, it is submitted, is that the decision in the decision letter must be quashed, and a different person within HMRC must re-take the decision afresh, uninfected by the earlier decision.
94. The defendant submits that the absence of reasons did not lead to such decisions being invalid. Schedule 18, Finance Act 1998, paragraph 74(2) does not impose any requirement that reasons should be given. Equally there was no undertaking in SP 5/01 that HMRC's response refusing claims would be accompanied by full reasons. Rather, it is submitted, the suggestion at paragraph 9 is that claims would be rejected unless there could be said to be exceptional circumstances. It was therefore implicit in any letter of rejection that HMRC were not satisfied that exceptional circumstances existed (and so alternatively it could be argued that implicit reasons were given). Further, the decision by HMRC was administrative as opposed to judicial in nature. Finally, the circumstances of HMRC exercising discretion as to whether to allow an otherwise time barred claim is not a situation where a mandatory requirement to give reasons should be implied. A company which makes a late claim is, by definition, not entitled to claim group relief. It has, the defendant submits, no rights save to ask HMRC to waive the time bar which, if waived, would require HMRC to either refund tax or to claim a reduced amount.

Statement of Practice 5/01

95. It is necessary at this point to set out the terms of SP 5/01 which I have referred to a number of times already. I have set out the terms of Schedule 18, Finance Act 1998 above. Paragraph 74(2) contains the discretion for HMRC to allow a claim for group relief to be made at a later time. As amended by the Commissioners for Revenue and Customs Act 2005, it provides that, "A claim for group relief may be made or withdrawn at a later time if an officer of Revenue and Customs allows it".
96. Paragraph 74 does not set out the criteria for the exercise of HMRC's discretion. Both the Inland Revenue and HMRC published Statement of Practice 5/01 in which at paragraphs 9-13, HMRC gave guidance as to how late claims will be considered as follows:

"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 Board will not make routine use of its powers to accept claims made outside these limits. But the Board recognises 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 Board's 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 Board's 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 Board's 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; and

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

11 The Board 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; or

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

12 There may be cases falling outside the general approach outlined in para 10 where it would nevertheless be unreasonable, given the overall circumstances of the case, for the Board 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 Board in assessing the circumstances as a whole;

–     the extent to which it is late;

–     the consequences for the company if the claim is refused; and

–     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 Board's approach.

Procedures

13 An application to admit a claim outside the statutory time limits should be sent to the Inspector dealing with the claimant company and should include a full explanation of the circumstances of the case. The explanation should cover, but need not be limited to, all the criteria set out in para 12. The application should be made as soon as possible. Delay in making a late claim after the circumstances which caused the claim to be late have ceased to apply may result in the claim being rejected."

Discussion and conclusion

97. As regards the necessity for reasons, there is a full citation of the authorities in the claimants' skeleton argument, for which I am grateful. The principles are not in dispute. There is no general public law duty to give reasons for administrative decisions. Whether or not the common law will impose a duty will depend on whether fairness requires the giving of reasons. (See e.g. R v Secretary of State for the Home Department, ex p Doody [1994] AC 531, HL, 564 Lord Mustill; R v Higher Education Funding Council, ex p Institute of Dental Surgery [1994] 1 WLR 242, DC, 257, Sedley J; Stefan v General Medical Council [1999] 1 WLR 1293, PC, 1300, Lord Clyde).
98. There is recent Supreme Court authority in the tax context. In Tower MCashback LLP 1 v Revenue and Customs Commissioners [2011] 2 AC 457 at [15], the following observation of Henderson J at first instance as regards reasons in a closure notice was said to be correct:

"There is no express requirement that the officer must set out or state the reasons which have led him to his conclusions, and in the absence of an express requirement I can see no basis for implying any obligation to give reasons in the closure notice."

99. Mr Yates for HMRC places reliance on this passage. On the other hand, it is to be noted that the context was a notice which gave rise to a right of appeal, which is not the case here. Further, at [18], Lord Walker says that, "This should not be taken as an encouragement to officers of the revenue to draft every closure notice that they issue in wide and uninformative terms. In issuing a closure notice an officer is performing an important public function in which fairness to the taxpayer must be matched by a proper regard for the public interest in the recovery of the full amount of tax payable."
100. Nevertheless, and with those qualifications, Tower MCashback does provide some support for the defendant's submissions. In my view, the defendant was right to submit that where HMRC (or more precisely an officer of HMRC) is exercising a discretion as to whether to allow an otherwise time barred claim for group relief, no mandatory requirement to give reasons should be implied.
101. Does fairness require a different conclusion in the present case? Clearly, there are cases where it may. But here, the claimants through their accountants had contended over the course of some time that the discretion should be exercised in their favour. The decision letter came at the end of that process. There was no dispute that the approach to be followed in the exercise of the discretion by the officer was as set out in SP 5/01, which recognises that there may be exceptional reasons why a claim is not made within the specified time. I think the defendant is right that it was implicit in the decision that HMRC was not satisfied that there were exceptional reasons. On the present facts, there was no need to spell this out further. The reason was the policy, it had been decided that there was nothing to take the claimants outside the policy, and the reason was manifest (R (on the application of T) v Secretary of State for the Home Department [2003] EWHC 538 (Admin) at [41], Maurice Kay J). It was a refusal of an extension of time, and in my view, fairness did not require the officer to say more than that.
102. Further, the defendant has another submission. I have set out above the sequence of events that led to the decision letter. In short, Mr King explained that he intended to submit the proposed late claims to his Head Office colleague for consideration, as is the procedure within HMRC. He did so by way of a "technical submission" to Mr Jefferies, who was the officer with responsibility for late claims, once KPMG had submitted revised computations on 13 March 2009. Mr Jefferies' email of 26 April 2010 sets out his advice to Mr King as to whether HMRC should exercise its discretion to admit the late claims for group relief. For reasons set out in the email, the conclusion was that it was not unreasonable to refuse the claims. Two days later, Mr King sent Cohen Arnold the decision letter. It is true that at the time, the claimants had not seen the email. But on 25 June 2010, HMRC's solicitors appended it to their reply to the pre-action protocol. As Mr Yates submitted, in practical terms the claimants were supplied with the reasons for the decision prior to issuing these judicial review proceedings.
103. Objection is taken by the claimants on the basis that Mr Jefferies was not the decision maker, and it is for the decision maker (and not someone else) to supplement his reasons for a decision. However, there can be no doubt that Mr King relied on Mr Jefferies' email. The position is in my view within Garner v Elmbridge Borough Council [2011] EWCA Civ 891, where at [38] Sullivan LJ says that reasons in summary form should not be construed in isolation. In that case, it was held that reasons for the grant of planning permission could be read in the light of the planning officer's report, whose recommendations had been followed. The claimants' response is that the cases are different, because here the decision-maker did not contemporaneously accept the advice given in the email. There is no force in that distinction in my view. The emailed advice from Mr Jefferies was sufficiently contemporaneous, and the same principle applies. I reject the claimants' first ground therefore.

Ground 2: legitimate expectation

104. The second ground is that the decision letter defeated the claimants' legitimate expectation that their claims for group relief would be considered on their merits, (i.e. that HMRC would not refuse to consider the claims on the basis of their having been made out of time).

The contentions of the parties

105. The claimants submit that by its letter of 1 February 2008 (set out above), read with SP 5/01, HMRC represented to Cohen Arnold that it was only the resolution of the arithmetic query in paragraph C that stood in the way of all the claims. Set within its context, the representation made by HMRC in the letter is clear, unambiguous and devoid of relevant qualification. Any reasonable accountant who had been dealing with enquiries opened by HMRC on the same matters and conducted in accordance with Code of Practice 14 would have read the letter as listing the only matters which stood in the way of allowing Daejan's claims for group relief. That is how Cohen Arnold understood the letter at the time, and so the Group reduced their tax provision and proceeded to request that HMRC close down the enquiries into the claimants' tax returns. By acceding to that request, HMRC closed off the entitlement of the claimants to make as of right the amendments to both years' returns so as to claim correctly the group relief. Moreover, HMRC repeated the representation four weeks later. The conduct of HMRC in the weeks immediately following was also confirmatory. Indeed, the whole procedure followed by HMRC from mid-2008 to 28 April 2010, betrays, it is submitted, a preparedness by HMRC to allow extra time to consider the claim for group relief.
106. On the footing that there was a legitimate expectation, the claimants submit that is to be characterised as a procedural legitimate expectation. The exercise of the discretion in paragraph 74(2) to allow a company more time to make a claim for group relief does not determine the outcome of that claim. It may, it is submitted, be perfectly possible for HMRC to allow a claim to be made late, and then to reject it because it does not meet one or more of the requirements of those provisions. It is the latter decision which is the decision of substance. It is submitted that like limitation periods, the time limit and its extension is procedural rather than substantive. Where a procedural legitimate expectation is established, it will be unlawful for the decision-maker not to give effect to it unless it is fair to do so, and it is not fair in this case, the claimants submit, because HMRC had no legitimate reason for doing so. What drove HMRC to defeat the legitimate expectation was the realisation that, once it allowed extra time for the making of the group relief claim, HMRC had no basis upon which it could thereafter reject the claim.
107. The defendant submits that there is nothing in SP 5/01 to give rise to any expectation that late claims would be accepted. The letter from Mr Gray dated 1 February 2008 only addressed claims which had been submitted at that stage. It gave no indication as to how future claims might be treated (in particular if they were late). Since as at 1 February 2008 there were no late claims, Mr Gray could not have made any representation to the effect that HMRC would take no point of any future claim being out of time. In any event, the key statement (it is submitted) was as follows: "A...It has been decided not to pursue any challenge to this groups claim to consortium relief provided the claims are in proper form and amount. B. I am content with the format of the claims." There is nothing in this statement which it could be said rendered HMRC's subsequent rejection of late claims by the claimants an abuse of power. Further, the claimants did not act to their detriment. Mr Gray said he was reserving his position as to whether the amounts claimed were correct, and they were not.

Discussion and conclusion

108. There was no dispute as to the applicable principles. These were considered recently by the Supreme Court in the tax context in R (Davies) v Revenue and Customs Comrs [2011] 1 WLR 2625, which confirms that for a representation by the revenue to give rise to a legitimate expectation on the part of the taxpayer, it is necessary that the statement relied upon should be clear, unambiguous and devoid of relevant qualification (R v Inland Revenue Commissioners, ex p MFK Underwriting Agents Ltd [1990] 1 WLR 1545, DC). The underlying question is whether the authority has acted so unfairly that its conduct amounts to an abuse of power (R (Bancoult) v Secretary of State for Foreign and Commonwealth Affairs (No 2) [2009] 1 AC 453 at [135]).
109. Again, I do not think it is in dispute that the claimants had a legitimate expectation that any claim for late group relief would be dealt with in accordance with SP 5/01. The claimants say that it was not properly dealt with, taking a point on the construction of the statement of practice, whereas the defendant says that it was properly dealt with. There is no doubt that the defendant sought to deal with the claim on the basis of SP 5/01, and since the claimants' construction point arises under the third ground, I shall deal with it there.
110. Otherwise, the claimants' argument depends upon the letter of 1 February 2008. The contention is that any reasonable accountant who had been dealing with enquiries opened by HMRC on the same matters and conducted in accordance with SP 5/01 would have read the letter as listing the only matters which stood in the way of allowing Daejan's claims for group relief. However, as I have already noted, the letter was only concerned with the 2005 claim, not the 2006 claim. Further, the statement that, "It has been decided not to pursue any challenge to this groups claim to consortium relief", was subject to a proviso, namely, that "… the claims are in proper form and amount". Although Mr Gray said that he was "content with the format of the claims", and raised what was a very limited point on the calculations, it contained no representation that any further claims would be accepted out of time. As the defendant points out, at this time neither Mr Yu nor Mr Gray were aware that the 2005 claim was incorrect in a much more substantial way, because of the apportionment error that had been made.
111. Applying the authorities referred to above, there is no basis for the assertion that these facts gave rise to a legitimate expectation that the letter listed the only matters which stood in the way of allowing Daejan's claims for group relief. For reasons set out above, I am satisfied that HMRC did not deliberately withhold communication of the mistake that was made by the claimants in the apportionment of the losses in order to defeat the claims for timely relief. It cannot be said that by refusing the late claims HMRC has acted so unfairly that its conduct amounts to an abuse of power. I find against the claimants on the second ground.

Ground 3: Flawed decision-making methodology

112. In support of this ground, the claimants rely on two submissions, first that a public body must have regard to all legally relevant considerations and to no irrelevant ones in reaching a decision. A material failure to exercise discretion by reference to relevant and not irrelevant considerations will vitiate a decision. Second, a failure to apply properly or to have regard to relevant policy guidance will generally supply a ground for setting the decision aside. Four matters are identified in the claimants' skeleton argument in this regard, and I shall deal with them in turn.

(1) The legal entity point

113. It is said that HMRC misapplied the guidance in SP 5/01 by attributing to the claimants the error made by or on behalf of Daejan Holdings plc, a separate legal entity. This happened by treating as an "oversight or negligence on the part of a claimant company or its agent" for the purposes of SP 5/01 paragraph 11 what was done by Cohen Arnold in its capacity as agent of Daejan Holdings plc, even though for the purposes of paragraph 74(2) of Schedule 18 it is the claimants—and not Daejan Holdings plc—which are the claimants for group relief. By eliding Daejan Holdings plc into the claimants, it is submitted, HMRC treats what Cohen Arnold did as agent of one as if it were done as agent of the others. The relevant paragraphs of SP 5/01 are concerned with what is within the claimant company's control, and they do not attribute to the claimant company what is within the control of other members of the group (whether directly or through their agent). On this mistake alone, it is submitted, the claim for judicial review should be allowed and the relief sought granted.
114. The defendant submits that it is permissible to take into account that an error had been made by Cohen Arnold on the basis of a "sensible purposive interpretation" of SP 5/01. The intention of giving examples is to give guidance as to what does and does not constitute exceptional reasons. HMRC does not consider that a failure by a subsidiary's parent to calculate group relief correctly so that the subsidiary has to make a late claim to constitute an "exceptional reason". The associating of errors with groups of companies is made explicit in Mr Jefferies' email of 26 April 2010 where he said, "In general, HMRC does not consider cases where error or oversight by the surrendering company or another company within the group gives rise to additional relief for surrender after the time limit for group relief claims to fall within paragraph 10." Given that SP 5/01 is intended to cover a range of possible claims (e.g. claims for single company loss relief and capital allowances), when applying the guidance in the context of group relief, it is reasonable for HMRC to take into account the actions of the group as a whole.
115. I agree with the defendant on this point. The fact that the accountants may have been acting for the parent rather than the members of the group which were claiming the losses is irrelevant for these purposes. In the case of a claim for group relief, on a sensible construction of SP 5/01, HMRC was entitled to treat the group as a whole, and to treat a failure to make a claim in time by reason of the accountants' "oversight" accordingly.

(2) The misapplication point

116. Secondly, the claimants submit that HMRC misapplied SP 5/01 by reading across the exception in paragraph 11 into paragraph 12. SP 5/01 recognises two classes of situation in which HMRC might allow further time within which to make claims for group relief, namely: (i) where, because of reasons beyond the company's control, the claim could not have been made within the paragraph 74(1) time-limit (paragraphs 10-11); and (ii) where the reason for the late claim not having been made within the paragraph 74(1) time-limit was not one beyond the company's control (paragraph 12). The pre-action protocol response, in explaining that HMRC had concluded that it was nevertheless not unreasonable to refuse the late claim (i.e. paragraph 12 did not apply), gave as the only specifically articulated consideration that "the guidance makes clear that HMRC would normally not admit claims which are late because of oversight or errors committed by the agent". This consideration (the claimants submit) comes straight out of paragraph 11 of SP 5/01. Mr Jefferies, in advising on the application in his email of 26 April 2010, made the same mistake. It evidences, the claimants submit, another fatal mistake in HMRC's decision-making methodology, collapsing the two discrete classes into one.
117. The defendant says that the claimants' case about reading in paragraph 11 into paragraph 12 of SP 5/01 is not understood. The first indent of paragraph 12 specifically asks the reader to consider why the claim is late. It emphasises that notwithstanding that the reason does not warrant admission of the claim under paragraphs 10-11, it will still be taken into account in assessing circumstances as a whole, which is what Mr Jefferies did. He went on to identify (i) the delays of making late claims and (ii) the consequences for the companies if the claim was refused (both of which are undeniably relevant factors for paragraph 12)—these themselves were sufficient reason for holding that paragraph 12 did not apply. He further discussed whether HMRC had a responsibility to identify errors etc which conceivably, if valid, could fall within paragraph 12. He concluded that it was not a valid factor for consideration under paragraph 12.
118. In agreement with the defendant, in my view, there is no absolute delineation between paragraphs 10-11 and paragraph 12 as the claimants suggest. In his email of 26 April 2010, Mr Jefferies said, "In general, HMRC does not consider cases where error or oversight by the surrendering company or another company within the group gives rise to additional relief for surrender after the time limit for group relief claims to fall within paragraph 10". In the passage which the claimants particularly criticise, he said that, "Paragraph 12 provides that there may be cases falling outside the general approach in paragraph 10 where, given the overall circumstances, it may be unreasonable for HMRC to refuse a late claim. Oversight, in general, is not considered to be a reason to justify acceptance of a late claim ...". He then goes on to consider the timing of the late claims and the amounts. He concluded, "Considering all the circumstances as presented, it would not appear to be unreasonable for HMRC to refuse the late group relief claim ...". I do not consider that this approach misapplied SP 5/01, or read across the exception in paragraph 11 into paragraph 12.

(3) One company in the group had already made the same claim for group relief

119. Thirdly, the claimants submit that HMRC failed to take into account the fact that one company in the group (i.e. Daejan Holdings plc) had already made the same claim for group relief, that it had been made well within the time permitted by paragraph 74(1), that it was for the same amount of relief, that it derived from the same surrendering companies and that, but for the time taken by the defendant's predecessors to deal with its enquiries into Daejan's returns and to issue Daejan with a closure notice, the claims would have been made in time. These it is said were all highly relevant to the reasonableness of allowing the claims.
120. I agree with the defendant in this respect. The fact that Daejan Holdings plc had already submitted a claim in time and that this claim had included amounts which were being claimed by the claimants in the late claims, was part and parcel of the background, and clearly not left out of account. As to the assertions made on the facts, I refer to the factual section of this judgment dealing with how the apportionment errors came to light.

(4) Irrelevant considerations

121. Fourthly, the claimants submit that HMRC took account of irrelevant considerations. In deciding to refuse the claimants more time to make the claims for group relief, HMRC's driving consideration was the rejection of the claims for group relief, regardless of the identity of the claimant company or of the time within which they were made. To that end, HMRC reversed the logical decision-making order (i.e. first decide whether to allow extra time within which the claim may be made, then decide whether to allow the claim). It had earlier tried every means by which to find fault with the content of the group relief claims. HMRC's dislike of the group relief claims stemmed from their characterisation of the claims as "tax avoidance". It was when, and only when, HMRC had exhausted all the avenues by which it might have rejected the group relief claims on their merits that HMRC first raised with Cohen Arnold the logically antecedent timing of the group relief claims.
122. I should note that this part of the claimants' skeleton argument continues in terms that I have set out above in paragraph 80 of the judgment. The allegation is that HMRC deliberately let the thirty day period after the closing of the enquiries go by before drawing attention to the mistake in the group relief claims. For reasons already given, I have rejected this contention, and found that HMRC did not deliberately withhold communication of the mistake that was made by the claimants in the apportionment of the losses in order to defeat the claims for timely relief, either as regards the 2005 claim, or as regards the 2006 claim.
123. In oral argument, Mr Coppel QC for the claimants put the emphasis of the claimants' submissions somewhat differently. It was, he submitted, clear that the fact that the officers regarded the group relief claim as part of a tax avoidance scheme was the driving factor in the decision making process. This was, he submitted, an irrelevant consideration because the claimants were entitled to have their claims considered solely within the ambit of Schedule 18, Finance Act 1998, without regard to their underlying intention. The claimants' intention (or otherwise) to acquire the Arch and Crowe companies for the sole purpose of using their losses in the context of a group relief claim, was wholly irrelevant. The rules in the schedule are not concerned to change the incidence of taxation according to whether the officer concerned has a view as to whether a class of claim should be allowable under the legislation. By allowing this consideration to "infect" their decision making, the refusal of the late claims, it was submitted, was unlawful, and on that basis the decision must be set aside.
124. On his part, Mr Yates for the defendant accepted (as he put it) that the tax avoidance issue had "informed" the decision taken in this case, though he pointed out that it is not a factor identified in Mr Jefferies' email of 26 April 2010, and he did not accept that it was the driving force. Nevertheless, citing the observations of Lord Nolan in IRC v Willoughby [1997] 1 WLR 1071 at 1079, he submitted that there was no commercial objective in the acquisition of the shares in the Arch and Crowe companies, and the fact the acquisition was solely for tax avoidance was something that HMRC could properly take into account for the purposes of SP 5/01, and that it properly informed the decision on this occasion to refuse the late claims.
125. In support of his position, the defendant cites the closing part of paragraph 12 of SP 5/01 which states that, "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 Board's approach". This, he says, is an express recognition in the material guidance that tax avoidance will be taken into account so far as the admission of late claims is concerned.
126. The claimants' response is as follows. The relevance of this part of paragraph 12, it is contended, is limited to those cases where "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)". That, it is contended, is limited to the situation in which the lateness of the claim forms a constituent part of the scheme or arrangement. The late making of the claimants' claims for group relief was not part of any scheme. Hence, it is said, paragraph 12 is irrelevant in this respect.
127. Before reaching a conclusion, I need first to state the facts. I accept the claimants' submission that the evidence establishes that these schemes were not regarded sympathetically by HMRC. It is further correct to say that this issue loomed large in Mr King's "technical submission" to Mr Jefferies of 26 March 2009 (see above in both these respects). However, the basis for the decision ultimately taken by Mr King was Mr Jefferies' advice contained in his email of 26 April 2010 which, as the defendant has submitted, contained the reasons. This is a contemporaneous document, and as a matter of fact, it does not mention the tax avoidance issue. I do not accept therefore that this was the driving force behind the decision, but consider that the defendant was correct to say that the issue informed the decision.
128. In the light of that finding, my conclusion on this issue is as follows. As regards the claimants' construction of paragraph 12, this part of SP 5/01 is concerned with the approach to be taken by HMRC to extending time limits in the case of late claims. The reference to "late claims" in this part of paragraph 12 must be read in that context. The passage is concerned with a late claim which forms part of a scheme or arrangement the purpose of which is the avoidance of tax. As a matter of construction, this language is not restricted to the situation where the lateness of the claim forms a constituent part of the scheme. As a matter of common sense, it is the fact of the lateness of the claim that is in point, not whether the lateness of the claim is itself part of the avoidance scheme. I reject that submission therefore.
129. Further, I see no reason in principle why the tax avoidance factor should not be taken into account in deciding whether to admit a late claim or not. In reaching its decision, HMRC must be entitled to take account of the fact that (for example) the relevant losses have not been incurred in the course of the group's trading activities, but have been acquired for the purpose of increasing the claim to group relief. The weight to be given to such a consideration is a matter for HMRC, but it is not an irrelevant consideration. I accept of course the claimants' submission that the rules in Schedule 18 are not concerned to change the incidence of taxation according to whether the officer concerned has a view as to whether a class of claim should be allowable under the legislation. Had the claimants claimed the maximum group relief within the statutory time limits, the claim would have been admissible whether the officers liked it or not. However, the claimants did not, and the consequence was that the officer concerned had a discretion whether to admit the further claim. Since tax avoidance is expressly contemplated in paragraph 12 of SP 5/01 as something to be taken into account in HMRC's approach, it appears to me that insofar as this factor did inform the decision not to admit these late claims, this cannot form the basis of a challenge to the decision.

Ground 4: An irrational decision

130. As regards the 2005 claim, the claimants' submissions are based on the contention that on 16 October 2008 Mr Gray decided to alert Daejan of its error, masking HMRC's long-standing awareness of it by claiming that "the penny has belatedly dropped". For reasons stated elsewhere, I reject that contention, and am satisfied that Mr Gray became aware of the errors in the 2005 claim in October 2008, leading to his letter of 16 October 2008.
131. As regards the 2006 claim, the claimants' submissions are based on the contention that despite knowing that there had been an apportionment oversight in the 2005 claim, Mr Gray first expressed concern about the apportionment calculation in the 2006 claim in a letter on 6 June 2008 two months after the time limit for submitting an amended claim by the claimants expired. For reasons stated elsewhere, I reject that contention, and am satisfied that Mr Gray became aware of the errors in the 2006 claim in June 2008 leading to his letter of 6 June 2008.
132. Otherwise, the points raised by the claimants in support of the contention are those dealt with elsewhere in this judgment, prior knowledge of the error in the 2005 claim, the asserted failure to notify the claimants of such an error on more than one occasion, the nature and justification for the error, the fact that an amended claim would not alter the quantum of the relief claimed but just the identity of the companies within the group to which the losses were surrendered, the fact that the original claims had been made in the prescribed time and in good faith, the claimants' asserted legitimate expectation that the claims would be dealt with on their merits and not frustrated by any delay, and the guidance at SP5/ 01. So far as the tax avoidance issue is put forward in support of this ground, the considerations set out above apply.
133. These matters do not support the contention that there was no rational basis upon which HMRC could have rejected the claim for additional time within which to consider the claim for group relief. A different view might certainly have been taken, but it was not, and it was for an officer of HMRC to decide, not the court.

Conclusion

134. The claimants have not established any of the four grounds maintained, and this application for judicial review must be dismissed. I am grateful to the parties for their assistance, and will hear submissions as to any consequent orders.