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
		20/12/2013

Mr Justice Stewart :

Introduction

1. In this case I shall refer to the First Claimant as "North", the Second Claimant as "GMGP" and the Third Claimant as "GMGI".
2. Since this is the judgment in respect of an oral application by the Claimants for permission to bring judicial review, it is not as extensive as if there had been a substantive hearing. Nevertheless, I shall address the critical points and give reasons for my decision.
3. The Claimants seek permission to challenge a decision made by the First Defendant on behalf of the Second Defendants ("The Commissioners"). That decision is contained in a letter dated 28 March 2013. The Commissioners refused to exercise a statutory discretion permitting adjustments to claims made for corporation tax group relief outside the ordinary statutory time limits for making such claims provided for in the Finance Act 1998.

Background

4. The claim concerns the accounting periods ending 31 March 2007 and 31 March 2008. In these periods North was profit making. Therefore on 30 March 2009 North made group relief claims in respect of trading losses and other deductions which had accrued to other members of the Guardian Media Group ("the Group"), none of whom is a claimant. The group relief claimed in the year ending March 2007 was nearly £22 million. This reduced North's profits chargeable to corporation tax to £564,937. For the year ending March 2008, North claimed group relief of just over £16 million reducing its profits chargeable to corporation tax to zero.
5. In the following year, period ending 31 March 2009, North was again profitable but its business was deteriorating fast. As a result a purchaser was sought and the sale of North's trade and assets to Trinity Mirror was completed on 28 March 2010. This sale led to the cessation of North's trade and generated a trading loss of over £30 million for the period ending 31 March 2010. Had it not been for the group relief claims made for the periods ending March 2007 and March 2008, North would have been able to carry losses back to the period ending March 2007 under the terminal loss relief provisions. However, the already claimed group relief against profits, for the periods ending 31 March 2007 and 31 March 2008, left only £564,937 worth of profits available to be relieved by North as terminal loss relief.
6. The ordinary time limits for changing the group relief position for the periods ending March 2007 and March 2008 ended on 31 March 2009 and 31 March 2010 respectively. In summary North's case is:

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

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

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

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

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

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

Legislation and Policy

7. The relevant legislation is paragraph 74 of Schedule 18 to the Finance Act 1998 ("the 1998 Act"). HMRC's policy setting out how HMRC's statutory discretion to extend time limits for making or withdrawing a claim for group relief is contained in their Statement of Practice 5/01, "CTSA: Claims to loss relief, capital allowances and group relief – outside limit" ("SP5/01"). Paragraph 74 and the material paragraphs of SP5/01 are contained in Appendix A to this judgment.
8. By operation of paragraph 74(1)(a), in conjunction with paragraph 14 of Schedule 18, for all the claimants the relevant time limits for making or withdrawing claims were 31 March 2009 for the period ending 31 March 2007, and 31 March 2010 for the period ending 31 March 2008.

The Decision Letter

9. The Decision Letter is quite a lengthy document. I will cite some material extracts. These are contained in Appendix B to this judgment.

Ground 1 of the Claim

10. In relation to the period ending March 2007 (and not 2008 also) the Claimants claim that the Defendants failed to apply paragraph 10 of SP5/01.
11. The Claimants' claim under this ground may be summarised as follows:

(i) Read in the context of paragraph 9 and 11, paragraph 10 of SP5/01 recognises that it will be appropriate for HMRC to admit a late claim, and not to require strict adherence to the ordinary statutory time limits, where the delay in making a claim cannot fairly be said to be the fault of the taxpayer. This was the case here, they submit, because by 31 March 2009 the possibility of making a terminal loss relief claim was not even on the horizon.

(ii) There is no basis for limiting the discretion under paragraph 10, so as to preclude reliance on unforeseen circumstances occurring after the expiry of the statutory time limit.

(iii) This case raises an "exceptional" circumstance because the cessation of North's trade with the consequent potential to permit terminal loss relief, was by definition a one off circumstance. No other event occurring two years after the end of the relevant accounting period could possibly impact on the relevant period in the same or a similar way. Thus the time limits allowed by statute were not "adequate" and there were "exceptional reasons" why the claim was not made within the time specified.

(iv) There is clearly a more than arguable case here based on the proper interpretation of paragraph 10 of SP5/01, where there is no existing authority and no convincing response by the Defendants to the Claimants' submission.

12. Construing the policy is a matter for the court. In my judgment the Claimants' claim under Ground 1 does not cross the low threshold required for the court to give permission. I say this for the following reasons:

(i) There is nothing in SP5/01 which indicates that a claim can be made or withdrawn because, by reason of a subsequently occurring event, companies in their group wished they had made different decisions.

(ii) Though not exhaustive, the examples given in paragraph 10 do not envisage any such possibilities.

(iii) Putting on one side the illness or other absence for good reason of an officer of the company, the remaining exemplified cases depend upon lack of awareness of profits or the amount of profit/loss depending on discussions with an inspector which were not complete when the time limit expired, absent any fault on behalf of the company/its agents. In this regard it is clearly stated "claims which…affect profits which were not in dispute at the time of expiry of the statutory time limits will not be within this approach." Whilst that may be read predicated upon the particular example with which it is dealing, it clearly demonstrates that in such circumstances at least, undisputed profits as at the expiry of the time limit will not be the subject of any discretion. It is also a strong steer, consistent with the Commissioners' case, that events, whether unforeseen or not, which supervene after the expiry of the statutory time limit has come into effect cannot be within the policy. It is also of note that paragraph 11 of the policy, which deals with what would not be regarded as reasons beyond the company's control, does not envisage the possibility of the supervening events being of relevance.

(iv) In my judgment it cannot possibly have been the intention of Parliament, or of the policy, that "exceptional reasons" could include re-opening decisions as to claimed relief in the light of subsequent events. It is unarguable that the statute/the policy can be construed so as to allow GMGP and GMGI to make a claim out of time. The consequence of the Claimants' case is that if one of a group of companies ceases to trade after the expiry of the statutory time limit, then everything can be rearranged within the group. In my judgment this would undermine the statutory time limits in a way which Parliament could not have intended. It may well be that the concatenation of circumstances which give rise to this case may be unusual (Mr Grodzinski QC enumerated 5 in total). However, that cannot properly amount to "an exceptional reason why a claim is not made within the time specified". The fact that an event may be rare does not mean it is exceptional.

(v) Further, the statute provides different time limits on group relief and terminal loss relief claims. The discretion in paragraph 74(2) and the "exceptional reasons" policy cannot be properly used to argue that the statutory time limit in paragraph 74(1) may be relaxed where a group company ceases to trade, seeks terminal loss relief and redistributes amongst other group companies the benefit of previously claimed group relief. Mr Grodzinski QC submitted that Parliament allowed extension of the time period for claiming group relief where the Revenue had given notice of enquiry (paragraph 74(1)(b) – (d)). This, in my judgment, does not assist the Claimants' submission. Parliament has chosen to suspend the running of time if HMRC give notice of an enquiry within the relevant time frames. This cannot justify a court interpreting the policy in what would be an unjustifiably broad construction. As at 31 March 2009 North had filed its tax return and decided to settle on the claims for relief which the Group had decided to make. This claim for relief was a voluntary decision made by North in their self assessment of corporation tax.

Ground 2 of the Claim

13. This ground is based on an allegation that the Defendants failed to apply paragraph 12 to both the periods, namely those ending March 2007 and March 2008. It is common ground that paragraph 12 is to cover situations which do not fall within paragraph 10. It was described by Arden LJ in R (Bampton Property Group Limited) v King and HMRC [2012] EWCA Civ.1744 at para 112 as a "safety valve". The opening words of the First Defendant in the Decision Letter of 28 March 2013 under the heading "Paragraph 12 of SP5/01" [set out in appendix B to this judgment] is a proper statement of the function of paragraph 12. While noting that the criteria listed in that paragraph are not exhaustive, and their relevance will depend upon a particular circumstance in each case, she did consider those criteria.

The Claimants submit that the First Defendant misapplied paragraph 12 and/or made errors. In relation to the four criteria under paragraph 12:

(i) – the reason why a claim is late: the Claimants submit that the First Defendant did not look separately at 2007 and 2008. They say that the reason she gave under paragraph 12 is incorrect in relation to 2007. The Claimants also submit that she adopted the wrong approach because she could not just adopt the reasoning in relation to paragraphs 9 and 10. Both submissions are unarguable. The short paragraph has to be read in the context of the separate treatment of the 2007 and 2008 claim earlier in the decision letter. The First Defendant clearly refers back to those paragraphs. They must also be read in the context of the fact that she was responding to PWC's letter of 21 November 2012 which went through the criteria. As to the second point, the First Defendant was perfectly entitled in considering the reason why the claim was late to refer back to her reasoning under paragraphs 9 and 10, so long as she regarded these as part of her overall discretion taking into account all the circumstances under paragraph 12 – which she did.

(ii) – the extent to which the claim was late: here the First Defendant clearly dealt with the 2007 and 2008 periods separately. She took into account, in the Claimants favour, that once they approached the CRM in August 2010 they put together the late claims without any undue delay.

(iii) – the consequences for the company if the claim was refused: the First Defendant dealt with this, both in relation to North and in relation to the Group as a whole.

(iv) – any particularly unusual features:- the First Defendant recorded that there were none and the Claimants did not submit that there was anything over and above what had already been stated.

(v) The Claimants relied on the additional words at the end of paragraph 12, which indicate that the Commissioners will take into account (adversely) a late claim the purpose of which is the avoidance of tax. They said the converse must also be true. Therefore, they say, that if a late claim does not form part of a tax avoidance scheme, this should be a factor in support of exercising the discretion. I do not accept this. There are four criteria. In addition there is a negative factor if the claim forms part of a tax avoidance scheme. It is not a positive factor that it does not do so.

14. In my judgment it cannot possibly be said to have been Wednesbury unreasonable for the Defendants to refuse to exercise their discretion under paragraph 12. The points which I have made in this judgment in paragraph 13 above put paid to any arguable case that the Claimants may have that the Defendants' conduct was conduct which no sensible authority, acting with due appreciation of its responsibilities, would have decided to adopt.
15. Finally, the Claimants say under this ground that the refusal of the late claims in the circumstances of this case was "unreasonable" within the meaning of paragraph 12. They rely upon an HMRC internal guidance document associated with SP5/01 and entitled "Late Claims (Group Relief, Capital Allowances, CTSA Losses, R & D Tax Credits)", paragraphs 25-27, which finishes with these words:

"Depending on the overall circumstances of the case, the effect on the company of refusal of a late claim may be wholly disproportionate, and therefore unreasonable, having regard to the nature of the company's failure to claim on time."

The Defendants say this guidance ceased to be disseminated from 2007. There is no evidence that the First Defendant was aware of it and/or relied upon it in making her decision. The First Defendant came to her conclusion for the reasons she gave. In my judgment it is not arguable that her conclusions were unreasonable.

Conclusion

16. For the above reasons permission is refused.
APPENDIX A

Paragraph 74 of Schedule 18 to the Finance Act 1998

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

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

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

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

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

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

Statement of Practice 5/01

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

• the extent to which it is late

• the consequences for the company if the claim is refused

• any particularly unusual features.

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

APPENDIX B

"Parliamentary Intention

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

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

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

….

Paragraphs 9 to 11 of SP5/01

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

…

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

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

Paragraph 12 of SP5/01

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

Applying paragraph 12 to the Late Withdrawal of Group Relief Claims

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

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

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

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

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