First-tier Tribunal (Tax)

[2010] UKFTT 104 (TC)

 

 

 

 

 

 

TC00415

 

Appeal number SC/3206/2008

 

 

Gift Aid – section 98 FA 2002 – election to carry back to previous year –election to be made on or before taxpayer delivers return under section 8 – election made in an amendment to a return- whether made in time. Held: no.

 

 

FIRST-TIER TRIBUNAL

TAX CHAMBER

 

 

 

                                               JOHN CAMERON                              Appellant

 

 

                                                                      - and -

 

 

                                 THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS (Income Tax and Capital Gains Tax])                                                                Respondents

 

 

 

 

                                                TRIBUNAL: CHARLES HELLIER (Judge)

                                                                       

                                                           

 

Sitting in public in Edinburgh on 8 July 2009 and 19 January 2010

 

 

Bob Crawford of Crawford Herald for the Appellant

 

Samantha Cheung and Douglas Pate instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents

 

 

© CROWN COPYRIGHT 2010

DECISION

 

1.         This is a case where common sense and fairness appear to be on the taxpayer’s side.  If I were permitted to use only those concepts as my guides I would find for the taxpayer.

2.         There is no dispute about the facts.

3.         Mr Cameron is a farmer.  In the year ended 5 April 2006 he found that old age was creeping up on him and he sold a large part of his farming assets.  He realised a substantial sum and wished to use part of it to establish charitable trusts to enable young people to see the world.

4.         He spoke to his advisers and was told that if he made a donation to a charity in the year 2006/07 he could obtain gift aid relief on it which could be “thrown back” to 2005/06 against the gains on the sale of his farming assets.

5.         Mr Cameron and his advisers worked speedily to compute the gains arising on his disposals.   His return was ready for him to sign within less than five months of the end of the tax year.  He signed it on 28 August 2006 and it was received by HMRC on 4 September 2006.

6.         In August 2006 his advisers also started setting up the trust.  There were administrative complications and the trust had to be registered with the Office of the Scottish Charity Regulation (OSCR).  Mr Cameron eventually executed the deed establishing the Cameron Travel Scholarship Trust on 3 November 2006.  OSCR confirmed its registration in January 2007, and he made a payment to the trustees of £936,000 in that month.

7.         On 28 January 2007 Mr Cameron’s advisers submitted an amended return for 2005/06 claiming relief by way of carry back, by an election under section 98 TA 2002, for the charitable gift against Mr Cameron’s gains and income 2005/06.

8.         HMRC enquired into the return.  They refused the claim for relief.  They said such a claim could only be made in the original return.  It was too late to make it in an amended return.

9.         They did not put it this way but in effect they said: “if only Mr Cameron had not been so prompt and diligent in submitting his return, if only he had waited until 29 January 2007 before submitting his complete return, then all would have been well and he would have got his relief, but as it was his prompt compliance was his undoing.”

10.       HMRC say this is the case because of the conditions in section 98.  I must now turn to those conditions.

11.       Section 98 FA 2002, so far as is relevant, provides as follows:-

“(1)     A person (“the donor”) who makes a gift that is a qualifying gift donation within section 25 of the Finance Act 1990 (gift aid) may elect to be treated for the purpose of that section as if the gift were a qualifying donation made by him in the previous year of assessment.”

It was not disputed that Mr Cameron’s donation to the trust was a “qualifying donation”.  His aim was to take advantage of the election permitted by this subsection.  The section continues:-

“(2)     Any such election must be made by notice in writing to an officer of the Inland Revenue –

(a)       on or before the date on which the donor delivers his return for the previous year of assessment under section 8 of the Taxes management Act 1970 (personal return), and

(b)       not later than 31 January next following the end of that year.”

12.       HMRC say that the “date on which [Mr Cameron delivered] his return for the previous year of assessment under section 8” was 4 September 2006.  He made no election on or before that date.  He was therefore out of time when he delivered his election in his amended return on 29 January 2007.

13.       Mr Crawford says that for the purposes of s.98(2) the date on which Mr Cameron delivered his return was the date on which he delivered the amendment to his return, or his amended return, namely 29 January 2007; the election was made in that amended return, and therefore that the election was made on or before the date on which Mr Cameron delivered his return, with the result that his election was made in time.

14.       Therefore the issue for me to determine is whether the words “the date on which the donor delivers his return for the previous year…under section 8” encompasses the date on which an amended return is delivered.  I start by considering section 8 TMA and its related provisions.

15.       Section 8 TMA provides:-

“(1)     For the purposes of establishing the amounts in which a person is chargeable to income tax and capital gains tax for a year of assessment, and the amount payable by him by way of income tax for that year, he may be required by a notice given to him by an officer of the Board –

(a)       to make or deliver to the officer, on or before the date mentioned in subsection (1A) below, a return …

“(1A)   The day referred to in subsection (1) is –

(a)       the 31st January next following the year of assessment, or

(b)       where the notice is given after the 31st October next following the year, the last day of the period of three months beginning with the day on which notice is given …”

Section 9ZA TMA provides:-

“(1)     A person may amend his return under section 8 or 8A of this Act by notice to an officer of the Board.

(2)       An amendment may not be made more than twelve months after the filing date [the date in section 8(1A)] …”

I shall call the first return delivered by a taxpayer pursuant to a notice under section 8 the “original return”, and, since the words of section 92A(1) indicate that the effect of a notice given under that section is to “amend his return”, I shall call the original return as amended by such notice the “amended return”.

16.       Section 9ZB permits amendments to return under section 8 to be made by HMRC to correct obvious errors:

“(1)     An officer of the Board may amend a return under section 8 …”

It provides the following time limit for such an amendment:

“(3)     No such correction may be made more than nine months after –

(a)       the day on which the return was delivered, or

(b)       if the correction is required in consequence of an amendment of the return under section 92A of this Act, the day on which that amendment was made.”

 

17.       I note in the language of this section two features.  First, authority is given to “amend a return under section 8” but it is clearly intended that such authority extends to amend an amended return; otherwise subsection (3)(b) would be otiose.  Thus Parliament in this section uses “return under section 8” to include a return as amended under section 9ZA.

 

18.       Second, subsection (3) distinguishes between the day on which a return is “delivered”, and the day on which an “amendment was made”.  Thus, at least within this section, a distinction appears to be drawn between the date on which a return under section 8 was delivered, and the date on which delivery of a notice was made which amended the return.

 

19.       The same use of language appears in section 9A.  That section provides that “[an] officer of the Board may enquire into a return under section 8 … if he gives notice of his intention to do so … within the time allowed”.  Subsection (2) defines the time allowed:

 

(2)       The time allowed is –

 

(a)       if the return was delivered on or before the filing date, up to the end of the period of twelve months after the filing date;

(b)       if the return was delivered after the filing date …

(c)       if the return was amended under section 9ZA of this Act, up to and including the quarter day next following … the day on which the amended was made.”

 

Unless “return under section 8” included an original return which had been amended, there would be no power to enquire into an amended return and the provisions of paragraph (c) would be largely otiose.  And the language distinguishes between the  delivering of the original return and the day of its amendment.

 

Mr Crawford’s submissions

 

20.       Mr Crawford made the following arguments:-

 

(i)        section 98 FA 2002 was not contained within TMA 1970 and therefore the construction of words and phrases proper to TMA were not necessarily proper or appropriate to FA 2002;

 

(ii)       in particular the provisions had to be read in the light of their purpose: the express purpose of section 8 TMA and the immediately following sections was for “establishing the amount in which a person is chargeable”; the purpose of s.98 FA was different: it was to encourage giving to charity;

 

(iii)      read in the light of its purpose, the words in s.98(3)(a), ‘delivers his return’ were apt to encompass the delivery of an amended return;

 

(iv)      even if the literal meaning of those words was that for which HMRC contended, that meaning produced absurdity, repugnance and inconsistency, and as a result a meaning should be adopted to avoid that result (see Benion on Statutory Interpretation 5^th Edition Section 285 and Craies on Legislation 9^th Edition Chapter 17).  It was absurd to punish those who delivered their returns early: HMRC’s construction was inconsistent with the purpose of encouraging charitable giving.

 

(v)       section 98(2)(a) said “delivers his return”; section 8 TMA required the taxpayer to deliver “a return”, language used also in section 9ZB and 9A; only section 9ZA, dealing with amendment said “his return”.   If the TMA provisions were to be used as a guide to section 98(2) they therefore indicated that “delivers his return” meant that referred to in section 9ZA which must be the amended return’s delivery.

 

(vi)      section 42 TMA dealt with the procedure for making claims and elections.  Section 42(3) provided that:

 

“where notice has been given under section 8 … a claim shall not at any time be made otherwise than by being included in a return under that section if it could at that or any subsequent time, be made by being so included.”

 

Then subsection (5) indicated that references “in this section to a claim being [included] in a return included references to a claim being so included by virtue of an amendment of the return”.  Thus an amendment to a return making an election was to be treated as part of the return and delivered when the amendment was delivered.

 

(vii)     section 118 TMA provided that in the TMA unless the content otherwise required: “ ‘return’ includes any statement or declaration under the Taxes Acts”.  Mr Cameron’s amendment was submitted under the Taxes Acts and was therefore a ‘return’.  It was delivered on 29 January.  To the extent that TMA meanings could be transposed into s.98 FA 2002 the return was therefore delivered when the amendment was delivered.

 

(viii)    having regard to the purpose of section 98, to the use therein of “his return”, to the provisions of sections 42 and 118, and to the avoidance of absurdity and inconsistency, a person should be treated as delivering his return within section 98 when he delivered an amendment to that return.

 

HMRC’s submission

 

21.       At the original hearing Miss Cheung appeared for HMRC, and at the reconvened hearing Mr Pate.  Between them they made the following submissions:-

 

(i)        whilst sections 9A and 9ZB TMA use the word ‘return’ he include an amended return that should not determine the construction of that word in section 98 because the purposes of 9A and 9ZA are different from the purpose of section 98(2).

 

(ii)       section 98(2) limits its reference to a return “under section 8”: that is a narrow reference and the other provisions of TMA are not therefore helpful in its construction; the language of s.98(2) corresponds to section 8 and not that of 9A or 9ZA.

 

(iii)      on the taxpayer’s construction limb (a) of subsection 98(2) would be otiose, because a taxpayer could submit amendments within 12 months of the filing date – so that it would only be limb (b) which could ever bite.  A construction should be adopted which avoided redundancy;

 

(iv)      the words “on or before” in section 98(2)(a) pointed to the possibility of a two stage process – the making of an election and then the submission of a return.  Those words indicated that the section 42 procedure for making elections only within a return was not applicable; section 42 was ousted by s.98(2)(a): it would not apply to require the election to be made only in a return: the words ‘unless otherwise provided” in section 42(1) permitted the words “on or before” in section 98(2)(a) to have precedence so that an election could be made before a return was made under section 8.  These words showed that the emphasis in section 98(2) was on the date of delivery of the original return.

 

(v)       the plain words were clear: date of delivery of the return under section 8 meant simply that: there was no reference to section 9ZA or ZB and no reason to import any such reference.

 

(vi)      it might be said that the purpose of section 98 was to provide an incentive for taxpayers to think about donating to charity at the time they were completing this return, although Mr Pate accepted that the words ‘on or before’ did not lie wholly comfortably with that policy.

 

Discussion

 

22.       It does not seem to me that the extended definition of ‘return’ in section 118 TMA is relevant.  Even if this definition were potentially relevant to FA 2002 it applies only if the context does not otherwise require.   In section 98(2)(a) the words used are “return … under section 8”.  That context to my mind does not permit a more general construction of “return”.

 

23.       Nor does it seem to me that section 42 TMA provides any help.  First I accept that it may be ousted by the words of section 98(2), but even if it is not, it provides no guidance on the question of when a taxpayer “delivers his return … under section 8”.  The provision of subsection 42(5) that references to a claim being included in a return include inclusion by virtue of an amendment, is expressly for the purpose of that section only. The words in section 42(3), “ shall not be made…otherwise than…in a return…if it could be made by being so included” limit the way an election may be made. In that context subsection (5) may reduce the scope of that limitation but cannot assist in determining the time an election is to be treated as having being made.

 

24.       I gain no assistance from the use of the words “his return”.  It seems to me that both in section 98 and in section 9ZA TMA these are the only and the  natural words to use in context, and could not have been used in section 8, 9ZB or 9A because those sections refer to the actions of HMRC in relation to a taxpayer’s return, rather than those of the taxpayer in relation to his return.

 

25.       Section 98 refers to the taxpayer’s “return…under section 8” and its delivery.  The reference to section 8 cannot be ignored.  The question it gives rise to is: what return was delivered under section 8?  The simple, literal, answer to that is that only the original return was delivered under section 8, and not the amendment.

 

26.       But section 8 must be read in its context.  In that context is there any way in which it could be said that the giving of an amendment notice was the delivery of a return under section 8?  It seems to me that there is not.   Although, as I have explained at paragraphs 16 and 19 above, the use of the word ‘return’ in sections 9A and 9ZB is such that it is used to encompass an amended return, and accordingly that “return” in the context of section 8 might have a wider meaning, there is nothing in the surrounding provisions which affect the use of the word ‘delivers’ in section 8 or suggests that an amendment to a return is delivered “under section 8”, and indeed the contrary seems to be the case.  Thus the context of section 8 does not indicate to me that a taxpayer can be said to deliver a return under that section when he delivers notice of amendment to the return already delivered. Thus the context of section 8 does not seem to assist the appellant

 

27.       I accept that the purpose of section 98 is to encourage charitable donations.  Is the literal interpretation of “his return … under section 8” which I suggest above at odds with that purpose?  It seems to me that it is not: that interpretation does not prevent the encouragement of charitable giving; rather it merely indicates – as do other parts of section 98 – the conditions under which such encouragement is given.

 

28.       Is the result of such a literal  interpretation absurdity or inconsistency?  Despite Mr Crawford’s best endeavours, it seems to me that it cannot be so characterised.  It is true that the result, in context, is that an election under section 98 may not be made in an amendment to a return (unless it is delivered on the same day the original return is delivered), and that delay in the delivery of returns may to some extent thereby be encouraged; but that is not absurdity in the sense of  a result wholly inconsistent with the aim of encouraging charitable giving.   It is in the circumstances an odd stipulation and one for which no clear policy may be evident, but that is not the same as absurdity or repugnance.

 

29.       I conclude that (i) the natural and literal meaning of “the date on which the donor delivers his return … under section 8” is the date on which his original return is delivered in pursuance of a notice requiring such a return under that section ; (ii) whilst the wider context and setting of section 8 might mean that ‘return’ encompasses an amended return there is nothing in that context which suggest that the delivery of that amendment is the delivery of a return under section 8; (iii) neither section 42 or 118 TMA affect this conclusion; and (iv) the result of this construction is odd but is neither absurd, repugnant, or inconsistent.

 

30.       I therefore conclude that the time limit in section 98(2)(a) is by reference to the delivery of the original return.  I am fortified in this conclusion by Mr Pate’s argument that otherwise subparagraph (a) would be redundant.

 

31.       I would like to have held in Mr Cameron’s favour but on the words of the statute, I am unable to do so.  I dismiss the appeal.

 

 

 

 

 

CHARLES HELLIER

TRIBUNAL JUDGE

RELEASE DATE: 8 March 2010