Spring Salmon and Seafood Ltd v Revenue and Customs

Factual and Procedural Background

This appeal arises from a decision of the First-tier Tribunal dated 30 November 2015, which dismissed the appellant's two appeals against two closure notices relating to corporation tax returns for periods ending in 2004 and 2005. The First-tier Tribunal upheld that the enquiries were validly opened under Schedule 18 of the Finance Act 1998, effectively reducing the appellant's claims for terminal loss relief.

The appellant, a seafood supply business, had claimed relief for amortisation of goodwill and terminal loss relief relating to the cessation of trade around January 2005. The appellant contended that the terminal loss relief claim was a stand-alone claim, distinct from the returns, and thus required a separate enquiry under Schedule 1A of the Taxes Management Act 1970. The respondents had conducted enquiries under Schedule 18, which the appellant argued was an incompetent process for this claim.

The background includes complex business arrangements involving the appellant and related entities controlled by a family, with transfers of business and goodwill giving rise to tax claims. The appellant's returns for 2004/05 included loss relief claims, including terminal loss relief carried back to prior years, which the closure notices refused.

Legal Issues Presented

1. Whether a claim for terminal loss relief, which involves carrying back a loss to earlier accounting periods, forms part of the tax return for the later year and can be validly enquired into under Schedule 18 of the Finance Act 1998, or whether it is a stand-alone claim requiring a separate enquiry under Schedule 1A of the Taxes Management Act 1970.
2. Whether the respondents were obliged to open a separate enquiry under Schedule 1A to validly challenge the appellant's claim for carry back of terminal loss relief.

Arguments of the Parties

Appellant's Arguments

• The appellant contended that Schedule 18 enquiries relate only to matters contained in or required to be contained in a tax return, while terminal loss relief claims are stand-alone claims not forming part of the return and thus require a Schedule 1A enquiry.
• Relying on the Supreme Court decision in HMRC v Cotter, the appellant argued that a carry back claim does not affect the tax liability of the later year and therefore is not part of that year's return.
• The appellant asserted that the closure notices issued under Schedule 18 could not validly disallow the terminal loss relief claims as those claims were outside the scope of Schedule 18 enquiries.
• It was argued that the Corporation Tax Computation document accompanying the returns should be functionally divided, with the terminal loss relief section excluded from the return for enquiry purposes.
• The appellant referred to statutory provisions and official guidance documents supporting the distinction between claims included in returns (Schedule 18) and stand-alone claims (Schedule 1A).
• The appellant sought to distinguish the Court of Appeal decision in De Silva on the basis that it concerned income tax, where carry back claims affect the later year's tax liability, unlike corporation tax.
• A second argument that the closure notices had not properly addressed the carry back claims was raised but rejected by the court as outside the scope of the granted permission to appeal.

Respondents' Arguments

• The respondents submitted that the appellant made a single claim for terminal loss relief related to the final accounting period, with carry back being a mechanism to give effect to that claim rather than separate claims.
• They argued that the claim was made in the 2005 return and that the enquiry route under Schedule 18 was appropriate and valid.
• The respondents relied on the reasoning of the Upper Tribunal in a prior decision involving the appellant, which held that the claim was singular and properly part of the returns.
• They contended that the Court of Appeal decision in De Silva supported their position, rejecting the view that carry back claims are stand-alone and require Schedule 1A enquiries.
• The respondents emphasized that Schedule 18 defines the scope of enquiry to include claims or elections in the return and amounts affecting tax payable for other periods, allowing a Schedule 18 enquiry to cover carry back claims.
• They argued that the appellant’s division of the claim into separate parts was a misconception and failed to recognize the primacy of goodwill amortisation as the basis of the loss.
• The respondents submitted that the appellant’s claim properly fell within the scope of Schedule 18 enquiries and that the closure notices validly determined the matter.

Table of Precedents Cited

Court's Reasoning and Analysis

The court focused on whether the respondents were required to open a separate enquiry under Schedule 1A to challenge the appellant's terminal loss relief claim or whether a Schedule 18 enquiry into the returns sufficed.

The appellant's argument that the carry back claim was a stand-alone claim outside the return was rejected. The court found that the appellant made a single claim for terminal loss relief arising from amortisation of goodwill in the final accounting period, and the carry back mechanism was part of giving effect to that claim.

The goodwill amortisation formed an essential part of the tax calculation for the later year and thus was part of the return. Without establishing the goodwill amortisation and resulting loss, the terminal loss relief claim failed. Therefore, the claim was properly within the scope of a Schedule 18 enquiry.

The court adopted the reasoning of Warren J in the prior Upper Tribunal decision and the Court of Appeal in De Silva, which held that carry back claims are not separate stand-alone claims requiring Schedule 1A enquiries if they are included or could have been included in the relevant returns.

The court also noted that Schedule 18 explicitly contemplates claims affecting multiple accounting periods and treats such claims as part of the return if included or amendable therein.

The appellant's attempt to divide the claim into separate parts and exclude the carry back claim from the return was a misconception of the statutory framework and the nature of terminal loss relief.

Accordingly, the respondents' approach of enquiring under Schedule 18 and issuing closure notices was lawful and valid.

Holding and Implications

The appeal is refused.

The court held that the respondents validly challenged the appellant's terminal loss relief claim through enquiries under Schedule 18 of the Finance Act 1998. There was no requirement to open a separate enquiry under Schedule 1A of the Taxes Management Act 1970. The closure notices issued under Schedule 18 lawfully determined the claim.

The decision confirms that where a terminal loss relief claim is founded on a loss arising in the later accounting period and included or capable of inclusion in the return for that period, it is properly subject to enquiry under Schedule 18. Carry back claims are not stand-alone claims necessitating separate enquiries.

No new precedent was created beyond affirming the application of existing principles as articulated in HMRC v Cotter and De Silva.