Neutral Citation Number: [2020] EWCA Civ 488
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Neutral Citation Number: [2020] EWCA Civ 488Case No: C1/2018/1737IN THE COURT OF APPEAL (CIVIL DIVISION)ON APPEAL FROM THE QUEEN’S BENCH DIVISIONADMINISTRATIVE COURTMR JUSTICE LEWIS[2018] EWHC 1688 (Admin)Royal Courts of JusticeStrand, London, WC2A 2LLDate: 03/04/2020Before:LORD JUSTICE IRWINLORD JUSTICE HENDERSONandMR JUSTICE MANN--------------------Between:ROn the application ofZARATHUSTRA JAL AMROLIAAppellant- and -THE COMMISSIONERS FOR HM REVENUE &CUSTOMSRespondents-andROn the application ofISIDORA RANJIT-SINGH-andTHE COMMISSIONERS FOR HM REVENUE ------------------Mr Thomas Chacko (instructed by Bird & Bird) for the AppellantsMr Timothy Brennan QC and Mr Christopher Stone (instructed by the General Counseland Solicitor to HMRC) for the RespondentsHearing date: 4 February 2020
---------------------Approved JudgmentCovid-19 Protocol: This judgment was handed downremotely by circulation to the parties’ representatives byemail, release to BAILII and publication on the Courts andTribunals Judiciary website. The date and time for handdown is deemed to be 10.30 a.m. on Friday 3 April 2020
Judgment Approved by the court for handing down.Amrolia v HMRCLord Justice Henderson:Introduction and Background1.The appellant taxpayers, Dr Zarathustra Amrolia and Dr Isidora Ranjit-Singh, wereeach members of a limited liability partnership (“the LLP”) in which they investedwith the purpose of generating trading losses in the tax year 2004/05 which they couldset against their other taxable income for that or previous years. Their investment wasgeared so that, for every 1,000 contributed by the taxpayer, a further 3,000 wasadded by way of a limited recourse bank loan funded by circular movements ofmoney and repayable (if at all) only from future profits (if any) of the LLP’s initiallyloss-making trade. The arrangements formed part of a marketed tax avoidancescheme, for which each taxpayer presumably paid a substantial fee.2.The LLP was called Tower MCashback 3 LLP. It was incorporated on 30 March2004, and carried on a trade of software licensing. Dr Amrolia joined the LLP inSeptember 2004, contributing 400,000, of which 300,000 (or 75%) was borrowed.Dr Ranjit-Singh had already joined the LLP in June 2004, contributing 232,000, ofwhich 174,000 was borrowed.3.As intended, the LLP purportedly made a substantial loss in the 2004/05 tax year. Theshares of that loss allocated to the taxpayers amounted to just less than their totalcontributions: 399,953 in the case of Dr Amrolia, and 231,973 in the case of DrRanjit-Singh. In their personal tax returns for that year, they duly claimed to make useof the losses. Dr Amrolia claimed to carry back the whole of his loss and to set itagainst his general income from the previous year, pursuant to section 380(1)(b) ofthe Income and Corporation Taxes Act 1988 (“ICTA 1988”). Dr Ranjit-Singh claimedto set 99,984 of her loss “sideways” against her income for the current year, pursuantto section 380(1)(a) of ICTA 1988, and to carry back the remaining 131,989 to2001/02 and 2002/03 pursuant to the further relief for individuals for losses in theearly years of a trade contained in section 381 of ICTA 1988.4.In September 2006, the respondent Commissioners for HM Revenue & Customs(“HMRC”) gave notice to the LLP that they were opening an enquiry into itspartnership return for 2004/05, which had been submitted pursuant to section 12AAof the Taxes Management Act 1970 (“TMA 1970”). The notice of enquiry was givenunder section 12AC(1) of TMA 1970. By virtue of section 12AC(6), the giving ofnotice of enquiry to the LLP was deemed to include the giving of notice of enquiryunder section 9A(1) to each individual partner who had made a personal return undersection 8 of the Act, including therefore Dr Amrolia and Dr Ranjit-Singh. I record atthis point that, although an LLP is a corporate entity, it is relevantly treated forincome tax purposes in the same way as an ordinary English partnership: see section863 of the Income Tax (Trading and Other Income) Act 2005, and Revenue andCustoms Commissioners v Vaines [2018] EWCA Civ 45, [2018] STC 297, at [14] to[18].5.Before HMRC’s enquiry into the LLP’s 2004/05 return was concluded, effect wasgiven by HMRC to the loss relief claims which the taxpayers had made in theirpersonal returns for that year. On 27 February 2009, HMRC made a tax repayment toDr Amrolia of 173,781.19, comprising credits to his self-assessment account of 159,981.20 in respect of tax and 13,799.99 repayment supplement. Dr Ranjit-Singh,
Judgment Approved by the court for handing down.Amrolia v HMRCfor her part, had already received credits to her self-assessment account of 28,757.57in respect of her sideways claim, and 45,050.84 in respect of her carry back claims,on 3 October 2005 and 10 November 2005 respectively.6.On 11 May 2011, the Supreme Court delivered judgment in relation to similarschemes carried on through two predecessor LLPs, Tower MCashback LLP 1 andTower MCashback LLP 2: see Tower MCashback LLP 1 and Another v Revenue andCustoms Commissioners [2011] UKSC 19, [2011] 2 AC 457. For present purposes, itis enough to say that the Supreme Court upheld only 25% of the first-year allowancesclaimed by the predecessor LLPs, because the borrowed money did not in anymeaningful sense involve an incurring of expenditure in the acquisition of softwarerights: see, in particular, the judgment of Lord Walker of Gestingthorpe JSC at [75]. Itwas soon realised that this reasoning would be equally fatal to 75% of the first-yearallowances claimed in the third iteration of the scheme, and on 28 June 2011 HMRCserved a closure notice pursuant to section 28B(1) of TMA 1970 disallowing 75% ofthe losses claimed by the LLP for 2004/05. Although the LLP initially appealedagainst the closure notice, the appeal was withdrawn in January 2012 and a laterapplication to reinstate it was rejected by the First-tier Tribunal (“the FTT”) on 5December 2014: Tower MCashback 3 LLP v HMRC [2014] UKFTT 1081 (TC).7.We have not seen the closure notice which was served on the LLP, but it is importantto note that its effect is now final and it cannot be challenged by the LLP itself, or bythe individual partners whose shares of the LLP’s first-year losses werecorrespondingly reduced by 75%. The issues which arise on this appeal stem from thesteps which were then taken by HMRC to amend the taxpayers’ individual returns soas to give effect to the unchallenged amendments made to the LLP’s partnershipreturn.8.Section 28B of TMA 1970 relevantly provided as follows:“Completion of enquiry into partnership return(1) An enquiry under section 12AC(1) of this Act is completedwhen an officer of the Board by notice (a “closure notice”)informs the taxpayer that he has completed his enquiries andstates his conclusions. In this section “the taxpayer” means theperson to whom notice of enquiry was given or his successor.(2) A closure notice must either –(a) state that in the officer’s opinion no amendment of thereturn is required, or(b) make the amendments of the return required to giveeffect to his conclusions.(3) A closure notice takes effect when it is issued.(4) Where a partnership return is amended under subsection (2)above, the officer shall by notice to each of the partnersamend–
Judgment Approved by the court for handing down.Amrolia v HMRC(a) the partner’s return under section 8 or 8A of this Act, or(b) so as to give effect to the amendments of the partnershipreturn.”9.In fulfilment of the duty under section 28B(4), notice was given by an officer ofHMRC to each of the taxpayers amending his or her personal return under section 8.Since the terms of the two notices are of central importance, I must set them out infull.10.The notice to Dr Amrolia was dated 4 February 2016 and contained in a letter sent byMr P Bolton, a member of the Individual Compliance Team at Charities, Savings &International 3 in Bootle. It reads as follows:“Dear Dr AmroliaTower MCashback 3 - Amendment to your personal SelfAssessment Tax return – year ending 5 April 2005 (Section28B(4) Taxes Management Act 1970)On 27 September 2006 an enquiry was opened into the TowerMCashback 3 partnership’s Self Assessment tax return for theperiod ended 5 April 2005.Those enquiries were completed on 28 June 2011 and theconclusion was that the claim to Capital Allowances wasexcessive. An appeal was made against the closure notice on 28July 2011 but this was subsequently withdrawn in October2015. As a consequence the appeal process has been exhaustedand the amendments agreed.I have today amended your Self Assessment account for theyear ended 5 April 2005 to take account of the reduction inlosses allocated to you by the partnership. The share of the losshas been changed from 399,953.00 to 127,516.00. Youoriginally claimed tax relief to be calculated by reference toearlier years and credits of 159,981.20 tax and 13,799.99repayment supplement were applied to your Self Assessmentaccount and a repayment of 173,781.19 was paid on 27February 2009.The result of this amendment is that your tax refund hasdecreased by 108,974.80 to 51,006.40. This credit due on 31January 2006 attracts a repayment supplement of 4,396.87 to27 February 2009. I have therefore applied a credit of 55,403.27 to your Self Assessment account today.I enclose a statement of your Self Assessment account.”
Judgment Approved by the court for handing down.11.Amrolia v HMRCThe notice given to Dr Ranjit-Singh was contained in a letter dated 15 March 2016from Bob Newman, an Avoidance Caseworker at HM Revenue & Customs CounterAvoidance in Newcastle. It reads as follows:“Dear Miss Ranjit-SinghTower MCashback 3 - Amendment to your personal SelfAssessment Tax return – year ending 5 April 2005 (Section28B(4) Taxes Management Act 1970)On 27 September 2006 an enquiry was opened into the TowerMCashback 3 partnership’s Self Assessment tax return for theperiod ended 5 April 2005. Those enquiries were completed on28 June 2011 and the conclusion was that the claim to CapitalAllowances was excessive. An appeal was made against theclosure notice on 28 July 2011 but this was subsequentlywithdrawn in October 2015. As a consequence the appealprocess has been exhausted and the amendments agreed.Your share of the partnership loss was previously stated as 231,973.00. 99,984.00 was set against that current year’sincome and 131,989.00 was set against previous years’income. A credit was applied to your Self Assessment accountfor 45,050.84 and repaid on 10 November 2005 in respect ofthe carry back claim.I have today amended your Self Assessment return for the yearended 5 April 2005 to take account of the reduction in lossesallocated to you by the partnership. The amount of your shareof the partnership loss is now 73,960.00 which I have carriedback to set against previous years’ income.I have amended the carried back loss claim to 24,834.08. Theinterest due on the over-repayment of 20,216.76 is 8,975.13as at today’s date. The revised credit is therefore 15,858.95.I enclose a revised tax calculation for the year ended 5 April2005 to reflect the cancellation of that current year’s loss claim.This has resulted in additional tax due of 35,300.78. Theinterest charges as a result of this amendment are 15,188.47 asat today’s date.I enclose a copy of your Self Assessment statement of accountas at today’s date which shows a balance now due of 79,681.14. Please pay the amount due now as interestcontinues to accrue daily.”It will be noted that the officer proceeded on the assumption that, with the greatlyreduced amount of relief now available to her, Dr Ranjit-Singh would not wish to useany of it against her current year’s income but would prefer to carry it back to themaximum extent permitted. As it turned out, this assumption was incorrect and Dr
Judgment Approved by the court for handing down.Amrolia v HMRCRanjit-Singh instead elected to utilise the reduced relief sideways. Appropriateadjustments to the figures were then agreed in correspondence, subject to the issueswhich we have to determine.12.There is no statutory right of appeal to the FTT against a notice served on a partnerunder section 28B(4) of TMA 1970, with the consequence that a legal challenge tosuch a notice must be brought by way of judicial review. The taxpayers wished tochallenge the lawfulness of the notices which I have set out above, in so far as thenotices purported to amend the liability of each taxpayer in 2004/05 and requirerepayment of tax which had already been repaid or credited to them pursuant to theiroriginal claims for trade loss relief. Letters before claim were therefore sent to HMRCby the solicitors then acting for the taxpayers, Reed Smith LLP, followed by theinstitution of judicial review proceedings, by Dr Amrolia on 3 May 2016 and by DrRanjit-Singh on 15 June 2016. The taxpayers have throughout been represented by thesame counsel, Mr Thomas Chacko.13.The initial focus of the claims was described in the statement of facts whichaccompanied each claim form as being “protective”, in the sense that the overridingconcern of each taxpayer was to prevent HMRC from bringing enforcement orcollection proceedings against them on the strength of the amendments to their returnscontained in the section 28B(4) notices. The basic contention, set out in the detailedstatement of grounds settled for each taxpayer by Mr Chacko, was that HMRC had nolegal power to recover the wrongly repaid or credited tax save through exercise of thepowers of assessment conferred on them by sections 29 and 30 of TMA 1970, andHMRC were now out of time to avail themselves of the powers conferred by eithersection. In other words, it was now too late for HMRC to recover the tax which theyhad wrongly repaid or credited to the taxpayers in response to the original claims forloss relief which they had made in their 2004/05 tax returns.14.Section 29 of TMA 1970 enables so-called “discovery” assessments to be made byHMRC, within fairly strict time limits, following a discovery that (among othermatters) “any relief which has been given is or has become excessive”. Section 30(1)of TMA 1970 provides that:“Where an amount of income tax has been repaid to anyperson which ought not to have been repaid to him, that amountof tax may be assessed and recovered as if it were unpaid tax.”By virtue of subsections (1A) and (1B), this power is not available where the amountof tax which has been repaid is assessable under section 29; and where the power isavailable, the same time limits and restrictions apply as those provided for in section29.15.In the absence of an assessment under either section, Mr Chacko’s argument in eachstatement of grounds was that HMRC had no power to compel reimbursement of theexcessive loss relief received by the claimant. That could only be done by making alawful amendment of the self-assessment which a taxpayer is obliged to include in hisor her return by section 9(1) of TMA 1970. So far as material, section 9(1) providesthat:
Judgment Approved by the court for handing down.Amrolia v HMRC“ every return under section 8 of this Act shall include aself-assessment, that is to say –(a) an assessment of the amounts in which, on the basis of theinformation contained in the return and taking into account anyrelief or allowance a claim for which is included in the return,the person making the return is chargeable to income tax forthe year of assessment; and(b) an assessment of the amount payable by him by way ofincome tax, that is to say, the difference between the amount inwhich he is assessed to income tax under paragraph (a) aboveand the aggregate amount of any income tax deducted at sourceand any tax credits [of specified descriptions, none of which isrelevant].”16.Mr Chacko’s argument was that the section 28B(4) notices served on each taxpayerby HMRC amended their returns, but not their self-assessments as defined in section9(1) of TMA 1970. As was contended, in each statement of grounds:“All that HMRC appear to have done, to support their claim torepayment, is make changes to a document called the “SelfAssessment Account” or “Self-Assessment Statement” whichrecords sums owed to HMRC or to the Claimant, so that it nowstates that the Claimant owes an additional sum to HMRC. Thisdocument has no statutory force and cannot create a debt toHMRC.”In those circumstances, it was said to be “an abuse of HMRC’s power to threatencollection proceedings or other similar action when the underlying debt is not in factowed to them.”17.Dr Amrolia was granted permission to apply for judicial review, by May J, on 17August 2016. On 14 September 2016, however, Dr Ranjit-Singh was refusedpermission, on the papers, by Nathalie Lieven QC sitting as a Deputy High CourtJudge. Dr Amrolia’s claim was then stayed pending the decision of the SupremeCourt in R (de Silva) v Revenue and Customs Commissioners [2017] UKSC 74,[2017] 1 WLR 4384 (“de Silva”).18.The Supreme Court gave judgment in de Silva on 15 November 2017. The leadingjudgment was delivered by Lord Hodge JSC, with whom the other members of thecourt agreed. The judgment made it clear, as the taxpayers in the present caseeventually accepted, that HMRC were not confined to the powers of assessment insections 29 and 30 of TMA 1970 when seeking to recover excessive loss relief whichhad been given on a carry-back claim. Provided that an enquiry was opened in timeinto the return for the year of assessment in which the relevant trading losses wereincurred (described in the judgment as Year 2, and in our case 2004/05), effect couldbe given to the claim in Year 2 by virtue of the words “or otherwise” in paragraph2(6) of schedule 1B to TMA 1970.
Judgment Approved by the court for handing down.19.Amrolia v HMRCAs Lord Hodge explained at [17], schedule 1B has effect “as respects certain claimsfor relief involving two or more years of assessment.” A claim to carry back tradinglosses pursuant to sections 380 or 381 of ICTA 1988 is such a claim. So far asrelevant, paragraph 2 of Schedule 1B provides that:“(1) This paragraph applies where a person makes a claimrequiring relief for a loss incurred or treated as incurred inone year of assessment (“the later year”) to be given in anearlier year of assessment (“the earlier year”).(2) Section 42(2) of this Act shall not apply in relation to theclaim.(3) The claim shall relate to the later year.(4) the claim shall be for an amount equal to the differencebetween –(a) the amount in which the person is chargeable to tax for theearlier year (“amount A”); and(b) the amount in which he would be so chargeable on theassumption that effect could be, and were, given to the claim inrelation to that year (“amount B”). (6) Effect shall be given to the claim in relation to the lateryear, whether by repayment or set-off, or by an increase in theaggregate amount given by section 59B(1)(b) of this Act orotherwise.”(emphasis supplied).20.The way in which paragraph 2 works was explained by Lord Hodge at [19]:“Paragraph 2 of Schedule 1B thus is concerned with reliefsought for a loss incurred in the later year (which I will call“Year 2”) by carrying it back to the earlier year (“Year 1”).Significantly, paragraph 2(3) makes it clear that the claimrelates to Year 2. The quantification of the claim is governed byparagraph 2(4): the claim is the difference between amount Aand amount B on the counterfactual assumption that effectcould have been and was given to the claim in Year 1. Thatassumption is counterfactual because paragraph 2(3) andparagraph 2(6) relate the claim and the giving effect to theclaim to Year 2.”21.Lord Hodge went on to explain why a taxpayer is obliged to include informationabout the relevant losses in his Year 2 return, and to make his claim for carry backrelief in that return, even if a prospective claim for the relief had already been made in pag
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normally trade if trading as either a “day trader” or a “position trader” (simply due to the fact that those styles typically require larger stops thus shrinking the amount of lots one can safely trade according to equity management principles). By trading more lots a scalper can achieve significant gains comparable to the gains expected by day & position traders in the same time span .
