The Supreme Court has ruled in favour of the taxpayer, Mr Derry, in the latest case concerning the inclusion of carry-back loss relief claims in the prior year’s tax return. In respect of share loss relief under Chapter 6 of Part 4 ITA 2007, the Court agreed that a carry-back claim had the effect of reducing the taxpayer’s liability to income tax in the previous year (2009/10). Accordingly, the claim properly formed part of Mr Derry’s return for the year 2009/10 and could only be challenged by HMRC opening an s.9A TMA 1970 enquiry into the return, within the statutory time limit.
In Mr Derry’s case, HMRC had opened the wrong enquiry because they had thought (incorrectly) that the claim was made outside the 2009/10 tax return and had failed to enquire into the return itself.
In cases concerning other types of carry-back claim, the majority of the Court discusses but leaves open whether inclusion of the claim in the tax calculation pages of the return for the earlier year can only be amended by way of an enquiry into that tax year.
This case underlines the importance of HMRC following the correct procedures for the protection of taxpayers. It is of particular significance to taxpayers with carry-back loss relief claims being challenged by HMRC. Indeed, HMRC estimated to the Supreme Court that £100m of tax turned on the outcome of Mr Derry’s case.