[2010] UKFTT 574 (TC)

TC00824

Appeal number: TC/2009/10851

Income tax – appeal -- whether permission to be granted for late claim for trading losses -- whether any other grounds of appeal within Tribunal’s jurisdiction

FIRST-TIER TRIBUNAL

TAX 

	COLIN WATTS	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

		TRIBUNAL: 	GUY BRANNAN (TRIBUNAL JUDGE)
                                                 SONIA GABLE (TRIBUNAL MEMBER)									

Sitting in public at 8 - 10 Howard Street, Bedford, MK40 3HS on 6 July 2010

The Appellant appeared in person

Phil Rowe, Presenting Officer, Appeals and Reviews Unit, HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2010

                                                     DECISION

1.	This hearing considered two preliminary points. The first point was whether the Tribunal should grant permission for the Appellant to make a claim for trading losses, purportedly sustained on a property development activity, after the relevant time limit. The second point was whether any other grounds of appeal lie within the Tribunal’s jurisdiction, given the previous determinations by the General Commissioners.
2.	The following summary of the background is taken from a bundle of documents sent to the Tribunal by the Appellant and from bundles of documents helpfully produced by the Appellant to the Tribunal at the hearing.
Background
3.	The Appellant is a builder living in Dunstable.
4.	HM Revenue and Customs (“HMRC”) opened enquiries into the Appellant’s tax returns for the years ended 5 April 2003, 2004 and 2005. These enquiries resulted in amendments being made to the self-assessment returns for each of the three years. The Appellant appealed against those amendments and the appeals were determined by the General Commissioners at a meeting on 8 September 2008.
5.	As a result of those enquiries, HMRC raised penalty determinations on 23 November 2007. The Appellant did not appeal against these penalty determinations within the applicable 30 day time limit. For this reason, the penalty determinations were not considered by the General Commissioners at their meeting on 8 September 2008.
6.	The Appellant made a late appeal against the penalty determinations on 8 December 2008. HMRC accepted the late appeal which came before the General Commissioners on 9 March 2009. At that hearing, the General Commissioners confirmed the penalty determinations in amounts which accorded with their decision in respect of the self-assessment returns on 8 September 2008.
7.	The Appellant raised the issue of losses during a meeting with HMRC on 15 June 2007. The Appellant wrote to HMRC on 22 October 2007 providing information in respect of the losses.
8.	It appears that a partnership was set out with a Mr Pasco Antonucci and the Appellant’s wife in 1986. The partnership purchased a plot of land at Alton Road, Luton on which two bungalows were to be built. Finance for the construction of the bungalows was provided by Lloyds Bank which took security over both the property being developed and over the Appellant’s home. Construction of the bungalows was completed in 1989. It appears that Mr Antonucci emigrated to Australia in 1990 and the Appellant brought out his share of the development.
9.	After the development was completed the value of the bungalows fell to such an extent that their sale proceeds were insufficient to cover the outstanding loans to Lloyds Bank. Discussions with Lloyds Bank continued for several years and were finally concluded in 2006 when the Appellant and his wife paid a sum of money to the Bank in satisfaction of the outstanding liabilities.
10.	In a letter dated 24 October 2007, HMRC replied to the Appellant’s letter of 22 October 2007. In their letter HMRC denied the Appellant’s claim to have established a loss as a result of these development activities. HMRC considered that appropriate accounts had not been drawn up so that it was not possible to determine what the trading loss would be for tax purposes. In addition, since the development activity ceased in August 1993, when the bungalows were sold, the claim for any losses was outside the two year period contained in section 380 Income and Corporation Taxes Act 1988, as it was enacted at the relevant time.
11.	The issue relating to the tax losses was not considered at either of the meetings of the General Commissioners referred to above.
12.	On 11 June 2009 the Tribunal received an appeal from the Appellant seeking to set aside the decisions of the General Commissioners on 8 September 2008 and 9 March 2009.
13.	On 15 September 2009 the Tribunal wrote to the Appellant concerning the jurisdiction of this Tribunal to review determinations of the General Commissioners. That letter pointed out that the appropriate course of action would be for the Appellant to apply under Regulation 17 of the General Commissioners (Jurisdiction and Procedure) Regulations 1994 for a review of the final determination of their appeal. That letter also explained that paragraph 11 (3) (b) of Schedule 3 to The Transfer of Tribunal Functions and Revenue and Customs Appeals Order (SI 2009/56) preserved Regulation 17 without substituting this Tribunal for the General Commissioners. In other words, this Tribunal cannot review a determination of the General Commissioners. The Tribunal’s letter also explained that where an appellant is not satisfied with the General Commissioners’ determination of his appeal under s. 56 Taxes Management At 1970 he may ask the General Commissioners to set aside their determination under Regulation 17 or ask the Clerk to the General Commissioners to provide a Stated Case on a point of law to be appealed to the High Court, under Regulation 20. The letter noted that it appeared that the 30 day time limit for applying for a Stated Case under Regulation 20 had expired on 8 April 2009.
14.	The Appellant wrote to the Clerk to the General Commissioners on 21 September 2009 and 26 October 2009 asking the General Commissioners to review their determinations under Regulation 17.
15.	In a letter dated 17 November 2009 the Clerk to the General Commissioners replied to the Appellant refusing to set aside the earlier determinations of the General Commissioners, pointing out that the 14 day time limit under Regulation 17 had long since expired and that the Appellant had not raised this issue at the second meeting of the General Commissioners on 9 March 2009.
16.	The Appellant wrote again to the Tribunal on 18 November 2009 complaining about the letter from the Clerk to the General Commissioners of 17 November 2009. On 30 November 2009 the Appellant wrote to the Tribunal attaching supporting documentation and again complaining about the decision of the Clerk to the General Commissioners.
17.	On 2 December 2009 of the Tribunal wrote to the Appellant informing him again that the Tribunal did not have jurisdiction over appeals already determined by the General Commissioners.
18.	Notwithstanding these letters, the Appellant wrote again to the Tribunal on 7 December 2009 pressing his case and sent e-mails to the Tribunal on 25 January 2010 asking for his case to be re-evaluated and complaining about the way in which his case had been handled. In these e-mails the Appellant referred inter alia to a claim for loss relief under s. 251 Taxation of Chargeable Gains Act 1992 (“TCGA”).
19.	The Tribunal reviewed the correspondence and on 8 March 2010 wrote to the Appellant informing him that the only matter which may not already have been disposed of by the General Commissioners was the decision by HMRC, in a letter dated 24 October 2007, that no relief would be available for the trading losses purportedly sustained on the property development activity. The Tribunal informed the Appellant that it was prepared to interpret his notice of appeal dated 10 June 2009, which referred to capital losses, as encompassing a claim in relation to the purported trading losses referred to above. The Tribunal invited the Appellant to write to the Tribunal explaining why he considered that a trading loss claim should be permitted to be made out of time. The Appellant indicated his intention to appeal in an e-mail to the Tribunal dated 13 April 2010. In that e-mail, the Appellant again referred to provisions of the TCGA.
20.	On 14 April 2010 the Tribunal directed that a hearing should be listed to consider the two preliminary points referred to in paragraph 1 above. 
The hearing
21.	At the hearing the Appellant referred the Tribunal to the provisions of s. 251 TCGA which provides:
(1) Where a person incurs a debt to another, whether in sterling or in some other currency, no chargeable gains shall accrue to that (that is the original) creditor or his personal representative or legatee on the disposal of the debt, except in the case of a debt on a security ....
(2) ... [T]he satisfaction of a debt or part of it ... shall be treated as a disposal of the debt or that part by the creditor made at the time when the debt or that part is satisfied.
(3) Where property is acquired by a creditor in satisfaction of his debt or part of it ... the property shall not be treated as disposed of by the debtor or acquired by the creditor for consideration greater than its market value at the time of the creditor’s acquisition of it; but if under subsection (1) above ... no chargeable gain is to accrue on a disposal of the debt by the creditor (that is the original creditor), and a chargeable gain accrues to him on the disposal by him of the property, the amount of the chargeable gain shall (where necessary) be reduced so as not to exceed the chargeable gain which would have accrued if he had acquired the property for consideration equal to the amount of the debt will or part of it.

22.	The Appellant was convinced that s. 251 TCGA entitled him to a loss.
23.	Although it was not an issue which strictly arose for decision in relation to the two preliminary points, we explained to the Appellant that s. 251 TCGA did not assist him. In the first place, that provision was directed at the capital gains tax position of the creditor. In relation to the borrowings from Lloyds Bank the Appellant was the debtor not the creditor. In any event, the activities giving rise to any loss were those of development. It is well established as a matter of tax law that profits and losses arising in respect of property development activities are taxed as profits or losses of a trade for income tax purposes. Therefore, capital gains tax provisions have no application.
24.	Moreover, it seemed to us that since the development activity had ceased in 1993 any income tax loss could only be carried back to an earlier year or carried across and set against other income in the same year but could not be carried forward and set off against income tax liabilities in later years. In particular, those trading losses could not be carried forward and set off against income tax liabilities of the years ended 5 April 2003, 2004 and 2005 which had formed the subject matter of the appeals to the General Commissioners. The fact that the negotiations with Lloyds Bank continued until 2006 did not mean that any trading loss, even if it could be claimed out of time, would arise in 2006. The loss would arise during the life of the development business which ended in 1993. 
25.	In addition, even if the Appellant had been successful in establishing a loss for capital gains tax purposes, contrary to the views expressed above, that loss could only be set against other capital gains and could not be set against income chargeable to income tax.
26.	Mr Rowe for HMRC contended that provisions relating to capital gains tax were irrelevant for essentially the same reasons stated above, viz that the Appellant was chargeable to income tax in respect of his development activities and not to capital gains tax.
27.	Secondly, Mr Rowe argued that a trading loss could only be established if a taxpayer produced a profit and loss account in accordance with normal accounting principles which identified the loss in question. The Appellant had failed to produce such accounts notwithstanding being asked to do so.
28.	Thirdly, Mr Rowe argued that since the development activity had ceased in 1993 any income tax loss could not be carried forward to later years. Any loss could only be claimed under s. 380 (1) ICTA 1988 to be set against profits arising in the same year. However, at the material time, the time limit for such a claim was two years after the end of the year of assessment.
29.	Fourthly, Mr Rowe submitted that whilst HMRC may decide, in exercise of its care and management powers, to accept a late claim in certain circumstances, the exercise of its discretion did not fall within the jurisdiction of the Tribunal.
30.	Finally, Mr Rowe submitted that there were no other grounds for appeal lying within the Tribunal’s jurisdiction in the light of the previous determinations by the General Commissioners.

Decision
31.	Our decision is that we have no jurisdiction to review HMRC’s decision not to allow the Appellant’s late claim for a trading loss under s. 380(1) ICTA 1988. This point was considered in the Special Commissioners’ decision Privet v HMIT 2001 SpC 279 – a case involving s. 380(1) – where the Special Commissioner said:
Be that as it may, I am satisfied that Mrs McAuley has correctly identified the real question in this case in submitting that this Tribunal has no power to review the Inspector’s decision not to admit the claims on a concessionary basis. Sitting as an appeal Commissioner (and not as a High Court Judge hearing an application for judicial review), I would be of the clear opinion that that submission was correct, even if there were no authority. In support of her submission, Mrs McAuley cited the fairly recent (1999) case of Steibelt v Paling in which Sir Richard Scott V-C held that appeal Commissioners had no power to review the exercise of a discretion given by statute to the Board. In that case the discretion was explicit but clearly the principle applies equally (perhaps with even greater force) to a case where the discretion is derived merely from “care and management” and the Inspector has declined to disregard the clear words of the statute, as a concession.
32.	We agree with this conclusion.
33.	In any event, as we have indicated above, we doubt whether the establishment of a loss (whether capital or income) would benefit the Appellant.
34.	On the second preliminary point, after a careful review of the papers and the arguments put before us, we see no other grounds of appeal which lie within this Tribunal’s jurisdiction given the previous determinations of the General Commissioners.
35.	Finally, we should add that the Appellant apparently feels aggrieved that the General Commissioners’ decisions cannot be reopened and feels frustrated that his attempt to establish a tax loss has been unsuccessful so far. We have, however, given careful consideration to his arguments and regret that they seem to us to be misconceived. Nonetheless, we wish to record that the Appellant presented his case before the Tribunal with courtesy and tenacity.
36.	This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

GUY BRANNAN

TRIBUNAL JUDGE
RELEASE DATE: 14 July 2010