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	United Kingdom Upper Tribunal (Tax and Chancery Chamber)
You are here: BAILII >> Databases >> United Kingdom Upper Tribunal (Tax and Chancery Chamber) >> Rettig Heating Group UK Ltd , R (on the application of) v Revenue and Customs (JUDICIAL REVIEW - HMRC's refusal to exercise discretion to extend time) [2025] UKUT 143 (TCC) (6 May 2025) URL: https://www.bailii.org/uk/cases/UKUT/TCC/2025/143.html Cite as: [2025] UKUT 143 (TCC)

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Introduction

1. Section 83(6) Finance Act 1996 ("FA 1996"), gives HMRC the discretion to extend the two year time limit that would otherwise apply for a company to make a claim to set-off its non-trading loan relationship deficit, ("NTLRD") against profits.
2. On 11 March 2021 the Claimant made a claim to set off NTLRD against profits ("the Deficit Claim") (that arose from the Claimant's dividend income from a foreign subsidiary) received in accounting period ended 31 December 2002 ("the Dividends") The two year time limit had expired on 31 December 2004. This decision concerns the Claimant's judicial review ("the JR Claim") challenging HMRC's refusal to exercise its discretion to extend the two year time limit. The decision of HMRC to refuse the Deficit Claim was issued on 5 January 2024, ("the Decision").
3. On the face of it a period of just over 16 years might appear an unusually long extension to seek. However it was, says the Claimant, a time extension that HMRC could not rationally refuse to give. That was because it was not until the consequences of decades long litigation before the CJEU and in the UK courts had been worked through and moreover not until HMRC had actually brought such profits into charge by amending the Claimant's return upon closing the enquiry which remains open in relation to the return (which HMRC is yet to do), that it would be possible for the Claimant to make a properly quantified and valid NTLRD claim. That litigation (the Franked Investment Income cases - the FII litigation) concerned the taxation of foreign dividends. It confirmed that foreign dividend income did give rise to profits that were chargeable as opposed to exempt, and also the nature of the credit to be provided for. Although that litigation did not concern NTLRD, it was relevant in the Claimant's circumstances given the dependency between the amount of that NTLRD claim and the amount of eventual foreign tax credit.
4. Back in 2004 the Claimant had taken the view that the UK's domestic provisions (which exempted domestic dividends income but not foreign income) were in breach of EU law and accordingly did not include the income in its corporation tax return. The Claimant's case is therefore that it was only once it knew, following the FII litigation that the foreign dividend income was chargeable rather than exempt and the amount of credit for foreign tax it could get that it could then go on to quantify the amount of NTLRD it needed to keep back for itself to set against the any foreign dividend income.
5. In refusing to exercise their discretion to extend time, HMRC applied their Statement of Practice (5/01) ("the SP"). Although that dealt with HMRC's approach to time extension applications in relation to different statutory claims the parties agree that HMRC were right to apply the SP here. The Claimant's public law challenge to the Decision (there being no statutory right of appeal against that) is that HMRC made various errors of law in interpreting the SP, that they failed to take relevant considerations into account, and that they reached an irrational decision.

Background to JR claim

6. The JR Claim is brought with the permission of the Administrative Court, and was transferred to the Upper Tribunal on 14 May 2024.
7. The background facts were not in dispute and are drawn from the Claimant's Amended Statement of Facts supplemented, as appropriate, by the correspondence between the parties put before us. In this section we focus on the facts necessary to put the Decision which is the subject of current challenge and the Claimant's grounds in context.
8. The Claimant is part of a group of companies that carries on a global business manufacturing and selling indoor climate control solutions. During the accounting period ended 31 December 2002, the Claimant received dividends of £1,234,395 from an Irish-resident subsidiary. In that period it also had NTLRD of £2,671,788. (The two year statutory time limit for making NTLRD claims accordingly expired on 31 December 2004).
9. The Claimant's Return of 31 March 2004 for that accounting period was completed on the basis that dividend income was taxable (showing taxable profits of £1,128,00) ("the Original Return"). The Claimant also made a claim to offset £1,127,000 of its NTLRDs against its profits. The unused balance was surrendered as group relief to a group company Purmo (UK) Limited ("Purmo").
10. That return was later amended in-time by the Claimant on 22 December 2004 to treat the Dividends as exempt ("the Amended Return"). The offset claim was withdrawn. The Claimant took the view, based on advice it received, that the UK's approach to taxing dividends received from overseas companies was incompatible with EU law (given the more favourable treatment of domestic dividends).
11. On the basis that the Dividends were exempt, and within the relevant time limit for doing so, the Claimant surrendered the whole of the NTLRD (£2,671,788) to Purmo.
12. On 22 December 2005 HMRC opened a statutory enquiry into the Amended Return.
13. On 31 March 2010 the Claimant's then advisers wrote to HMRC to make a claim in the alternative for tax credit relief in respect of the underlying tax arising on the overseas dividend income. The letter explained that the Claimant had not claimed tax credit relief on the underlying tax that arose on the dividend income because the returns treated the income as non-taxable. It sought to protect the Claimant's position in the event, in view of the uncertainty of the outcome of the ongoing FII Litigation, that the dividend income was ultimately found to be taxable.
14. As regards the Claimant's treatment of Dividends as exempt in the Amended Return, it was later confirmed as a result of court decisions, that the UK was not required to exempt overseas dividends from UK tax but instead had to provide a credit for foreign tax at the foreign nominal rate ("FNR"). Applied to the Claimant's case, the Claimant was liable for UK tax. The FNR of 10% was below the UK corporation tax rate (of 30%). So, although there was a credit for foreign tax (which based on the 10% FNR came to £123,439) that did not extinguish the UK tax the Claimant was liable for on the Dividends. The Claimant therefore asked HMRC, in a letter of 11 March 2021, to reduce (by £822,928) the NTLRD sum which the Claimant had previously surrendered to Purmo, and instead to use that sum to set off against the amount which the Claimant was now taxable for (the £1,234,395 on the Dividends less available deductions).
15. The NTLRD reduction figure of £822,928 was thus arrived at by the Claimant by factoring in various elements, as helpfully summarised by the submissions of Mr Firth KC. The starting point was that the change in treatment of those Dividends from exempt under the Claimant's amended return to taxable would mean the Claimant had a higher profit. In the light of that the Claimant wanted to hold back sufficient NTLRD to use for itself to be able to reduce its tax charge to nil (rather than giving it all to Purmo as it had done before). It did not need to hold back all of the NTLRD to do that because it could get a credit for foreign tax (the £123,439 calculated at the FNR of 10%). The new amount of NTLRD now available for the Claimant (together with other available deductions) would, when applied to the Irish dividend income, result in tax of £123k (which the foreign tax credit of equivalent amount could then eliminate). The reduction in the NTLRD set-off by £822,928 would of course mean in turn that the recipient, Purmo, benefitted from less relief. That was not a problem however, because Purmo could mitigate that by carrying back its own loss from a later accounting period.
16. On 11 March 2021 the Claimant, on the basis outlined above, made the following claims, having set out its view that the correct FNR was 10%, namely that:

(1) On behalf of the Claimant and Purmo the amount of group relief surrendered by the Claimant to Purmo be reduced by £822,928.

(2) Purmo be allowed to carry back the same amount from a loss in the following accounting period to offset the increase in profits resulting from 1). [This was the mitigation on Purmo's side]

(3) The Claimant be allowed to use NTLRD freed up to reduce its own tax to nil. [This is the claim HMRC say is out of time and the subject of the JR Claim].

17. On 2 April 2021, HMRC agreed with the Claimant that the FNR was 10%. As regards the claims referred to at 1) and 2) above, it also on that date agreed to the claim for reduction of group relief surrendered to Purmo (subject to HMRC receiving the necessary consents from the relevant group companies) and the claim for Purmo to carry back its loss.
18. The group companies' consents were provided on 5 May 2021. HMRC wrote on 28 May 2021 stating the case worker was "waiting on internal approval for the late claim to the [NTLRD]" (i.e. the claim referred to at 3) above) and would "close enquiries" for both parties once that was received.
19. On 8 March 2023 HMRC wrote to say the claim to use the NTLRD was refused because it was late but that decision was later withdrawn on 7 July 2023. Following further exchanges of correspondence HMRC stated in its letter of 13 October 2023 its "provisional view" that the NTLRD claim would not be admitted. The Claimant made further representations in its letter of 13 November 2023. HMRC then issued the decision which is the subject of this judicial review claim, that is to say the Decision, on 5 January 2024.
20. In the Decision HMRC refused the claim to set-off the NTLRD (claim 3) above). The claim had not been made within two years of the relevant period (i.e. by 31 December 2004) and HMRC refused to exercise its discretion to extend that time limit. Its reasons included that the Claimant's case did not fall within the SP. In order to put the detail of the Decision in context it is convenient at this point to set out the law stating the two year time limit and then to say something more about the SP.

law – summary of statutory background

21. From 1 October 2002 to 31 March 2009, the two year limit and HMRC's statutory discretion to extend were set out in in the s 83 Finance Act 1996. That provided as follows:

83.— Non-trading deficit on loan relationships.

(1) This section applies for the purposes of corporation tax where for any accounting period ("the deficit period") there is a non-trading deficit on a company's loan relationships.

(2) The company may make a claim for the whole or any part of the deficit (to the extent that it is not surrendered as group relief by virtue of section 403 of the Taxes Act 1988) to be treated in any of the following ways, that is to say—

(a) to be set off against any profits of the company (of whatever description) for the deficit period;[ or]

…

(c) to be carried back to be set off against profits for earlier accounting periods (3A) So much of the deficit for the deficit period as is not—

(a) surrendered as group relief by virtue of section 403 of the Taxes Act 1988, or

(b) treated in any of the ways specified in subsection (2) above, shall be carried forward and set against non-trading profits of the company for succeeding accounting periods.

…

(6) A claim under subsection (2) above must be made within the period of two years immediately following the end of the relevant period [which, in the following subsection (7) is defined to mean the "deficit period" (which in turn is defined above at subsection (1), or within such further period as the Board may allow.

22. The legislation in force at the time the claim was made in March 2021 (s460 Corporation Tax Act 2009) similarly provided for a 2 year time limit after the deficit period ended, or "such further period as an officer of Revenue and Customs allows."

The Statement of Practice

23. As the SP itself explains (in its paragraph 2) it covers loss relief claims to be made within two years of the accounting period in which the loss is incurred. For capital allowances and group relief there is a one year time limit from the filing date but if HMRC open an enquiry into the return the taxpayer has the later of 30 days from after the enquiry closed, or if the return is amended, 30 days after the amendment, or 30 days after appeal against the amendment is finally determined. In both cases (whether there is simply a two year time limit or a time limit that is tied to the enquiry closing or final determination of appeal) HMRC have discretion to extend the time limit.
24. Both parties acknowledge that the Statement of Practice does not however actually cover claims to set off NTLRD. Rather, as described above, it concerns the making of amendment of claims to carry back losses claims for capital allowances and claims for group relief. Nevertheless both parties accept that the statutory provisions in respect of time limits are similar and that the approach in the SP is instructive and should be applied.
25. HMRC had previously argued that it was a complete answer to the Deficit Claim that the SP did not apply to the Deficit Claim. This argument was (rightly in our view) not pursued in oral argument. As will be seen the Decision was expressed to be made on the basis of and by reference to the SP, and we cannot see that it would have been open to HMRC now to assert that the Decision did not need to be made in accordance with the SP.
26. Although we will make reference to excerpts of the SP when addressing the individual grounds it is helpful to see the paragraphs dealing with HMRC's exercise of its discretion in their entirety (in setting this text out we have indicated the parts of particular relevance to particular grounds).

"The Commissioners for HMRC's approach to extending time limits for making claims

9. The time limits allowed for making claims to loss relief, capital allowances and group relief under CTSA and the further provisions described above should generally be adequate and the Commissioners for HMRC will not make routine use of their powers to accept claims made outside these limits. But the Commissioners for HMRC recognise that there may be exceptional reasons why a claim is not made within the time specified. Applications to allow further time in accordance with the powers referred to at paragraph 1 above will be considered with the assistance of the following criteria.

10. In general, the Commissioners for HMRC's approach will be to admit claims which could not have been made within the statutory time limits for reasons beyond the company's control. This would include, for example, cases where:

• at the date of the expiry of the time limit, the company or its agents were unaware of profits against which the company could claim relief [This is the subject of Ground One and we refer to this bullet as Example One]

• the amount of a profit or loss depended on discussions with an Inspector which were not complete when the time limit expired, and the delay in agreeing figures is not substantially the fault of the company or its agents. [This is the subject of Ground Two and we refer to this bullet as Example Two]

In such cases the Commissioners for HMRC's approach will be to admit late claims up to the amount of the profit or loss in question. Where the claim involves the withdrawal of an existing claim and the making of a fresh claim, the Commissioners for HMRC's approach will be to admit these to the extent of the profit or loss in question. Claims which go beyond this and affect profits which were not in dispute at the time of expiry of the statutory time limits will not be within this approach.

Reasons beyond the company's control would also include a claim where all of the following 4 features were present:

• an officer of the company was ill or otherwise absent for a good reason

• the absence or illness arose at a critical time and prevented the making of a claim within the normal time limit

• there was good reason why the claim was not made before the time of the absence or illness

• there was no other person who could have made the claim on the company's behalf within the normal time limit.

11. The Commissioners for HMRC would not, however, regard the following as reasons beyond the company's control:

• oversight or negligence on the part of a Claimant company or its agent

• failure, without good reason, to compute the necessary figure the wish to avoid commitment pending clarification of the effects of making a claim

• illness or absence of an agent or adviser to the company

12. There may be cases falling outside the general approach outlined in paragraph 10 where it would nevertheless be unreasonable, given the overall circumstances of the case, for the Commissioners for HMRC to refuse a late claim. It is likely that such cases will involve a combination of factors, but the following criteria may be relevant:

• the reason why a claim is late – where the reason does not in itself warrant admission of the claim under the approach outlined above, it will still be taken into account by the Commissioners for HMRC in assessing the circumstances as a whole

• the extent to which it is late

• the consequences for the company if the claim is refused

• any particularly unusual features

For the purpose of this paragraph and those above, if the late claim forms part of a scheme or arrangement, the main purpose or one of the main purposes of which is the avoidance of tax (including the payment of tax), then that will be taken into account in the Commissioners for HMRC's approach.

Procedures

13. An application to admit a claim outside the statutory time limits should be sent to the inspector dealing with the Claimant company and should include a full explanation of the circumstances of the case. The explanation should cover, but need not be limited to, all the criteria set out in paragraph 12.

The application should be made as soon as possible. Delay in making a late claim after the circumstances which caused the claim to be late have ceased to apply may result in the claim being rejected. [This paragraph is the focus of Grounds 4 and 5] "

HMRC's Business Brief and further exchanges

27. Returning to the exchanges between the parties it is relevant to back-track to pick out some of the further communications running up to the Decision to the extent this featured in the Decision or the Claimant's grounds.
28. On 30 January 2020 HMRC sent the Claimant a copy of its Business Brief entitled "Settlement of Statutory Double Taxation Relief Claims Affected by the FII and CFC Dividend GLOs".
29. The purpose of that was expressed to be to set out HMRC's views on the statutory claims to DTR (Double Taxation Relief) "that may have been made or could be made by companies wanting relief against taxable foreign dividend income on the basis determined as a result of the… FII and CFC and Dividends GLOs".
30. The Claimant refers to the following passage at paragraph 28. The Brief explained that a claim could be made under the extended time limit provided for within s806(2) and continued:

"However, to reduce any unnecessary administrative burden, where HMRC is able to agree, as a result of a quantified request prior to the closure notice, the quantum of the claim which the customer indicates it would then make, it will give the relief after closure of the enquiry (and after increasing the DV income [i.e. dividend income from non-resident sources under Schedule D, Case V ICTA 1988] by bringing the dividends into charge) without requiring the customer to go through the further formality of making a claim. Where HMRC is unable to accept the quantum of the claim HMRC will issue a closure notice that taxes the foreign dividends without the benefit of any relief under s806(2) and invite the customer to make its s806(2) claim as indicated. The claim can then be dealt with in the normal way in order to ascertain the correct quantum."

31. On 28 January 2021 HMRC noted that it had received a purported claim under s806(2) ICTA (the one received on 31 March 2010) detailing the overseas dividend income and estimated underlying tax suffered and that pursuant to the above paragraph 28 in the briefing note that could be uplifted to the applicable FNR without the formality of making a further claim. The letter sought to agree the FNR with the Claimant (suggesting a rate of 12.5% being the Irish corporation tax rate applicable at the relevant time) and asked if the company had any unrelieved non-trading deficits to set against the additional profits arising.
32. The Claimant responded on 11 March 2021 as set out above with the three steps explained above at [16] and explaining its view that the FNR was 10% (the tax rate that applied to manufacturing income). In their response of 2 April 2021, HMRC noted and agreed that FNR rate.

The Decision

33. The Decision which is the subject of the current JR Claim (HMRC's eventual decision letter of 5 January 2024), was written by Sinead Murphy, tax specialist. It began by setting out the procedural background and summarised various preceding exchanges of correspondence. That included the Claimant's representative's letter of 13 November 2023 and arguments that the claim fell within paragraph 10 of the SP firstly because, as at 31 December 2004, it was not possible for the Claimant to be aware of the taxable profits against which the Claimant could claim any relief and secondly that that amount of profits depended on further discussions that were still not completed. It was also noted that HMRC had not brought the additional information into charge.
34. Ms Murphy then explained her refusal, which it is convenient to set out in full:

Decision

20. SP5/01 requires that a party asking HMRC to exercise its discretion to allow a late claim to demonstrate the strength of their case. Having considered the explanations that Rettig has provided, we do not consider that there were exceptional reasons why Rettig did not make the Claim within the two-year time limit prescribed by s83(6) FA 1996, that is,

"two years immediately following the end of the relevant period".

21. Accordingly, we refuse to exercise HMRC's discretion to extend the time limit in this case. We set out our reasons below and in doing so we respond to the points made in your 13 November 2023 letter.

Circumstances do not meet paragraph 10 of SP5/01

22. In its original company tax return filed on 31 March 2004, Rettig treated its overseas dividends as taxable. Later, on 22 December 2004, it amended its tax return to treat the overseas dividends as non-taxable. That change indicates that Rettig had some doubt as to the treatment of the overseas dividends when the time limit expired (31 December 2004). That means that paragraph 10 of SP5/01 is not met, because Rettig was aware that there could have been profits against which Rettig could claim relief.

23. Rettig did not make a claim for double tax relief ("DTR") in its amended return, contrary to the assertion in your letter dated 13 November 2023. On 31 March 2010, and to protect its position. Rettig made a DTR claim under separate cover. This indicates that they were aware of the dividend income that should be brought into charge following the outcome of the ongoing legislation.

Claim not made as soon as possible contrary to paragraph 13 of SP5/01

24. Paragraph 13 of SP5/01 provides that an application should be made as soon as possible, and that a delay in making a late claim after the circumstances which caused the claim to be late have ceased to apply may result in the claim being rejected.

25. The judicial decisions handed down in October 2013 [Prudential Assurance Company Limited v HMRC [2013] EWHC 3249 (Ch) "2013 Prudential Ch"] and July 2018 [Prudential Assurance Company Limited v HMRC [2018] UKSC 39 July 2018 ("2018 Prudential SC"] confirmed that foreign dividends were taxable. Therefore, even if we considered that paragraph 10 applied, which we do not, the Claim was not made as soon as possible after the relevant judgments were handed down. We would therefore also reject it for that reason, applying SP5/01.

Not otherwise unreasonable for HMRC to refuse the late Claim: paragraph 12 of SP5/01

26. Paragraph 12 of SP5/01 states that there may be cases falling outside the general approach outlined in paragraph 10 where it would nevertheless be unreasonable, given the overall circumstances of the case, for HMRC to refuse a late claim. Based on the information provided to date, we do not consider that this case falls outside the general approach outlined in paragraph 10.

27. Our letter dated 28 January 2021 did ask the company to advise us of any unrelieved surplus non-trading loan relationship deficits or group relief claims however it did not indicate that any new claims made for either of these reliefs would inevitably be accepted."

35. HMRC's position, as confirmed following a disputed application for disclosure^[1] is that the entirety of the reasoning for the decision is contained in Ms Murphy's 5 January 2024 letter.

Summary of Grounds

36. The five grounds upon which the Claimant has permission to bring this judicial review may be summarised as follows:

(1) Ground One argues that HMRC misinterpreted the SP (in particular Example One – company unaware of profits against which it could claim relief).

(2) Ground Two argues that HMRC failed to apply or correctly apply the alternative condition (Example Two – amount of profits depended on discussions with inspector which were not complete as at expiry of time limit).

(3) Ground Three argues that HMRC reached irrational conclusion on the application of both of the alternative cases (i.e. Examples One and Two) in the SP and the overall application of the SP.

(4) Ground Four argues that HMRC erred in law in concluding that the Deficit Claim could/should have been made earlier than it was and/or failed to take into account relevant considerations.

(5) Ground Five argues that HMRC reached an irrational decision as to whether the Deficit Claim had been made as soon as possible and/or whether to reject the Deficit Claim on the ground of delay after the circumstances which caused the Deficit Claim to be late ceased.

Powers of judicial review

37. Before addressing the individual grounds we remind ourselves of the general principles stemming from the nature of this claim as one of judicial review. In particular, we remind ourselves that the claim is not about whether HMRC's decision (the Decision) is the one we would have reached. There are two bases on which we can interfere with the Decision. First, we can interfere where HMRC have gone wrong in law (including in the construction of the SP) in the Decision. This requires determination of the relevant point of law. Second, we can interfere if HMRC have made an error in the Decision which is susceptible to judicial review.
38. So far as the second basis is concerned, the law is explained by Lord Hodge DPSC and Lord Sales JSC in their joint judgment in R (Friends of the Earth Ltd and another) v Secretary of State for Transport [2020] UKSC 52, at [116] to [121].
39. A decision can be challenged where the decision-maker fails to take account of those considerations material to their task. This does not however mean any considerations. There are three categories of consideration:

(1) The first category is those considerations which are clearly identified by statute, expressly or impliedly, as considerations to which regard must be had.

(2) The second category is those considerations which are clearly identified by statute as considerations to which regard should not be had.

(3) The third category is those considerations to which the decision-maker may have regard if, in their judgment and discretion, they think it right to do so.

40. A consideration which falls into the third category is not one which necessarily has to be taken into account. A consideration falling into the third category only has to be taken into account if it is so obviously material that it would be irrational to leave it out of account. Putting the matter another way, the consideration must be one which no reasonable decision-maker, in the position of the actual decision-maker and otherwise acting lawfully, could leave out of account.
41. It follows that where a consideration in the third category is left out of account, this will not affect the lawfulness of the decision unless the consideration is one which it would be irrational to leave out of account.
42. Where a consideration in the third category is taken into account by the decision-maker, the weight to be given to the consideration is a matter for the decision-maker, including a decision to give the consideration no weight at all. A decision to give the consideration no weight at all can only be challenged if it would be irrational to give the consideration no weight at all.
43. The concept of irrationality is discussed in the judgment of Lord Carnwath JSC in R (oao) Gallaher Group v CMA [2018] UKSC 25, specifically at [39] to [41]. The discussion confirms that this particular ground of review should be referred to as irrationality. As was identified in the oral submissions before us, irrationality refers to a decision which no reasonable decision-maker, in the position of the relevant decision-maker and otherwise acting lawfully, could have made.
44. What should also be noted are those challenges which are not included in the Grounds. No challenge is made on the basis of legitimate expectation, or on the basis of failure to give reasons, or on the basis that SP, on its own terms is unlawful. This is important because, as will be seen, some of the grounds on which judicial review is sought do not function in the absence of those sorts of challenges.

Correct approach to construction of Statements of Practice

45. A Statement of Practice explains the way HMRC interprets legislation and, as the name suggests, the way HMRC applies the law in practice. As regards the correct approach to construing Statements of Practice, both parties' skeletons advanced various propositions reflecting guidance provided from the authorities. Although such guidance does not explicitly concern Statements of Practice we do not understand it to be in dispute that the interpretative principles advanced would be equally applicable. As Mr Birdling and Ms Ruxandu explained in HMRC's skeleton:

(1) The proper construction of policy guidance such as a Statement of Practice is a matter for "determination by the court, interpreting the document objectively in accordance with the language used, and bearing in mind that a policy document is not to be read as if it were a statute or a contract" (R (Cotter) v NICE (2020) 175 BMLR 89 (CA) at [41].

(2) Although statements of practice do not change rights, where they set out HMRC's policy as to how a statutory discretion falls to be exercised, they will be followed unless there is good reason not to do so (R (Hemmati and others) v Secretary of State for the Home Department [2019] UKSC 56 at [69]).

46. On behalf of the Claimant, Mr Firth referred us to Murphy v HMRC [2023] EWCA Civ 497. The decision is not directly on all fours with the present case, because it was concerned with an extra-statutory concession. That said, there seems no reason (and the parties did not dispute this) why the principles articulated in Murphy (themselves drawn from a number of previous authorities at [30] to [31]) should not apply to an HMRC Statement of Practice. Accordingly:

(1) The meaning of the Statement of Practice falls to be assessed by reference to how it would reasonably have been understood by those to whom it was directed. The ordinarily sophisticated taxpayer can be taken to be representative of those to whom an extra-statutory concession (or, in our case, a statement of practice) is directed. (see R (Association of British Civilian Internees: Far East Region) v Secretary of State for Defence [2003] EWCA Civ 473 at [56] R v IRC ex p MFK Underwriting Agents Ltd [1989] STC 873 at 1569 and R (Davies) v HMRC [2011] UKSC 47 at [69]).

(2) It would be "inimical to legal certainty (even subject to rationality review) to interpret [the policy] other than in accordance with the objective meaning that a reasonable and literate person would ascribe to it" (R (Ellis) v Secretary of State for the Home Department [2020] UKUT 82 (IAC) at [35]).

47. Finally it is worth noting that the Court of Appeal's decision in R (Bampton Property Group Ltd) v King (an officer appointed by Revenue and Customs Commissioners) [2012] EWCA Civ 1744, which we will return to in our discussion under Ground One, concerned the interpretation of the same Statement of Practice we are concerned with here. The Court of Appeal (at [99]) noting the High Court's conclusion on a particular issue arose from a "sensible construction" agreed that the SP had to be "… interpreted realistically".

Claimant's Grounds of judicial review

Ground One – misinterpretation of unaware of profits test

Summary of parties' submissions

48. This ground relates to the correct interpretation of the first example (Example One) given under paragraph 10 of the SP (see above at [26]) that:

"• at the date of the expiry of the time limit, the company or its agents were unaware of profits against which the company could claim relief."

49. Under this ground, the Claimant submits that HMRC misinterpreted the reference to a company being "unaware of profits against which the company could claim relief". A company was unaware of such profits in circumstances where it considered that a sum was not a profit that was required to be brought into the charge to tax. It was thus a conjunctive requirement: the company had to be both aware of the profits (which it was – there is no dispute it was aware of the Irish subsidiary's dividends) but also that those profits were chargeable to tax. It was only if profits were chargeable to tax that relief from tax such as NTLRD or loss relief could be set off against such profits. That was true, the Claimant argues, even if the company was not certain about such chargeability under law because of ongoing litigation or was aware HMRC might disagree. HMRC's view that the Claimant was aware that there "could have been profits against which [the Claimant] could claim relief" given the Claimant's doubts as to the treatment of overseas dividends thus misinterpreted the unawareness requirement.
50. HMRC submit that there was no misinterpretation, as paragraph 10 of the SP addresses the factual awareness of profits being in existence rather than the "conviction" of the taxpayer in the legal treatment of profits. HMRC argue the SP is only assessing the first step of taking the amount of company's profits for the period on which corporation tax is chargeable (rather than the second step of giving reliefs or set-offs available, for example double tax relief).
51. HMRC also submit that the Claimant's alleged unawareness in the present case was merely ignorance of the law and say [40] of Post-Prudential [2025] EWCA Civ 166 ("2025 Post-Prudential CA") supports this (that case was issued after the hearing but both parties were able to and did provide written submissions on the case). Falk LJ's judgment (whose judgment the other LLJs agreed) explained:

"The starting point is that the decisions of the CJEU in the FII litigation were in their nature retrospective in effect, in the sense that they declared what the law had been at all relevant times. That accords with the normal declaratory theory of judicial decision-making. Indeed, in FII CJEU1 the CJEU expressly rejected the imposition of any temporal limitation (a limitation which of course would not have been in the interests of the taxpayer Claimants). It is true that there was a period of considerable uncertainty, at least until the availability of an FNR credit was established in FII CJEU2, but that was a function of the developing CJEU jurisprudence rather than any aspect of national procedural law."

Discussion of Ground One

52. We start with some general principles/observations. The organising principle in Paragraph 10 of the SP is identified at the start of Paragraph 10:

"In general, the Commissioners for HMRC's approach will be to admit claims which could not have been made within the statutory time limits for reasons beyond the company's control."

53. Paragraph 10 then goes on to identify two examples which are used to illustrate the type of circumstances in which this organising principle will apply and in which, as a general rule and subject to the remaining provisions of the SP, a late claim will be admitted. The first of these illustrative examples is in the first bullet point. As such, and as we have already indicated, it is better referred to in our view as "Example One" (rather than limb 1 as the Claimant's submissions put it).
54. The question of whether Example One applies has to be considered at the date of the expiry of the relevant time limit. Here the relevant time limit is contained in Section 83(6), so that the expiry date, on the facts of the present case, was 31^st December 2004 ("the Expiry Date").
55. In our view the meaning of this example is perfectly clear.
56. What has to be considered at the Expiry Date is the Claimant's state of knowledge. At the Expiry Date the Claimant had to be unaware of profits. The reference to profits is not however a reference to any category of profits, but only to those profits against which the Claimant could claim relief.
57. The Claimant's case is that the "straightforward and obvious meaning" of Example One is that the company needs to be aware that there is additional profit which ought to have been brought into the charge to tax, but which has not been brought into the charge to tax.
58. It will be seen immediately that this case is attempting to re-write the wording of Example One. Example One says nothing about awareness of whether profits should or should not be brought into the charge to tax. What is required is awareness of profits against which the company "could" claim relief. Provided that there are profits of which the company is aware, and provided that they are profits against which relief could be claimed, the case falls outside Example One.
59. The Claimant's argument means that the return filed by the company for the relevant year becomes decisive. Provided that the company leaves profits out of the charge to tax, so that a claim for relief cannot be made against the exempted profits, Example One is satisfied. The company, so the argument goes, cannot be aware of the relevant profits because they are, following completion of the return, profits against which a claim for relief cannot be made. This remains so, regardless of whether the relevant profits should have been brought into the charge to tax. This seems a remarkable result. On the Claimant's argument Example One will always apply, provided that that the relevant profits are left out of the company's return, regardless of whether they should have been left out or not.
60. The difficulties with this argument do not end there. The argument requires an inquiry into the subjective belief of the relevant company which is then determinative of whether Example Two applies, irrespective of the reasonableness of that belief. The subjective belief of the company thus becomes key. Mr Firth also sidesteps all the usual difficulties of ascertaining such belief by submitting that will effectively be determined by the binary question the taxpayer faces of whether to declare the profits or not.
61. Thus, on the Claimant's case, provided that the company believes that the relevant profits should not be brought into the charge to tax, and fills the return out on that basis, it is within Example One. This is because, so the argument goes, the company necessarily also believes that the profits, as profits lying outside the charge to tax, are not profits against which the company could claim relief.
62. None of this fits however with the language of Example One. It is a strained interpretation of "awareness" as it requires an assumption that the way the return is filled out deems the answer on "awareness". In other words the normal fact sensitive question of knowledge is simply deemed.
63. Nor, crucially, does the Claimant's suggested interpretation fit with the organising principle in Paragraph 10, which is concerned with claims which could not have been made within the statutory time limits for reasons beyond the company's control. On that point, Mr Firth argued orally that it is not a matter of choice for the taxpayer as to how to fill out its return because the taxpayer has to take a view one way or the other. If it came to the view, having taken advice, that the dividends should not be brought into account it would be beyond the taxpayer's control to be expected to submit a return that was inaccurate according to the taxpayer's view of the law.
64. We do not agree. Where a company is aware of the existence of profits, a decision on whether or not to include those profits in the charge to tax is a decision for the company. It is not a matter outside the company's control. This is well-illustrated by the facts of the present case, where the Claimant first submitted the Original Return, with the Dividends included in the charge to tax and with an accompanying deficit claim, followed by the submission of the Amended Return, which left the Dividends out of the charge to tax. The deficit claim which had been made was withdrawn, and the Deficit (unused) was surrendered, in its entirety, to Purmo. It seems perverse to describe this chain of events as one where the Deficit Claim could not have been made within the statutory time limits for reasons beyond the Claimant's control.
65. The problem in the present case has come about because the chargeability of the Dividends to tax was the subject of dispute between HMRC and taxpayers. The dispute has been determined in favour of HMRC. In consequence, the Claimant needed to reverse its previous position, and made the Deficit Claim. It would be odd if Example One covered every case where a taxpayer made the decision to leave profits out of the charge to tax, there was then a lengthy dispute over the chargeability of the relevant profits to tax, and it subsequently turned out that the taxpayer had made the wrong decision. It also equates to a situation where a taxpayer can defend the lateness of a claim on the basis of ignorance of the law. Ignorance of the law is not normally admitted as a defence and in those situations where it is, there will usually have been further enquiry in relation to the circumstances surrounding that ignorance and the reasonableness of any lack of knowledge. Given Mr Firth's point about the binary nature of filling out a return, ignorance of the law would however be admitted as a valid reason for making a late claim as a matter of course and without any such wider consideration of the circumstances.
66. As long as the taxpayer genuinely believed the profit was not chargeable and irrespective of how reasonable or unreasonable that belief was they could benefit from extended time limits. For instance where a taxpayer who has taken no steps to ascertain chargeability and is ignorant of the chargeability one cannot describe that lack of awareness as a situation beyond the taxpayers' control.
67. By contrast the position is much simpler and faithful to the language if one is simply asking the question of whether there are profits in the relevant accounting year of which the company was aware at the date of expiry of the relevant time limit, against which a claim for relief could have been made. Paragraph 10 assumes a situation in which a late claim for relief is made. It therefore assumes a situation where an eligible claim for relief existed in relation to the relevant profits in the relevant accounting year. The simple factual inquiry which is required, on HMRC's case, is whether the company was aware or unaware, at the relevant expiry date, of the relevant profits against which the claim for relief, which is made as a late claim, could have been made. If the company was aware of the relevant profits at the relevant expiry date, and if there was an eligible claim for relief which could have been made within time, Example One does not apply.
68. In support of this construction of Paragraph 10 it is instructive to consider the closing part of Paragraph 10, which gives an example of circumstances beyond the company's control. The example is an obvious one, involving a situation where the failure to make the claim resulted, and only resulted from the critical illness or absence of an officer of the company who was the only person who could deal with the making of the claim. This example bears no relation to a situation where a company decides to leave profits out of the charge to tax, and makes no claim for that reason. By reference to this example, it seems extremely unlikely that a decision by a company to leave profits out of the charge to tax was intended to constitute circumstances outside the control of the company, independent of the inherent linguistic conflict between the making of a decision by a company and circumstances outside that company's control.
69. While Mr Firth argued that it was surprising that "difference in view of law" situation (on HMRC's case) was not listed within these paragraph 10 exclusions, we consider the contrary is true. If disputes as to legal chargeability were intended to be caught by Example One then it is surprising that that category is not specifically mentioned given its inherently different character to the kinds of exclusions mentioned.
70. There is also support for an approach of looking to the consequences of the interpretation and also testing these against the concept of whether such circumstances are truly beyond the company's control in the Court of Appeal's reasoning in Bampton. There the Court of Appeal provided general guidance on the interpretation of the Statement of Practice, to which we can and should have regard.
71. The case concerned a situation where, due to an accountant of one group company overclaiming loss relief for that company (he had wrongly taken account of the relevant time apportionments), other companies in the group were out of time to claim relief they would have otherwise claimed. One of the Claimant's arguments there was that the mistakes were not made by the company applying to make a late claim to use the stranded losses against its own profits.
72. Although it was strenuously argued by Mr Firth that Bampton was concerned with a different set of circumstances (attribution of error from one group member to another), what was said by Arden LJ (as she then was) in her judgment at [99] is relevant in the present case.

"The judge held that 'on a sensible construction of SP 5/01, HMRC was entitled to treat the group as a whole, and to treat a failure to make a claim intime by reason of the accountants' "oversight" accordingly' (judgment para [115]). I agree. SP 5/01 has to be interpreted realistically. It would run a coach and horses through paras 9 to 12 of SP 5/01 if the consequences of oversight by a company could be side-stepped in this way. It would mean that, if another company under common management or ownership applied to make a late claim to take advantage of a relief which the first company had lost through that oversight, it could completely dissociate itself from the first company's error."

73. It is also important to note that what was said by Arden LJ constituted the view of the Court of Appeal. The other members of the Court of Appeal (Kitchin and Rix LJJ) both agreed with the judgment of Arden LJ. The passage confirms that in taking a sensible or realistic interpretation it is legitimate to have regard to the consequences of the competing interpretations and to test these against the principle that the circumstances are beyond the company's control. In Bampton that was that a company under common control could dissociate itself from an oversight error by another group company.
74. If the Claimant's construction of Example One results in a situation where any taxpayer who decides to leave profits out of the charge to tax can thereafter make an out of time claim, we are entitled to consider whether those consequences are of the same kind as the consequences which concerned the Court of Appeal in Bampton. In our view they are. In Bampton it was the undermining of an oversight by one company not being sidestepped by a company under common control. Here the concern with the Claimant's interpretation would protect the belief as to chargeability in circumstances where such belief as to chargeability cannot be described as something which is beyond the company's control.
75. In oral submissions, one of the criticisms the Claimant made was that on HMRC's view it was difficult to conceive of any realistic example that would fall with the bullet (as will be seen a similar criticism is made under Ground Two in the context of Example Two). Mr Firth argued the absence of such a realistic example was relevant as a matter of interpretation because where there were two competing interpretations, the interpretation which was consistent with a realistic example from the point of the view of a reasonably sophisticated taxpayer was to be preferred to an interpretation for which there was no real life example. He argued that on HMRC's view requiring factual unawareness, it was difficult to see how the SP would ever apply. If a company was not aware of the fact of its profits that would imply an oversight on its part which did not count as a valid reason.
76. The first point to make is that we should be wary of trying to determine the meaning of Example One by reference to the question of whether one can identify specific circumstances falling within it. The SP is not a statute. It is a statement of practice. The question is how the SP would reasonably have been understood by the ordinarily sophisticated taxpayer. The wording of Example One is very clear in its meaning, particularly when it is read, as it should be, as an illustrative example of the organising principle in Paragraph 10, which is whether the claim could not have been made within the relevant statutory time limit for reasons beyond the company's control. No ordinarily sophisticated taxpayer would think that a decision by the taxpayer to leave profits out of the charge would fall within it.
77. Having said that we do have the example provided by Ms Ruxandu on behalf of HMRC. She gave the example of a partnership dispute where, because of a dispute between other partners as to the profit allocation by the designated partner, a corporate partner did not know the profit allocation to state in filing its company return. While the company would know it had a source of income it did not know the amount and although they might take steps to go to court to resolve the allocation number that might be outside of the time limit. That was a situation, she suggested, which would constitute circumstances beyond the company's control.
78. We accept that as a valid example of circumstances falling within Example One. We reject Mr Firth's argument in reply that this was simply another case where there was a dispute on the underlying issues in respect of which the taxpayer had to take a view on in order to submit its return. Where the amount of profits is dependent on resolution of a dispute between other partners that is capable of being understood as being beyond another partner's control. By contrast one cannot sensibly describe the correct assessment of the law as being beyond one's control. It is entirely within a taxpayer's control to make the correct assessment of the relevant legal position. The fact that view may prove to be wrong does not mean it was out of their control to make that assessment, just that they got it wrong.
79. This is not therefore the kind of situation Mr Firth described where there are two competing interpretations with a ready example on one side but none on the other. It is a situation where there is one interpretation clearly consistent with the language but where the other is inconsistent. Moreover, even if the Claimant's interpretation is assumed to be equally consistent one cannot overlook that the example that generates itself reveals the conflict with the organising principle of the circumstances being beyond the company's control.
80. In reply Mr Firth also argued that his interpretation did not create a routine exception, in the way HMRC suggested, in that one had to be in the situation where HMRC needed, as here, to take a step (issue of a closure notice) to bring tax into charge. Even then, he submitted most relief cases would be covered by the different time limits governing consequential claims. We do not see however how that helps in relation to the two year loss claims which are under consideration here. These would, under the Claimant's interpretation, always be extended because the taxpayer believed profits were not chargeable, whether right or wrong and whether that view was reasonably held or not.
81. Mr Firth also argued that the fact Ms Murphy, the HMRC decision maker did not herself proceed on the basis HMRC now advance is itself a strong pointer to that interpretation not being one which a reasonably sophisticated taxpayer would take. We disagree. Even if it were correct that she had in fact adopted the test the Claimant argues for, that would not amount to a strong pointer in favour of the Claimant's interpretation but simply reflect that Ms Murphy was responding in kind to the arguments the Claimant put to her (which were couched in terms of it not being possible for the Claimant to be aware of the level of taxable profits against which it could claim any relief (see [33] above)).
82. In summary, in our judgment, HMRC are correct in their construction of Example One. What is required, for Example One to apply, is lack of awareness of profits against which a claim for relief could be made. Example One does not apply where there is awareness of the profits, but lack of awareness that the profits should be brought into the charge to tax.

Application of correct interpretation of example to facts

83. On this basis the application of Example One to the present case is straightforward. It is not in dispute that the Claimant was aware of the Dividends on the Expiry Date. Nor is it in dispute that the Deficit Claim could have been made if the Dividends had been brought into the charge to tax, as they were in the Original Return. In these circumstances Example One does not apply.
84. Mr Firth sought to make something of the somewhat inapt terms in which paragraph 22 of the Decision was phrased. This is not however a case where the Decision is challenged on the basis of a failure to give reasons.
85. He also submitted, as indicated above, that the reasoning in the Decision did not in fact adopt the construction of Paragraph 10 which HMRC now advance. Although it is not clear to us that the test Ms Murphy adopted was the same as the test we have determined as correct, the issue of which test she in fact applied is not one which we consider we need to decide in the circumstances of this case. Even if the analysis was that HMRC did, in its Decision, go wrong in their construction of Paragraph 10, it is clear that HMRC were right, if one applies the correct construction of Paragraph 10, to conclude that Example One did not apply. In other words a decision applying the correct construction would inevitably lead to the same conclusion that Example One did not apply.
86. For all the above reasons our conclusion is that Ground One fails.

Ground Two – application of alternative condition (dependency on discussions with inspector ongoing)

87. The complaint in Ground Two is that HMRC failed to apply, or failed to apply correctly what is referred to, at various points in the Claimant's skeleton argument, as "the alternative condition" and "Limb 2". This is a reference to the second of the illustrative examples in Paragraph 10. This second illustrative example is contained in the second bullet point in Paragraph 10, in the following terms:

"the amount of a profit or loss depended upon discussions with an inspector which were not complete when the time limit expired, and the delay in agreeing figures is not substantially the fault of the company or its agents."

88. As with the first illustrative example, this second illustrative example is not accurately referred to either as an alternative condition or as Limb 2. The second illustrative example is better referred to, as we have already identified, as "Example Two".
89. The Claimant argues Example Two is directed at situations where, whether the taxpayer can claim relief, and if so in what amount, depends on discussions. The Example, it says, envisaged the situation here where both HMRC and the Claimant were awaiting the outcome of the FII litigation to understand what the correct taxation position for foreign dividends was. The issue of whether a claim could be made and if so in what figure depended on issues not resolved until 2021 when the FNR was agreed with HMRC. The Decision, which made no mention of the alternative condition, simply failed to apply this.
90. The Decision (set out at [34] above) does not make reference, at least in express terms, to Example Two. It was however accepted by Mr Birdling, in his submissions on behalf of HMRC, that if the current case came within Example Two, that would constitute an error of law in the Decision. In these circumstances Ground Two becomes the equivalent of Ground One, in the sense that we have to decide whether the case falls within the terms of Example Two.
91. HMRC submits that the Claimant misconstrues the alternative condition. The legal challenge to the tax treatment of dividends could not be described as "discussions with an inspector". The Claimant knew the amount of dividends/profits it had, because it is accepted it knew the amount of the Irish subsidiary's dividends. In line with Example One, Example Two was concerned with situations where the amount of profits was the subject of discussion, not the further stage of whether the profits were taxable. The Claimant in any case knew that HMRC considered them taxable and the amount of taxable profits was settled by the FII litigation at the latest by 2018 when the Supreme Court handed down its decision in 2018 Prudential SC. HMRC's stated position, (as set out in their skeleton argument) was that the discussions had "long finished".
92. We consider it clear that Example Two was not applicable here. Example Two can only apply where the amount of the profit or loss depends upon "discussions" which were not complete at the Expiry Date, and the delay in agreeing figures is not substantially the fault of the company or its agents. In the present case, and as HMRC emphasise, the amount of the relevant profit, namely the Dividends, has never been in dispute. What was subject to legal dispute was their chargeability to tax.
93. The word used in Example Two is "discussions". This specific word has been chosen by those responsible for drafting the SP. This word is not apt to refer to a situation where the chargeability of profits to tax is subject to a legal challenge which is working its way through tribunals and/or courts. If it had been intended that Example Two should extend to a situation where the chargeability of profits to tax was subject to an unresolved legal challenge, different wording would have been required.
94. The reference to discussions with an inspector is obviously intended to apply to a situation such as that offered, by way of example, by Ms Ruxandu. Where the amount of the relevant profits required a valuation of some kind, there could easily be discussions between a taxpayer and an inspector over the amount of that valuation. Those discussions might engage legal questions or valuation questions or both. If however there was a continuing dialogue, geared towards settling the amount of the relevant profit, that would qualify as a situation where the amount of the relevant profit depended on discussions with an inspector.
95. In his oral submissions Mr Firth underscored the words in the paragraph following Example Two that:

"In such cases the Commissioners for HMRC's approach will be to admit late claims up to the amount of the profit or loss in question. Where the claim involves the withdrawal of an existing claim and the making of a fresh claim, the Commissioners for HMRC's approach will be to admit these to the extent of the profit or loss in question. Claims which go beyond this and affect profits which were not in dispute at the time of expiry of the statutory time limits will not be within this approach."

96. He argued that the inverse of that was that profits which were in dispute would be within the scope of Example Two and that this was talking about discussions with an inspector on interpretation of the law. We disagree. We consider there is no reason one must read the scope of discussions in that way. The point being made by the underlined words above is the need to show a link between the late claim and the dispute. That these words concern the need to show such causative link is reinforced by the reference to the time at which the dispute is being considered as "at the time of the expiry of the statutory time limit". In other words, if the amount was not the subject of a dispute at the time of expiry there would be no reason why it ought not to have been captured with an in-time claim. The passage is equally consistent when read as referring to disputes over the amount of profits which are not concerned with legal chargeability.
97. Our view above, on the proper scope of Example Two, is sufficient to dismiss this Ground. But for the sake of completeness we should record that, an issue occurred to us, after the hearing regarding the date "the time limit expired" and it not being clear what discussions were said to have been not completed by 31 December 2004. On the evidence the next event that had happened following filing of the Amended Return on 22 December 2004 was that HMRC opened its enquiry, but that was not until 22 December 2005; that is to say after the Expiry Date. As this point had not been aired in the hearing we invited written submissions from the parties.
98. From those submissions it did not appear to us there was any dispute that the relevant words "the time limit expired" in this case referred to the Expiry Date (i.e. 31 December 2004). The Claimant's written submissions identified the discussions as being the "discussion regarding the tax treatment of the overseas dividends in the light of EU law which were not complete by the date that the time limit expired".
99. The Claimant also argued that it was procedurally unfair to address this point as HMRC's position as set out in its grounds of resistance and skeleton was the "discussions had long finished" (see [92] above). That implied that HMRC had accepted that there might have been discussions which had commenced prior to the Expiry Date. In turn that opened the way for the Claimant to argue that it was prejudiced because, even on HMRC's case, there were previous discussions which require factual investigation and that could not now be investigated because it was only now, after the hearing is over and the evidence has been prepared, that this new point has been raised on Example Two.
100. The Claimant went on to submit however that even if that procedural objection were not accepted, the Claimant's position was that it was not, as a matter of interpretation, necessary for the discussions referred to in Example Two to have begun prior to the expiry of the time limit. This was on the basis there would be no rational purpose to draw such a distinction and accordingly it would not be read that way from the perspective of the ordinarily sophisticated taxpayer. The Claimant highlights the importance of the date of completion of discussions as being that it is at that point that the taxpayer will be in a position to make any claims that arise as a result of the discussions. That taxpayer is exactly the same position vis-à-vis the time limits for making claims and the purpose of those time limits whether those discussions began before or after the expiry of the ordinary time limit.
101. In addition, the Claimant argues that even if the example could be read that way, so as to require discussions to have started, that the Claimant's amended return (which set out the Claimant's position that the dividends were not taxable) represented the start of the discussions.
102. We were not persuaded by these arguments. As to procedural unfairness we acknowledge the question of whether discussions needed to have commenced before the Expiry Date, and if so what discussions there were at that point was a new one. It was raised by the tribunal and was not argued by HMRC. However, in the circumstances, and if it had been necessary for us to do so we would not have considered that it was procedurally unfair to address the point.
103. The first aspect of the new point (whether discussions needed to have begun before in order to have been completed by the time limit expiry) is a point of interpretation. It is one in relation to which both parties have had the fair opportunity to make submissions. As to the question of the application of the correct interpretation, the Claimant's position in the alternative (that it is the amended return which constituted discussions) does not suggest to us that this is a situation where the shape of evidence before the Tribunal would have been different if the new point had been raised earlier. Rather, it discloses that the Claimant (who after all is the party in control of the relevant evidence, if it exists) is unable to point to anything other than the Amended Return as constituting discussion commencing prior to the Expiry Date. In other words, if prior discussions had in fact occurred, we would have expected the Claimant to be able to identify them, as opposed to alleging that HMRC had conceded that there might have been such discussions.
104. Moving on to the points of substantive interpretation, we consider the Claimant's reading entirely at odds with the clear wording of Example Two. That specifically refers to discussions not being "complete" by the time limit expiry date, which envisages that discussions must have started before the expiry date. Contrary to the Claimant's submissions there is an obvious rational purpose to this. The Example captures the sense that, where there is something flowing from the position HMRC have represented to the taxpayer in discussions which means that the amount of profits remains to be quantified, then it would be reasonable to allow the taxpayer more time. It therefore makes good sense for the example to imply that such discussions must have begun before the time limit expiry. That is because HMRC's discussions after the Expiry Date would be of no relevance to explaining why the time limit could not have been complied with before it expired.
105. Although the Claimant's submissions reiterate the points made previously that a NTLRD claim against profits, given the way it had filed its Amended Return (showing no profits), was not legally possible, we reject that view for the reasons we discuss more below at [160] onwards. In any case, even if that analysis were wrong the point would remain that the situation whereby the Claimant was not able to make a claim arose because of the taxpayer's choice as to how it filled out its return and as already discussed that cannot sensibly be described as something that is beyond the taxpayer's control.
106. As for the Claimant's fallback argument that "discussions" are somehow initiated by the act of filing a return that also, in our view, seems entirely at odds with the language used. A tax return is a recognisable formal statutory element in the machinery of tax assessment which unless further statutorily based steps are taken will stand good as a determination of tax liability. It would not on any normal understanding constitute the beginning of a "discussion". Given the special status of tax returns and the fact a reference to them would be so readily understood (including the situation where what was sought to be captured was a return which took a different view to that generally prevailing) it would be expected that if the term "discussions" was intended to encompass the filing of such tax returns it would specifically say so.
107. Accordingly the point that no discussions had commenced by the time of the expiry date would be a further reason, if one were required, as to why the Claimant's situation did not fall within Example Two. It is also a point that would apply with similar force to explain why Example Two did not apply in the event we were wrong in our primary reasoning (that the Example's reference to discussions on the amount of profit did not capture disputes on legal chargeability). In other words even if the situation here amounted to one where HMRC and a taxpayer had agreed to put on hold their discussions on chargeability pending the resolution of litigation, on the facts here, Example Two would not apply because those discussions did not commence until after the Expiry Date.
108. In conclusion, although the Decision did not consider Example Two, our judgment is that if it had it would inevitably have found Example Two was not satisfied. The decision that the time extension should be refused would thus be the same.
109. For all of the above reasons, our conclusion is that Ground Two fails.

Ground Three

110. Under this ground, the Claimant argues HMRC reached an irrational conclusion on the application of both Examples One and Two in paragraph 10 of the SP and the overall application of the SP. Mr Firth explains this ground only arises if, contrary to the Claimant's case, the inspector applied the correct test, but that HMRC's decision that the facts here did not fall within the SP was irrational in the sense that any reasonable inspector diligently considering the content and purpose of the SP would have to conclude the Claimant's circumstances were ones in which HMRC ought to admit the claim.
111. (There was no dispute that the relevant legal test for rationality was a straightforward one: could any reasonable decision maker have reached the decision? If the answer was yes then the decision was not irrational. Putting it the other way round, the decision would be irrational if it was one which no reasonable decision maker could have come to.)
112. The circumstances relied on concern two broad and related issues.
113. First that it was irrational for an inspector to consider that a claim could or should have been made in circumstances where the tax return did not show profits against which NTLRD could be set off or tax that could be relieved. For various reasons it was irrational, the Claimant submits, to expect it to make the Deficit Claim at any earlier point because it was and remains the position that no valid Deficit Claim can be made until the Dividends have been brought into charge (which has not yet happened because HMRC have yet to issue a closure notice). The reasons advanced were that:

(1) The question of whether overseas dividends were liable to tax and if so how much tax was payable was litigated over a lengthy period.

(2) Aside from the question of dividend liability, the NTLRD claim, given its dependency on the amount of foreign tax credit and loss relief could also not be quantified (the FNR was only agreed in April 2021).

(3) HMRC did not even explain the approach they were going to take until the Business Brief in 2020 and even then that contemplated further discussion in respect of the FNR.

114. The second broad issue raised under this Ground is one of policy which, the Claimant submits is self-evidently to achieve certainty and finality. In circumstances where, as here, the taxpayer's self assessment remains open and the reason for the taxpayer to make the late claim only arises as a result of amendments to the self-assessment which HMRC indicated they intended to make (but had not) there was no reason in the light of the purpose of the time limit (finality and certainty) not to exercise the discretion. This policy is, the Claimant points out, reflected in other provisions in FA 1998 Sch 18 such as paragraph 74 (in respect of certain claims for group relief) which provide for time limits that run from the later of various dates including at paragraph 74(1)(b) 30 days after any enquiry into the return is completed. Reference was similarly made by the Claimant to the provisions concerning consequential claims arising out of revenue amendments or assessments (set out in paragraphs 61 to 65 of Schedule 18 FA 1998) where time limits (this time of one year) ran from the accounting period in which the closure notice is issued or assessment made. In Mr Firth's submission, the existence of such provisions show that there is nothing heretical about the taxpayer being able to make claims because there has been a mistake of law for instance (that could have been made if they had known that in time) after HMRC have adjusted the tax in an amendment made upon closure of the enquiry.
115. HMRC's position is that none of these points come close to the high threshold an irrationality challenge requires.

Discussion

116. As to the first issue it is convenient to note the overlap here with an error of law alleged under Ground Four (that HMRC were wrong to consider a claim could actually be made/processed prior to HMRC bringing the overseas dividends into charge). For the reasons, which we explain more fully when we deal with that point (at [164] onwards under Ground Four), we reject that proposition as an error of law. It is possible, as a matter of law, to make a Deficit Claim prior to the relevant profits being brought into the charge to tax (even if the Deficit Claim could only be given effect to once those profits were brought into charge). In the present case therefore it was possible, as a matter of law, for the Claimant to make the Deficit Claim in time, or to have made the Deficit Claim at any time after the Expiry Date.
117. In the context of a judicial review against a decision in relation to the Deficit Claim, there is, it must also be recognised, and as we broached with the parties at the hearing, an inherent difficulty in running the argument that the Deficit Claim was effectively premature. If the argument is correct, and a Deficit Claim cannot be made until the Dividends have been brought into charge by the closure notice the Deficit Claim could not be made, and still cannot be made. Both the Deficit Claim and the Decision were misconceived. Equally, and on the same hypothesis, the Decision could not be made to refuse the Deficit Claim, in circumstances where, as a matter of law, a Deficit Claim could not be made. Equally, and pursuing the hypothesis further, the JR Claim is misconceived, or at least serves no purpose because there is nothing to review. HMRC had no power to admit or refuse the Deficit Claim because it was not a valid claim.
118. Similar difficulties were exposed in the Claimant's oral discussion of its policy arguments concerning the consequential claims provisions in Schedule 18 (paragraphs 61 and 62) which, as mentioned, provide for time to run from the end of the accounting period in which the closure notice is issued. Those revealed that the Claimant would potentially want to argue that its apparent exclusion from the benefit of such provisions (because they did not extend to a claim affecting a current year as opposed to a previous year) was incorrect as a matter of statutory interpretation. If correct that would mean, in the Claimant's situation, that the Deficit Claim was still in time. Under those consequential claims provisions the Claimant would have one year after the accounting period in which HMRC adjusted the return to make its claim.
119. Mr Firth was not able to state a firm position of the Claimant on this point and we were instead told we do not need to decide it. At first sight that did not seem satisfactory as if the argument were correct it would render the current JR Claim unnecessary. In response Mr Firth mentioned that the Claimant had sought in its correspondence with HMRC prior to the Decision to raise the point with HMRC. Before us he suggested the right time to raise the applicability of the provisions was when HMRC eventually issued their closure notice after which the Claimant would put in a claim whose validity if not accepted could then be litigated.
120. Taking Mr Firth's use of the provisions of Schedule 18 on his own terms however, and so far as the current JR Claim is concerned, the argument of the Claimant that is put before us is that there is a rational policy in Schedule 18, so that there is no reason why a rational policy of a similar kind should not apply in the case of the Statement of Practice. In considering this argument as a relevant, or at least a potentially relevant consideration, the question is whether the relevant provisions of Schedule 18 do or do not apply to a Deficit Claim. It would normally be unsatisfactory to leave a point of this kind open, even in considering the argument based upon policy.
121. The position is however saved from being unsatisfactory because the issue of whether a claim is possible is something we address as part of Ground Four (given it is raised as a specific error of law). If, as we have concluded under Ground Four, a Deficit Claim could have been made, and (subject to the consequences of being out of time) was made by the Deficit Claim, it is difficult to see, as explained further below, how the above policy argument can succeed.
122. So far as Ground Three is concerned, the conclusion that a valid Deficit Claim can be made, before the relevant profits have been brought into the charge to tax, disposes of the argument that the Decision was irrational because no valid Deficit Claim could or can be made, as a matter of law, until HMRC serves a closure notice, bringing the Dividends into the charge to tax. The basis on which this argument proceeds is mistaken. The conclusion that a claim could have been made before also undermines the argument that there is a rational policy behind the SP to the effect that claims should not be refused where the relevant profits have not yet been brought into the charge to tax or, putting the matter the other way round, that claims should be permitted provided that they are made in good time following the relevant profits being brought into the charge to tax. If as a matter of law, the Claim could be made prior to the Dividends being brought into the charge to tax, it seems perverse to say that there is a policy behind the SP that late claims should be admitted, in all cases where the relevant profits have not yet been brought into the charge to tax.
123. And in any case there remains the point that even if that were wrong, and it was not legally possible to make a claim, it would not be irrational for HMRC to refuse a purported claim such as the one here that was made on the basis that that situation (i.e. of the Claimant not being able to bring the claim within the time limit) came about because of the taxpayer's choice in filling out the return in the way it did. In other words the Deficit Claim could have been made if the taxpayer had filled out its return in what is now known to be (and falls to be treated as always having been) the correct way.
124. In addition to this, the existence of such a policy is, in any event, difficult, if not impossible to discern in the text of the SP. The SP is concerned with claims for relief which are made out of time, and with the circumstances where HMRC will admit those claims, notwithstanding that they are out of time. We have already mentioned the SP does not formally apply to Deficit Claims, although the parties have effectively agreed, by their conduct of this case, to treat the SP as applicable to the Deficit Claim. Nevertheless it would be very strange if the SP was required to be interpreted in such a way as to mean that HMRC could not reject any claim made prior to the issue of a closure notice by HMRC. In any such case the provisions of the SP would effectively only become relevant (in the case of the time limits which ran from one or two years from the end of the accounting period) in assessing a period of delay in making the relevant claim which occurred after issue of a closure notice. This is completely inconsistent with the scheme and language of the SP. For instance it would be unclear how to make sense of Example Two's reference to discussions with the inspector that were not complete when the time limit expired. By contrast those references make perfect sense in the context of discussions taking place in the course of an open enquiry.
125. Two conclusions follow from the above analysis, so far as Ground Three is concerned. First, the arguments regarding no valid claim being possible because of quantification, lack of FNR agreement and lack of enquiry closure which concern the ability of the Claimant to make the Deficit Claim, have only limited scope. They cannot function as arguments that the Claimant could not, as a matter of law, have made the Deficit Claim at any earlier date. They can only function as arguments that it was sufficiently unreasonable, in practical terms, to have expected the Claimant to make the Deficit Claim at any earlier date, so as to render the Decision irrational. Second, the policy argument fails, for both of the reasons identified above (i.e. that it was legally possible to make the Deficit Claim earlier and it is difficult if not impossible to discern the suggested policy in the SP).
126. Whatever one thinks of the merits of the Decision, it cannot possibly be said that the Decision was one which no reasonable tax inspector could have made. We will nevertheless address the individual points which the Claimant raises in relation to Ground Three.
127. They essentially raise the question of when it would have been reasonable to expect the Claimant to have made the Deficit Claim (as opposed to the question, which we have decided against the Claimant, of whether it was possible, as a matter of law, to make the Deficit Claim). That question is raised in more detail in relation to Ground Four, but we address below our response to the Claimant's specific points made under this Ground (remembering the question is whether it was irrational to decide this question against the Claimant on the basis of all or any of those arguments).
128. It is argued that as at the expiry date (31 December 2004) the Claimant's tax return did not show profits against which the NTLRD could be relieved. This in essence is the legal point which, as mentioned, we reject for the reasons explained under Ground Four. The point is effectively irrelevant, if it was legally possible to make the Deficit Claim, as from the Expiry Date. The point simply begs the question of whether it was irrational for HMRC to refuse the Deficit Claim when it was made in 2021, a significant number of years after the Expiry Date, when it was legally possible to have done so despite the return not showing profits.
129. Similarly, the argument that the Decision was irrational because HMRC had not issued the closure notice fails for the same reason. Unless the Claimant can establish that it was and remains a practical impossibility to make a Deficit Claim until a closure notice has been issued, this point cannot possibly justify the conclusion that the Decision was irrational. This particular point also suffers from the additional difficulty that if it was possible, as a matter of law, to make the Deficit Claim prior to the issue of a closure notice, the argument that it was not practicable or reasonable to do so is essentially contradicted by the fact that the Claimant clearly felt able to, and did make the Deficit Claim.
130. Moreover, and as already mentioned, if, contrary to our conclusion, it was not legally possible to make the Deficit Claim until the Dividends had been brought into the Charge, the fact that HMRC have not yet issued the closure notice undermines the basis of the Deficit Claim. The Decision and the JR Claim, become irrelevant.
131. The Claimant also relies on the fact that the questions of whether the dividends were liable to UK tax, and, if so, how much tax, were litigated by HMRC and other taxpayers exhaustively over a lengthy period. It is difficult to see however why the fact that chargeability of the Dividends to tax was the subject of lengthy litigation rendered it reasonable to delay the Deficit Claim for so many years, independent of the point that this cannot, on any view of the matter, render the Decision irrational. It should be recalled that this ground proceeds on assumption that Grounds One and Two failed and therefore that questions of the Claimant's awareness of legal chargeability were not relevant. Nor per that assumption could the litigation constitute relevant discussions with the inspector so as to justify an exercise of discretion to extend the time limit.

The Deficit Claim could not be quantified

132. There are a number of strands in the Claimant's argument that it was not able to quantify the Deficit Claim. As to an argument that this was not possible as a matter of law until the Dividends were brought into charge, we have already indicated that this argument is to be rejected. In respect of how practicable it was to quantify the claim, the Claimant points to i) the extent to which it remained unclear through the course of the FII Litigation that the solution to EU law compatibility was not exemption but credit at the level of the FNR ii) the complexity of determining the FNR which applied in the Claimant's case iii) the need to seek HMRC's agreement to the FNR (which was only achieved in April 2021). We address these in turn.

When it became clear foreign dividends non-exempt and that credit was for FNR

133. The general background and outcome of the FII litigation was most recently summarised by Court of Appeal in 2025 Post-Prudential CA. In her introduction Falk LJ explained at [3]:

"It is now well established that, before the 2009 changes, the tax treatment of non-UK source dividends breached EU law. In contrast to the exemption that generally applied to UK-source dividends, non-UK source dividends were taxable, usually under Schedule D Case V. In the case of dividends from portfolio holdings this was subject to double tax relief ("DTR") only for any withholding tax suffered. No additional relief was generally available to reflect tax on the profits out of which the dividends were paid (underlying tax relief), whether in respect of any tax actually paid or, crucially (as it turned out), for tax at the nominal rate at which tax was chargeable in the foreign jurisdiction (the foreign nominal rate, or "FNR"). In contrast, for shareholdings of 10% or more DTR was available for both withholding tax and actual underlying tax, but not for tax at the FNR."

134. There is no dispute that the Dividends in this case are "non-portfolio" (being dividends from shareholdings held by the Claimant representing 10% or greater of the paying companies' share capital). (A more detailed background to the relevant domestic legislation and the EU provisions breached was set out in Post-Prudential Closure Notice applications Group Litigation v HMRC [2024] UKUT 00023 ("2024 Post-Prudential UT") (at [8] to [14] and which 2025 Post-Prudential CA referred to as a "helpful outline of the statutory framework" at [20]).
135. The key litigation landmarks the parties focussed on were: Test Claimants in the FII Group Litigation v IRC (Case C-446/04 EU:C:2006:774) 2006 ("2006 FII CJEU I"), Test Claimants in the FII Group Litigation v HMRC (Case C-35/11) EU:C:2012:707 ("2012 FII CJEU 2"), 2013 Prudential Ch and 2018 Prudential SC. We were also taken to other decisions such as The Claimants Listed in Class 8 of the Group Register of the CFC and Dividend GLO [2019] EWHC 338 (Ch) and in 2024 Post-Prudential UT for their commentary on what became clear and when.
136. As explained by Ms Ruxandu's submissions, HMRC argue the position regarding such dividends being taxable was clear at the earliest from 2006 (2006 FII CJEU 1) , and that the choice between on the one hand the effective rate of tax (which would take account e.g. of available reliefs) and the nominal rate of foreign tax had been decided in 2012 (2012 FII CJEU 2) but that in any event that solution was clear from Prudential SC at the very latest by 2018.
137. In their written submissions following Post-Prudential CA HMRC say that it was at the very least clear following FII CJEU 2 [2012] that a credit for the FNR was available. (That is consistent, we note, with the Court of Appeal's summary in Post-Prudential CA at [137] which stated that "FII CJEU2 had decided that a credit at the FNR was available for non-portfolio holdings").
138. The Supreme Court's decision in Prudential SC in 2018 confirmed in terms the following (upholding what Henderson J, as he then was, had said in 2013 Prudential Ch) that:

(1) Foreign dividends were not exempt.

(2) The right credit to give was the FNR or underlying tax, whichever was the higher.

139. We did not understand it to be in dispute that both non-exemption and the credit at FNR solution were confirmed, as far as the litigation was concerned, by 2018. (The Claimant's case shifts focus at that point to concerns regarding how and when HMRC then implemented the solution to the EU breach. We consider those in the subsequent points concerning the 2020 HMRC business brief and HMRC invitation to make a claim).
140. Thus, although the parties disagree as to the issues regarding 1) the precise point in time the litigation clarified that foreign dividends were not exempt, 2) when HMRC accepted that to be the case, and also 3) when the solution to the breach of a credit at FNR was settled by the litigation prior to 2018 Prudential SC, we do not consider it necessary to address those points in order to deal with the question before us here. That is whether it was irrational of HMRC to refuse to exercise its discretion to extend time. Given non-exemption and the credit at FNR were clear by the hand down date of 2018 following Prudential SC, a decision that a claim that was not made until 2021 was late could not on any view, in our judgment (subject to the other points which we come to deal with) be considered one that was irrational. It would not matter for the purposes of this judicial review whether the position became clearer at an earlier date as that would only make the decision to refuse the late claim to the extent it was based on a view that a claim could have been made earlier in the light of what was known more defensible.

Difficulties in establishing and agreeing FNR which applied in Claimant's case

141. As to the practical difficulties in establishing the FNR that was applicable in the Claimant's circumstances, Ms Ruxandu's answer, which was not countered by the Claimant, is that the FNR was simply the relevant tax rate in the foreign country and thus straightforward to establish.
142. Mr Firth took us to the authority Test Claimants in the FII Group litigation v HMRC [2016] EWCA Civ 1180 by way of explanation for how the FNR was arrived at. The analysis there at [88] to [115] canvassed a number of different calculation options. The length and detail of the ensuing analysis are consistent with determination of the FNR being viewed as a complex exercise. However as Ms Ruxandu pointed out that was about working out the FNR in respect of so-called mixer companies; i.e. a company in one foreign jurisdiction into which foreign dividends from a number of different country sources subject to different tax rates of tax were paid in order that the eventual credit was optimised. That more factually complex situation naturally gave rise to more options and greater complexity.
143. In this case the only fact specific analysis that was required, given Irish corporation tax set different rates for companies which were manufacturing companies, was to determine whether the company fell into the manufacturing category of income or not. In the Irish subsidiary's case it was clear the 10% rate applied as that was the specified rate of tax in Ireland for that kind of company. There is no suggestion (remembering that the dividend paying company was a subsidiary) that the Claimant would not readily know its Irish subsidiary's manufacturing status or (in contrast to some of the difficulties highlighted in the situation of investment companies receiving portfolio dividends) was unable to ascertain the underlying tax actually paid (which might be different in an individual case because of the particular deductions and reliefs available) to confirm that this was lower than the FNR.
144. A Deficit Claim (based on an FNR claim at 10%) could therefore have been made at the latest in 2018 following Prudential SC. It was not therefore irrational for HMRC to refuse to exercise its discretion on the basis that a quantified deficit claim could have been made earlier.
145. The Claimant also points to the fact the FNR was only agreed with HMRC in April 2021. The reference to the FNR only being agreed in April 2021 however somewhat undermines the point being made. In the letter of 11^th March 2021, by which the Deficit Claim was made, the Claimant's advisers specified that the FNR was 10%, which applied to manufacturing income for the Irish-resident subsidiary company. The Claimant did not wait however for FNR to be agreed with HMRC before making the Deficit Claim. As it happens, HMRC did agree this rate, but only by their letter of 2^nd April 2021 which, to state the obvious, postdated the letter of 11^th March 2021. Agreement on the FNR was not therefore something which in fact held up the making of the Deficit Claim. Nor does it appear the case that agreement on the FNR was a pre-condition to making the Deficit Claim at an earlier date. As such, this point falls away.
146. We should also note that in oral submissions Mr Firth in fact accepted that it was possible in theory to quantify the Deficit Claim. Putting aside the legal impossibility of making a claim (which we have rejected) the Claimant could of course have put in a claim which stated a figure. But Mr Firth's essential point was that simply putting in any figure would not properly optimise the use of the available deficits. That must be correct. Nevertheless it is difficult to see how having to incur a risk that the figures selected would not be optimal would constitute a reason which would then render it irrational for HMRC to refuse a late claim made on that basis. It remained open to the taxpayer to take a view (just as anyone else) on what the correct legal analysis was and put an in-time claim (as an alternative) on that basis.
147. Mr Firth's submissions on this point also contrasted what he termed "discretionary" claims which involved a taxpayer stipulating an amount (subject to ceiling) (such as the NTLRD claim), in respect of which, if the claim was accepted the taxpayer would be held to that figure (even if turned out they could have claimed more) and those claims where HMRC would correct the claim to the right amount (such as the FNR credit). For similar reasons that in our view is a distinction without relevance when it comes to the reasonableness of expecting a taxpayer to make an in-time claim. The fact that one type of claim carries less risk of underclaim from a tax optimisation point of view is besides the point. In either case, before the time of the expiry of the relevant time limit, the taxpayer might reasonably be expected to take a view of the amount sought to be claimed. It should be emphasised that we are not saying that it is unreasonable to expect that taxpayers will seek to optimise their available reliefs. Rather it is that such optimisation cannot be assumed to constitute an inevitably good reason conferring an entitlement on the part of the taxpayer to the exercise of discretion to extend time in respect of a late claim (given the possibility to make an in-time claim on one's best view of the correct law).

Revenue's 2020 Business Brief

148. The Claimant also refers to the fact that HMRC's Business brief was not issued until 2020. Even that said that further discussions were required to agree FNR. The briefing document is of little, if any, relevance to what we have to decide. Leaving aside the fact that the briefing document was concerned with claims to double taxation relief, this is not a case where judicial review is sought on the basis of a legitimate expectation on the part of the Claimant that the Deficit Claim would be admitted. It is not suggested that the briefing document, or for that matter the very limited correspondence between HMRC and the Claimant, prior to the making of the Deficit Claim, created any legitimate expectation that the Deficit Claim would be admitted. Given this position, it is difficult to see how the briefing document, or the timing of its circulation had any relevance to the Decision, independent of the fact that these matters are not capable, on any view, of rendering the Decision irrational.
149. In addition, the Claimant, at the latest from 2018, following the hand down of Prudential SC, would have known that a claim based on FNR needed to be made. Even it were assumed a later document evinced an HMRC position that it was permissible not to have made a claim and that more time should be allowed, it would not explain why a claim could not have been made in the period before the briefing document was issued such as to render a decision not to extend time one that was irrational.

Other points

150. Under this Ground the Claimant also revisits its argument that the purpose of the time limit is self-evidently to achieve certainty and finality in relation to the taxpayer's self-assessment and makes the criticism that HMRC have not identified any reason for not exercising their discretion in circumstances where the claim only arose because of changes HMRC are yet to make. This puts matters the wrong way round. The Claimant has to demonstrate, in this part of its case, that the Decision on Paragraph 10 of the SP was irrational. There is no separate ground of challenge to the Decision on the basis of a failure to give reasons. For the purposes of Ground Three it has to be assumed that HMRC were right to decide that Example One did not apply. It also has to be assumed that Example Two did not apply. In these circumstances it is for the Claimant to explain why it was irrational for HMRC to refuse to admit the Deficit Claim, out of time as it was. This point thus simply repeats the Claimant's argument that there was no good reason to expect the Claimant to make a deficit claim until HMRC had issued the closure notice and brought the Dividends into tax. We reject that for the reasons set out above. It is also an argument which, whatever its merits, comes nowhere near establishing that the Decision was irrational.
151. Finally, under this Ground, it is argued that it was "perverse" for HMRC to refuse to admit the Deficit Claim after permitting the reduction of the group relief claim and the carrying back of Purmo's loss, leaving the relevant part of the Claimant's Deficit "stranded". Again, this argument comes nowhere near establishing that the Decision was irrational. Even on its own merits however, this argument is questionable. The facts are that the Claimant chose to surrender the Claimant's Deficit to Purmo on the basis that it did not need any of the Claimant's Deficit which was, in turn, the result of the Claimant's decision to leave the Dividends out of the charge to tax in the Amended Return. Subsequently, the Claimant sought to reverse this position. The problem which then confronted the Claimant was that the time limit for making the Deficit Claim had long since elapsed. Again, it is important that there is no challenge to the Decision on the basis of legitimate expectation. Nor could there be. It is difficult, if not impossible to see why HMRC's decision to permit the reduction in the group relief claim and to allow Purmo to carry back a loss to cover this reduction committed HMRC in any way to admitting a deficit claim which was substantially out of time. The question of whether to admit the Deficit Claim, out of time, was a free standing question, which HMRC addressed by reference to the SP. There was no reason why HMRC were obliged to take into account, let alone give any weight to the arrangements between Purmo and the Claimant, in relation to the relevant part of the Claimant's Deficit. The only relevance of those arrangements is that they put the Claimant into a position where it could attempt to reverse the consequences of its earlier surrender of the Claimant's Deficit, by making the Deficit Claim.
152. None of the points accordingly have merit. Recalling that this Ground proceeds on the assumption that the Claimant's interpretation of Examples One and Example Two is not accepted, the question is what else is there to show the decision was irrational. Moreover and fundamentally, given the nature of this ground as a challenge based on irrationality, we consider that even if the points did have any merit, they would come nowhere near to rendering the Decision to refuse the extension of time one that was irrational.
153. For the all the reasons set out above our conclusion is that Ground Three fails.

Ground Four and Five not necessary for our decision on the claim

154. Our rejection of Grounds One to Three provides a sufficient basis to dismiss the JR Claim. Grounds Four and Five do not, for the reasons which we have explained, arise for decision. Nevertheless we consider both Grounds for completeness, in recognition of the fact they were fully argued before us.
155. Grounds Four and Five are both concerned with that part of the Decision, in paragraph 25, by which HMRC decided that even if Paragraph 10 of the SP had applied, the Deficit Claim had not been made as soon as possible after the relevant judgments (the judgments in the Prudential cases) were handed down. In making this decision, HMRC were addressing Paragraph 13 of the SP, which provides as follows:

"An application to admit a claim outside the statutory time limits should be sent to the inspector dealing with the Claimant company and should include a full explanation of the circumstances of the case. The explanation should cover, but need not be limited to, all the criteria set out in paragraph 12. The application should be made as soon as possible. Delay in making a late claim after the circumstances which caused the claim to be late have ceased to apply may result in the claim being rejected."

156. Paragraph 13 of the SP applies where the original circumstances which caused the relevant claim to be late do fall within the terms of Paragraph 10 of the SP or, more accurately, are circumstances of the kind referred to in Paragraph 10, where HMRC will admit the late claim. If those circumstances cease to apply, and there is then a further period of delay before the deficit claim is made, this may result in the claim being rejected.
157. In the present case, and by virtue of our decision on Grounds One, Two and Three, Paragraph 13 of the SP is not engaged. The decision of HMRC that the circumstances which caused the Deficit Claim to be late do not fall within the terms of Paragraph 10 of the SP is not one which the Claimant is able to challenge by judicial review. This decision therefore stands. This, in turn, means that the question of whether there was a delay, following the circumstances which caused the Deficit Claim to be late ceasing to apply, does not arise. HMRC were correct to refuse the Deficit Claim by reference to Paragraph 10 of the SP.

Ground Four

158. This Ground alleges various errors of law in the HMRC's application of paragraph 13 and the requirement there that the application should be made "as soon as possible" and that "delay in making a late claim after the circumstances which caused the claim to be late have ceased to apply may result in the claim being rejected."
159. The complaint in Ground Four is that HMRC made a series of errors in this part of the Decision. The alleged errors are divided into three parts or categories.

Error in assuming claim could be made before any closure notice brought profits into charge

160. The first alleged error is that HMRC went wrong in law in that they failed to appreciate that a deficit claim cannot be made until HMRC have served a closure notice bringing the Dividends into the charge to tax. The position was that the company could only self-assess chargeable profit through its return up until 24 months after. After that the power to bring the profits into charge rested in HMRC's hands by issuing a closure notice to that effect. Until that has been done, there are no profits against which a deficit claim can be made. There was accordingly no relevant delay in making a claim to set off NTLRD by not making it a time when HMRC would (due to its own inaction) be unable to process it even if were to be accepted.
161. In support for the proposition that a claim could not be made until the profits were brought into charge, Mr Firth's relied on the Court of Appeal's reasoning in Civic Environmental Systems v HMRC [2023] EWCA Civ 722.
162. That concerned a company's claim made in its 2007/2008 to carry back a loss of £444k loss made in that year to set against profits of £142k for the tax year 2006/2007 (shown at the time of claim in the return for that year). HMRC processed the claim and repaid corporation tax for that earlier year. HMRC later opened an enquiry into 2006/2007. The closure notice, which was appealed but upheld by the FTT, increased the profit for that year to £682k. The company argued that the £444k loss could bite on the increased profit whereas the FTT (whose decision was upheld by the Upper Tribunal on appeal) held only the £142k could be set off against the 2006/2007 profits.
163. The Court of Appeal noted that under the relevant statutory provision (s393A ICTA 1988) for carry back the taxpayer was not permitted to elect how much of a loss to carry back ([15]). The claim was made too late for the return for 2006/2007 to be amended by the taxpayer which, as the Court of Appeal explained (at [29] – [34]) meant that the claim was not to be given effect by a closure notice increasing not only the profits but the effect of the offset. Instead the claim was to be given effect by paragraph 4 of Schedule 1A TMA 1970 which provides:

"Subject to sub-paragraphs 1A), (3), to (5) below an officer of the Board or the Board shall, as soon as practicable after a claim other than a partnership claim is made, or such a claim is amended under paragraph 3 above, give effect to the claim or amendment by discharge or repayment of tax."

164. In a passage relied on by Mr Firth the Court of Appeal explained (at [37]):

"The effect of a successful claim under schedule 1A is (by paragraph 4(1)) a discharge or repayment of tax. This is to be given effect as soon as practicable, and Mr Firth accepted that this had been done in the present case. As he also accepted, it is obvious that one cannot have a repayment of tax that has not been paid (or, I would add, a discharge of tax that has not yet been assessed to be due). When CES made its s. 393A claim, the only tax that had then been assessed as due for the 2007 period was the self-assessment in its 2007 return that £41,371.95 was payable; and the only tax paid for that period was the £41,371.95 that it had paid. So HMRC acted correctly in repaying that sum as it is agreed that it did. I do not see how it could properly have repaid any other sum, nor was there anything else to discharge."

165. Mr Firth submits that the above reasoning means that a claim can only bite on tax that is charged or paid at the time the claim is made. It did not matter that as a matter of fact the parties know that the tax ought to have been and is likely to be charged. In other words the ratio of the case, he says, is that a claim can only be given effect to and can only discharge tax actually charged at the date the claim was made. That explained why the taxpayer in that case could not rely on that claim to discharge tax due as a result of HMRC subsequently amending its return.
166. Ms Ruxandu by contrast depicts this case as turning on the fact that there was no statutory mechanism to reopen the claim; in the circumstances of that case the claim had already been given effect to and there was nothing more that could be done. While she accepted the proposition that actual discharge or repayment cannot happen until tax is brought into charge or repaid she emphasised that there was a distinction between making the claim and giving effect to it. The point being made at [37], she explains, was that the claim could not be given effect to until tax was brought into charge. In her submission the case has nothing to say about whether a claim could be made before profits are brought into account.
167. We consider Ms Ruxandu's description of the ratio to be the better one and to be one which reflects the Court's summary of the position at [39] where it said:

"In summary in my judgement the position is this. CES's section 393A claim was not given expect to as an amendment to its 2007 return. It was therefore correctly not taken into account either by HMRC in the closure notice or by the FTT in their decision on appeal. Instead it was given effect to as a free-standing claim under Schedule 1A. That correctly resulted in repayment of the tax that had been paid. There is no mechanism to enable that claim to be re-opened on the basis that the profits for the period have subsequently been increased by HMRC or the FTT."

168. The central theme running through the Court's analysis (and indeed by way of response to Mr Firth's further arguments on behalf of the taxpayer in that case – see for instance [45] and [54]) is that the legislature had drawn a distinction in the way in which claims that were to be treated as within the return were treated and those where the claim was treated as being outside of the return (the question of whether the claim was "in return" or freestanding turning on whether the claim was within the time limit for the taxpayer's time limit to amend the return). If the claim had been treated as within the return, the closure notice and therefore the FTT could have adjusted it when the profits were increased. There was by contrast no such similar mechanism provided for when the claim was a free-standing claim.
169. We also agree with HMRC that there is nothing inconsistent with saying, as the Court did at [37], that tax cannot be discharged until charged when that is understood in terms of the provision which is about the giving effect to the claim. That, as Ms Ruxandu submitted, does not mean however that a claim cannot be made; just that it could not be given effect to. So, even if the ratio was that as advanced by Mr Firth, that did not rule out the legal possibility of making a claim.
170. In his oral reply to that reconciliation, Mr Firth queried how, if such a claim was valid, it would be resolved if for some reason it turned out that tax was not charged and HMRC had not opened an enquiry in relation to it. We do not see how the point would help on the question of whether a valid claim could be made in the first place. If tax was not charged, then as set out in Civic Environmental the absence of chargeable tax would mean that such claim, could not be given effect to. It is difficult to see what real consequences would arise from the question of how such a claim would be procedurally disposed of, once it was agreed it was a claim that could not be given effect to.

Claimant's submissions on 2025 Post-Prudential CA

171. The Claimant also draws further support for its argument that a claim could not be made until the tax had been adjusted from 2025 Post-Prudential CA (as mentioned this decision was issued after the hearing but both parties provided written submissions on the decision). The appeals there, as summarised by Falk LJ (at [6] and [15]) centred largely on the applicable procedural mechanisms for taxpayers seeking to rely on their statutory rights under the tax legislation interpreted to conform with EU law so as to generate tax refunds or reliefs and which raised a number of "apparently disparate" issues.
172. The Claimant points to the fact the Court of Appeal explained repeatedly that it is the closure notice /assessment bringing tax into charge that causes the credit to be insufficient.
173. The first passage relied on arose in respect of "Issue 1" (which as the Court set out at [73] was not in dispute but provided relevant context for some of the other issues). At [75] the Court endorsed HMRC's acceptance that if a closure notice was issued which amended the return to treat dividends (which had originally been returned as exempt) as within the charge to tax, then the taxpayer was entitled to claim an FNR credit under s806(2). The Court explained (at [75(c)]) that subsection provided for:

"…an extended six year time limit where "the amount of any credit given under the arrangements is rendered ... insufficient by "reason of any adjustment of the amount of any tax payable ... in the United Kingdom"."

174. The Claimant relies in particular on the following passages ([at 75(d)]) explaining why HMRC's acceptance was correct.

"[75(d)] The closure notice adjusts the UK tax payable on the dividend, and this results in the credit given under the arrangements (so far, none) to be insufficient. The causation requirement in s.806(2) (see the reference to "by reason of") is therefore met. The Taxpayer accordingly has a further six years in which to claim the credit.

175. The Claimant also refers to [154] where the Court explained:

[154] … Where s.806(2) has applied to income previously treated as exempt, that is because the closure notice has adjusted the UK tax payable on the dividend, resulting in the credit given in respect of it being insufficient ([75] above). So far as other (non-EU source) dividends are concerned, the available credit is unaffected by the adjustment. The closure notice made no alteration to the tax due on those dividends. Even if the credit in respect of non-EU source dividends could be regarded as insufficient, that is not because of ("by reason of") any adjustment to tax payable. It is because of a failure to claim a DTR credit at the FNR within the time available. As the UT said at [206], the required causal connection is absent."

176. That further passage was in the context of "Issue 7". As explained at [151] that concerned the situation:

"…where a closure notice brought foreign dividend income previously treated as exempt into charge to tax. As agreed under issue 1, the extended time limit in s.806(2) then applies to allow an FNR credit to be claimed. The question raised by issue 7 is whether an extended time limit is available only in respect of the income previously returned as exempt (or the subject of an in-time amendment to that effect) as determined by issue 1, or whether s.806(2) also applies in respect of other dividends which were (and remained) returned as taxable."

177. The basic proposition Mr Firth draws from these passages ([74(d) and [154]), is that it is not until the closure notice adjusts that the insufficiency arises. A claim for credit before income was brought into charge would, he submits, therefore not be a valid claim. In his submission, by the same logic (and consistent with what he says is the ratio in Civic Environmental), a claim to set off a loss or deficit against income that has not yet been brought within the charge to tax is not a valid claim because the thing it asks for cannot be done at the time that claim for set off is made.
178. Similarly, Mr Firth points to the Court of Appeal's answer to "Issue 3" (covered at [118] to [131] of the Court of Appeal's decision) where it was in summary held that a claim for credit for tax withheld was not and could not be regarded as a claim for credit for underlying tax. Mr Firth refers to [127] emphasising the following passages:

"[127] It seems to me that, while it need not be quantified correctly, a claim to HMRC must indicate what is being claimed, not least so that HMRC are able to determine whether or not to accept it without enquiry. If a taxpayer chooses to claim credit for withholding tax, and as in SIG's case makes it clear that that (alone) is what it is claiming, that cannot sensibly be treated as a claim that extends to anything else." (underlining added)

179. This shows, Mr Firth argues, that a claim must be for something HMRC are able to give effect to at the time the claim is made (here the set-off of a NTLRD against income) based on whether the claim is correct as a matter of fact and law at that time. It cannot be correct, he says that HMRC would open an enquiry not with a view to promptly determining present correctness but with a view to leaving the enquiry open to see if something happens in the future.
180. We disagree that these passages sustain the propositions Mr Firth argues for:

(1) The passages relied on at [75](d) and [154] stand as authority about when the extended time limit applies and the causation requirement there is satisfied. That time limits stands in contrast to the two year time limit here with a discretion on the part of HMRC to extend which contains no reference to a causation trigger in the same way as the s806 time extension provision does. The passages confirm a taxpayer who made a claim after the time limit was able to take advantage of the extended time limit because of the adjustment made by the closure notice. It is also consistent with what we have said above, and what HMRC accept, regarding the principle described in Civic Environmental, that a claim seeking discharge of tax cannot be given effect to until tax is brought into charge. What the case does not address, whether by implication or otherwise, is the situation where a person did set out to make a claim within the time limit whether or not that was possible. The fact a closure notice has an adjustment effect does not preclude the possibility that a claim which does not have such effect might still not be regarded as a claim which is validly made.

(2) As for the passages at [127] relied on, these simply confirm that the claim must make clear what it is for, so that HMRC can consider whether or not to open an enquiry. The passages do not say anything on the content of HMRC's decision making or the time at which such decision might be made in the light of future litigation. HMRC's decision whether or not to accept the claim would inevitably have to be based on their understanding of the law at the time. The fact that the correctness of that (present) view may be proved to be right or wrong (depending on future litigation) is simply a feature of the declaratory effect of case-law. It does not detract from HMRC being able to take a view on the claim based on their view of the law at the time (once they know what the claim is for). To say, as Mr Firth does in his written response, that there is "no category of claim that is invalid at the time it is made but which in time becomes something that HMRC are able to give effect to contingent on other events occurring" simply begs the question of the claim's validity.

181. Accordingly neither of the authorities, Civic Environmental and now 2025 Post-Prudential CA which the Claimant advances make good the basis for the alleged error. Neither supports the proposition that as a matter of law an in-time claim could not have been made in circumstances where the return had disclosed no chargeable profit.
182. On the contrary, the statutory framework suggests there was no error on the part of HMRC to the extent it assumed a timely claim could have been made despite the return not returning taxable income.
183. Section 83(2) FA 1996 allows for a company to make a deficit claim. Section 83(6) prescribes the time limit within which a deficit claim must be made. Section 83(6) also provides that the deficit claim can be made "within such further period as the Board may allow". The decision on whether to allow a further period is given, without qualification, to HMRC. In our view, it would be extremely odd, and inconsistent with these provisions if, in those cases whether the relevant profits were not originally brought into the charge to tax, no deficit claim could be made until the bringing of the relevant profits into the charge to tax by the service of a closure notice. This would render the ability of HMRC to allow a late claim under Section 83(6) redundant, in what we assume would be at least a substantial number of cases involving late deficit claims. There is nothing in Section 83(6) to suggest that the power to admit a late deficit claim is so substantially circumscribed.
184. Nor can HMRC's manuals assist on this part of the grounds concerning legal error and which rightly identify the question is one of law. Mr Firth referred to SACM5005 which stated that it was "…not possible to make a provisional claim…A claim cannot be contingent on something else and the customer either makes a claim or does not." Leaving aside the question of whether they even applied to the taxpayer (Ms Ruxandu suggested this statement only applied to income tax and capital gains) the manual ultimately only sets out HMRC's views of the law. In any event, there was no suggestion, and permission was not granted for any ground based on the Claimant having held off putting in a claim because of what the manual said.
185. Similarly, we cannot draw any significant assistance in the other direction from the example of claim from 2024 Post-Prudential UT which Ms Ruxandu took us to (set out at [247]) of that decision). That was of an in-time claim that was agreed to have been made despite the taxpayer having returned the dividends as exempt. Notwithstanding Ms Ruxandu's point that such common ground was the basis of other issues in the case, there was no specific judicial consideration of the point.
186. Finally we return to the point that we have already made; namely that if it were correct that the Deficit Claim could not be made until the return was adjusted, the point is not one which establishes that HMRC made an error of law in relation to its decision on the application of Paragraph 13 of the SP. If the argument is correct, the Deficit Claim, the Decision and the JR Claim were and remain misconceived. In reply Mr Firth argued that the fact the Claimant had in fact made the Deficit Claim did not undermine its position, because the Deficit Claim was made in response to HMRC's invitation to the Claimant to make a claim. We do not see how this avails the Claimant. At best it would point to HMRC's invitation being misconceived but that would not be something which fell within the scope of this JR Claim.

Error of law in failing to realise claim to set off NTLRD must be quantified and claim could only be quantified once FNR agreed

187. The second alleged error is that HMRC's Decision maker was wrong to make the unreasoned assumption that once it was decided that the overseas dividend was not exempt it automatically followed that the claim could and should be immediately made by the Claimant. The Deficit Claim could not be quantified until the FNR was agreed. If HMRC had not agreed the FNR at 10% a different quantified Deficit Claim would have been required in order to take account of that different agreed FNR figure.
188. This argument appears to raise the same issues as referred to above at [145], and is wrong for the same reasons. As already noted, the Claimant did not wait for the FNR to be agreed with HMRC before making the Deficit Claim. In the letter of 11^th March 2021, by which the Deficit Claim was made, the Claimant's advisers specified that the FNR was 10%, which was the rate which applied to manufacturing income for the Irish-resident subsidiary company. Agreement on the FNR was not therefore something which in fact held up of the making of the Deficit Claim. Independent of this point, agreement on the FNR was not a pre-condition to making the Deficit Claim at an earlier date. It was open to the taxpayer as much as it was to anyone else to arrive at the correct legal analysis and specify the FNR (possibly as early as post CJEU FII 2 – see [137] above - and at the least once Prudential SC was issued in 2018). As such, there was no error of law and this ground of challenge falls away.
189. It is in any case also hard to understand how this second alleged error could be capable of giving rise to any ground of judicial review. In the relevant part of the Decision HMRC assumed, contrary to their conclusion in relation to Paragraph 10 of the SP, that the Deficit Claim should have been made once the Prudential cases had been determined; effectively as from 2018. The Deficit Claim was made in March 2021. The Claimant's complaint in this context is that the Decision proceeded on the mistaken assumption that the Deficit Claim could and should be made immediately it was known that the Dividends were not exempt from the charge to tax. If, contrary to our view, the FNR had to be agreed with HMRC before the Deficit Claim was made, this would not invalidate the decision of HMRC on Paragraph 13. (The Decision is not challenged on the basis of a failure to give reasons). There was a delay between the decision of the Supreme Court in the Prudential cases and the making of the Deficit Claim. If the Claimant required the agreement of HMRC to the FNR before making the Deficit Claim, it was open to the Claimant to seek that agreement, as from 2018. If there was an error of law in this respect, it hard therefore to see how it was material to the decision of HMRC on Paragraph 13.

Failure to take account of relevant considerations

190. The third alleged error is an alleged failure to take account of relevant considerations rendering the decision invalid namely that:

(1) HMRC did not issue their Brief until January 2020, which brief itself confirmed that further discussions regarding FNR would be required.

(2) HMRC did not invite group relief or NTLRD claims against the anticipated additional profits until January 2021.

(3) HMRC did not agree the FNR for the Claimant until April 2021.

(4) HMRC still have not issued a closure notice to bring the additional profits into charge so there is no profit against which the NTLRD could be set off and that HMRC could not even give effect to the Deficit Claim if admitted by discharging the tax.

191. HMRC's response is that all these matters are irrelevant. Apart from mentioning that the date of the January 2020 Brief was referred to in the Decision and therefore in contemplation there is no suggestion that the various matters were considered in the Decision.
192. Mr Firth also emphasised that the FTT ought to have considered the following four elements: 1)What are the circumstances which caused the Deficit Claim to be late? 2) When did those circumstances cease to apply? 3) Was there delay following such circumstances ceasing to apply? 4) Whether, even if there was delay, that should nevertheless not be relied on as a reason to reject (this was based on reading into the words "may result" an additional discretion).

Discussion

193. Earlier in this decision we summarised various points from the Supreme Court's judgment in Friends of the Earth, which Mr Birdling had helpfully referred us to. In particular we set out the relevant principles which apply when assessing whether a decision maker has erred in failing to address factors which are said to be relevant (see [38] onwards above).
194. In oral argument Mr Firth sought to distinguish the propositions from Friends of the Earth on the basis that they arose from a very different context namely a broad policy driven decision in relation to sustainable development (Friends of the Earth concerned a planning policy statement indicating the preferred location for airport development at Heathrow). He argued that in that case there were many issues of varying relevance and the complaint was of further matters not having been considered. In his submission that situation contrasted with the narrowly focussed discretion to extend time here. We do not agree there is any reason to limit the scope of the analysis in Friends of the Earth in this way. The propositions the Supreme Court set forth are obviously of wider application.
195. Mr Firth also argued that the inverse of HMRC's position (that none of the factors were relevant in the sense of it not being established that failing to consider them was irrational), was that a decision maker could take into account nothing relevant. However, if this were a valid criticism it would be one which applied equally to the Supreme Court's analysis. We should not lose sight of the fact that the ground of claim here is not that HMRC did not take account of anything relevant but specifically that, as in Friends of the Earth, factors that in the Claimant's view were considered relevant were wrongly not considered.
196. Returning to the relevant categorisation of factors established in Friends of the Earth, it is clear however that the Claimant faces the following problem. In terms of what had to be taken into account in relation to the decision on Paragraph 13 of the SP, there were no statutory requirements (category one). This leaves the third category of considerations referred to in Friends of the Earth, which only have to be taken into account if it would be irrational to leave them out of account (category two is not relevant as it concerns factors which the statute requires should not be taken into account).
197. For the reasons below, and in agreement with HMRC, none of the factors the Claimant relies on as relevant come near to constituting points which it would have been irrational to leave out of consideration.

(1) We have already explained there was no need for agreement of the FNR before the Claim could be made. Nor was there a need to wait for a closure notice bringing the Dividends into the charge to tax, (points 3) and 4) above) (see [145] and [160] onwards above). If HMRC had taken either of these matters into account they would in fact have been proceeding on the wrong basis. It is also argued that HMRC have not considered the purpose of the time limit and the absence of finality concerns, given that the taxpayer's position remains open under the enquiry. However this overlooks that the legislation has specified a straightforward two year time limit for claims to be made from the relevant accounting period. That stands in contrast to provisions elsewhere, which specify time limits that run for instance from the issue of the closure notice (see [114]). The lack of such similar specification makes it difficult to say that when exercising their discretion to extend the time limit HMRC were irrational in leaving out consideration of the enquiry into the return remaining open.

(2) The same is true of points 1) and 2). The timing of the Business Brief and of HMRC's invitation to make a claim are both incapable of accounting for why a claim could not have been made in the intervening period between 2018 when Prudential SC was handed down and when the Business Brief and invitation were later issued.

198. As regards the point that the language of the SP, in its reference to "may result…", envisaged a further overall discretion, it is true there was no consideration of this further "may" aspect. However we are doubtful that this is how one should construe that language in light of the fact that there is already a paragraph (paragraph 12 of the SP) which envisages that HMRC will consider the overall circumstances (and no ground is advanced in relation to that). Even if the Claimant were correct that this language imparts an extra discretion then it does not take the Claim further in that the Claimant has not identified anything that would require such discretion to be exercised in its favour.
199. For the reasons explained above, if it had become necessary to determine Ground Four, then we would have held that it failed.

Ground Five

200. Ground Five is that "taking account the above factors" (being those referred to in the preceding section and repeated below) HMRC reached an irrational conclusion and there was no breach of the requirement that the Deficit Claim should be made "as soon as possible".
201. The factors are that HMRC i) did not issue its Business Brief until January 2020 ii) confirmed in its Brief the FNR required iii) did not invite group relief claims or NTLRD until January 2021 iii) did not agree FNR for the Claimant until April 2021 iv) still have not issued the closure notice. It is also said to be particularly perverse that the group relief and carry back claims were allowed but the NTLRD was not allowed.
202. In the light of those factors the Claimant submits that the only reasonable conclusion in the circumstances was that there was no breach of the "as soon as possible" requirement and, in any event, the Deficit Claim should not be refused on that ground.
203. For the purposes of Ground Five it has to be assumed that HMRC did not make the errors of law alleged in Ground Four. It has to be assumed, as we have decided, that HMRC were correct to approach matters on the basis (i) that the Deficit Claim could be made prior to the issue of a closure notice bringing the Dividends into the charge to tax, and (ii) that agreement on the FNR with HMRC was not a pre-condition to the Deficit Claim being made. The question then becomes whether the decision of HMRC that the Claimant had delayed too long and had not made the Deficit Claim as soon as possible after 2018, was one which no reasonable decision-maker could have made.
204. In seeking to make good its argument that the decision of HMRC did fall into this category, the Claimant seeks to import its arguments, in relation to the earlier Grounds, that HMRC have acted unfairly in this case. The essential problem with this case is a simple one. Once it is accepted that the Deficit Claim could have been made at any time as from 2018, and did not have to wait either for agreement on the FNR or a closure notice, it was essentially a decision for HMRC as to whether the Deficit Claim was made "as soon as possible" after 2018 and as to whether to reject the Deficit Claim on account of the delay until 2021. The matters relied upon by the Claimant come nowhere near establishing that the decision of HMRC was one which no reasonable decision-maker could have made.
205. The reasons why the considerations were not relevant are the same as the ones we have addressed above under Grounds 3 and 4. As to the factors, for the reasons we have already explained, none either pointed to, still less required a conclusion that there had been no breach of the "as soon as possible" requirement, or to a conclusion that the Deficit Claim should be admitted. That being the case we reject the argument that taking such factors into account means the only reasonable conclusion was that there was no breach:

(1) The Business Brief was not issued until 2020 and thus incapable of explaining any delay prior to that period but after 2018. It is not argued that the Business Brief gave rise to any legitimate expectation that there was no need to file the claim.

(2) Similarly there is nothing in the point that HMRC did not invite group relief or NTLRD claims to be made until January 2021 to suggest that claims could not have been made earlier or indeed that they required an invitation from HMRC.

(3) For the reasons already discussed the taxpayer did not need to (and did not) wait for HMRC's agreement to quantify the Deficit Claim.

(4) While it is true that HMRC have not issued a closure notice to bring the additional profits into charge, as explained the taxpayer did not need to wait for the closure notice to make the Deficit Claim. If right, it would imply that in all cases where the enquiry was not closed HMRC has to extend time in circumstances where (in contrast to other provisions) this is not specified in the legislation.

206. Mr Firth emphasised the Claimant's overall submission that it was entirely hypocritical and irrational for HMRC to accuse the Claimant of not acting with sufficient haste in such circumstances, particularly given that HMRC still have not brought into charge the profits and tax against which the NTLRD would be set off. Conversely, he submits it was entirely reasonable for the Claimant to follow the pace set by the litigation and, subsequently, HMRC's response to that litigation including the publication of its Business Brief in January 2020 setting out its own interpretation and proposed application of the relevant judicial decisions.
207. We have already addressed these points: it was not necessary for HMRC to bring the tax into charge for a claim to be made (that position arose because of the taxpayer's choice to return the income as exempt). There is no effectively blanket protection for late claims beyond a two year time limit specified by Parliament, all the more so when there are other time limits which do run from the end of the closure notice.
208. The question for the purpose of addressing the JR Claim, as Mr Birdling correctly identified, is not whether the taxpayer's conduct was reasonable but whether HMRC were irrational in refusing the late claim. That admits of the possibility that the taxpayer might have acted reasonably but that a challenge to HMRC's decision to refuse to extend time could fail nevertheless (because the refusal by HMRC to exercise its discretion was not irrational).
209. In our view, if it had become necessary to decide this ground, then we would have held that Ground Five failed..

Conclusion

210. The Claimant's JR Claim is dismissed.

MR JUSTICE EDWIN JOHNSON

UPPER TRIBUNAL JUDGE SWAMI RAGHAVAN

Release date:

Note 1   Published as R aoa Rettig Heating Group UK Limited (In Liquidation) v HMRC [2024] UKUT 315 (TCC)    [Back]