In R (on the application of James Derry) v HMRC [2017] EWCA Civ 435, the Court of Appeal agreed with HMRC a carryback share loss claim did not reduce a previous tax year’s liability. It reduces the current year tax. They also found that HMRC had opened the wrong type of enquiry into the loss relief claim.

  • The taxpayer made a claim to set a 2010/11 Capital loss on qualifying shares against 2009/10 income.
  • The taxpayer made an adjustment to the tax calculation in his 2009/10 Tax Return and made a ‘white space disclosure’ about the loss claim. A tax refund was claimed.
  • HMRC opened an enquiry into the loss relief claim on the basis it was made outside a return and an enquiry into the 2010/11 Tax Return.
  • The taxpayer claimed the enquiry was invalid.

The Court of Appeal agreed with the Upper Tribunal and dismissed the taxpayer’s first ground for appeal:

  • The loss relief claim relates to more than one tax year, 2010/11 and 2009/10.
  • Where it relates to more than one year:
    • The relief claimed relates to 2010/11 and that tax should have been reduced, not 2009/10 tax.
    • Loss relief can either be claimed in a Tax Return or outside of it.

The Court of Appeal did, though, allow the taxpayer’s second ground for appeal:

  • The taxpayer had, in error, claimed the tax relief by reducing the 2009/10 tax.
  • The claim was clearly made on the 2009/10 Tax Return.
  • HMRC could only enquire into the loss relief claim by opening an enquiry into the 2009/10 Tax Return.
  • HMRC were Out of time to open an enquiry into the 2009/10 Tax Return.

UPDATE: HMRC appealed to the Supreme Court who dismissed the appeal.

Useful guides on this topic

Loss relief (income tax) disposal of shares
Share Loss relief allows you to offset a loss made on the disposal of shares against income instead of the normal capital treatment. 

Discovery assessments
When can HMRC issue an assessment outside of the normal statutory time limits? What conditions must be met? What are your rights of appeal and defences?

Loss relief: loans and shares
Loss relief for CGT is given by section 24 TCGA 1992.

Limit (cap) on Income Tax reliefs
 From 6 April 2013, the amount of Income Tax relief that may be claimed in respect of certain previously unrestricted Income Tax reliefs is capped.

Overpayment Relief
What is Overpayment relief? When can you claim Overpayment relief? What are the conditions for a claim for Overpayment relief? What are the time limits for a claim for Overpayment relief?

External links

Court of Appeal: R (on the application of James Derry) v HMRC [2017] EWCA Civ 435 

Upper Tribunal: R (on the application of Derry) v HMRC (2015) BTC 525

Supreme Court: R (on the application of Derry) v HMRC [2019] UKSC 19


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