In HMRC v Benham (Specialist Cars) Limited  UKUT 0389 (TCC) the Upper Tribunal (UT) confirmed that HMRC needed to issue a discovery assessment (allowing losses to be utilised) when a provisional claim to rollover relief lapsed.
Where a business disposes of an asset used in its trade, any gain can be Rolled Over so long as the proceeds are reinvested in another asset used in the trade. The new asset must be acquired in an accounting period starting between twelve months before the disposal and three years after. The taxpayer is allowed to make a provisional claim, which lapses at the end of the above period. The legislation (s153A (4) TCGA) states that if this occurs, all necessary adjustments:
- shall be made by making or amending assessments or by repayment or discharge of tax; and
- shall be so made notwithstanding any limitation on the time within which assessments or amendments may be made.
At the start of the 2007 accounting period, Benham had trading losses brought forward and generated further losses during the year. In the same period, it made a gain on the disposal of business assets, and made a provisional claim to rollover relief. The trade continued make losses in the 2008 accounting period
The provisional claim lapsed, reinstating the gains and Benham attempted to offset the trading losses referred to above.
On 7 November 2013, HMRC issued a form CT620 AMD (“Corporation Tax – Amendment to a company tax return”) to Benham including the gains but not the losses that the company wished to offset. Benham appealed this decision, and HMRC allowed the 2007 losses to be utilised.
- Benham argued that HMRC should have issued a discovery assessment to reinstate the gain, which would have allowed the company to make any elections that it could have made at the time, for example, a claim to carry a loss back. Their advisers also made a “protective consequential claim” to carry back the losses as a result of the HMRC amendment.
- HMRC argued that s153A granted a freestanding power of amendment, so no discovery assessment was required, and that while the 2008 losses could be set against the gain, the deadline for making such a claim remained the second anniversary of the end of the accounting period (i.e. 31 December 2010 in the instant case). With a freestanding assessment, the taxpayer had no right of appeal.
The UT concluded:
- HMRC does not have a freestanding right of amendment.
- The compelling factor in this decision was the absence of a right to appeal HMRC’s amendments
- The amendments made did not constitute a discovery assessment
- Ergo the amendments were not validly enacted.
The UT did not rule on whether the losses could be claimed outside the normal time limits as it was not necessary given the nature of their decision.