In Gavin Faulkner v HMRC  TC6500, the First Tier Tribunal (FTT) agreed that the inability of a member of a limited liability partnership to obtain figures for a loss claim can be a reasonable excuse for late filing.
- The taxpayer was a member of a loss-making limited liability Partnership (LLP).
- He wished to carry back the loss against other taxable profits. He could not get the amount of loss quantified.
- He notified HMRC of the problem and asked that Late Filing Penalties be put on hold until he could submit his outstanding tax returns.
- Despite writing four times between 2 February 2009 and 11 January 2010, he received no response from HMRC.
- The taxpayer finally received information about the losses claimed in 2006/07 just before 3 May 2012.
- The LLP was now in Receivership and the two designated members had made individual voluntary agreements. The LLP was struck off in 2016. In consequence, the taxpayer did not expect to receive details of subsequent losses at all.
- HMRC assessed late filing penalties for multiple years.
- The taxpayer made late appeals.
The FTT found that:
- If a claim is made for a loss, that amount must be quantified when claimed under the Taxes Management Act 1970 s42(1A). The claim may not be estimated and later amended.
- For partnership income, only a representative partner may appeal, under the Taxes Management Act 1970 s12AA(2).
- A claim for carryback loss relief must be made by the first anniversary of the normal self-assessment filing date for the loss-making year, under Income Tax Act 2007 s64(5). So a claim for the year 2007/08 had to be made by 31 January 2010.
The FTT accepted that unanswered letters to HMRC could be construed as appeals and therefore allowed the taxpayer to make “late” appeals.
It found that the loss claim could be made outside a return. It also found that it had no jurisdiction to allow the loss relief claim.
The FTT also confirmed that a tribunal had no powers when HMRC simply ignores a claim for loss relief, nor when a partner is required to do the impossible.
This complex case highlights several anomalies in tax law.
- It requires a partner to do the impossible when he or she must give the amount of a carry-back partnership loss when that figure is not available.
- It provides no relief against a deadline for submitting a loss claim which a partner cannot meet.
The tribunal expressed the hope that HMRC would use its wider discretionary powers to assist the taxpayer.