In Alan Firth Webster  EWHC 2275 (Ch), the claimant’s case for 'rectification' of his 2016/17 tax return to correct a Gift Aid claim error was dismissed by the court. It confirmed that a Gift Aid carryback election must be made in an original tax return.
Section 426, Income Tax Act 2007 (ITA 2007) allows a taxpayer to carryback a Gift Aid donation to the previous tax year provided an election is made on or before the date the prior-year tax return is submitted and before the normal filing deadline for that return.
- Mr Webster made a Gift Aid declaration of £800,000 in 2017/18 to a fund set up by a charity in memory of his late wife. His intention was to carryback the donation to 2016/17.
- He initially planned to donate £400,000 to the fund but later increased this to £800,000. His final submitted tax return for 2016/17 only included a £400,000 donation. The charity claimed back the tax on the full (i.e. £800,000) donation.
- He filed an amended tax return in February 2018 to correct his error. HMRC raised an enquiry in November 2018.
HMRC concluded that the original Gift Aid election was invalid as section 426 ITA 2007 does not apply to part of a gift. tax relief and is denied if the amount included in a tax return does not agree exactly to the donation.
- The revised Gift Aid election was also invalid as it was made after the date of submission of the claimant’s 2016/17 return and after the normal filing deadline for that return. HMRC cited John Cameron v HMRC  UKFTT 104 (TC) to support their position on timing.
- A Closure notice was issued in June 2020. The error was treated as ‘careless’ and HMRC assessed additional tax, Penalties and interest totalling £215,000.
Rather than follow HMRC's Appeals procedure, the taxpayer decided to submit a case for 'rectification' of their 2016/17 tax return to the England and Wales High Court (EWHC), prior to HMRC concluding its enquiry. HMRC did not participate in the case as it was conducted outside of the statutory appeals process which it is obliged to adhere.
The EWHC dismissed the case as it did not qualify to be dealt with under the ‘equitable jurisdiction of rectification’. Even if it had, the court would have struck out the case since the claimant’s circumvention of the statutory process set up by Parliament to resolve this kind of dispute was essentially an ‘abuse of the court’s process’.
This introductory guide is not intended to comprise exhaustive coverage of the subject; reference should be made to the legislation for all technical and practical questions.
When does HMRC issue a closure notice? Can a taxpayer demand one? Are there appeal rights?
All about appeals: When can you appeal? What can you appeal? How do you appeal?
What penalties apply if you make an error or mistake? How are penalties calculated? How do you check penalties? What can you do if you receive a penalty?