In Civic Environmental Systems Ltd v HMRC [2023] EWCA Civ 722, the Court of Appeal (CoA) confirmed that loss relief claim made in the year following submission of a tax return did not form part of that return, and therefor the claim could not be amended in line with any assessments amending that tax return by the tribunal.

  • The appellant, Civic Environmental Systems Ltd (CES), made a tax loss in the year ended 30 April 2008. Under the Loss Relief rules, this was carried back for offset against profits incurred in 2007. The remaining unused loss was carried forward for offset against future profits. The claim was made in May 2009.
  • It was subsequently decided by the First Tier Tribunal (FTT) that the company's profits in 2007 had been significantly understated.
  • At the FTT, and on appeal at the Upper Tribunal (UT), it was decided that the original amount of carryback losses remained the amount claimed in 2008, despite the increase in profits. The size of the claim could not be increased to match the increase in taxable profits in the year.
  • The loss relief claims were made under s.393A Income & Corporation Taxes Act 1988 (ICTA 88) but have now been replaced by s.37 Corporation Tax Act 2010 (CTA 10). 
  • On appeal to the CoA, CES argued that in the earlier appeals the tribunals should have amended the loss relief claim accordingly to cover the increased profits.

The CoA considered the arguments:

  • As set out in the legislation, a carryback claim is made for all of the available losses. The relief takes effect by utilising as much of the loss as the profits in the year can absorb. Any remaining losses are left available to carry forward.
  • The effect of a Closure Notice issued after HMRC made an enquiry into the company's 2007 tax return, meant that the return was amended to show an increase in taxable profits.
  • Paras 58 and 59, Sch 18 Finance Act 1998 (FA 98) allow for claims made within the time limits for amending a return to be viewed as amending the return. This is an integral part of self-assessment, with the company declaring taxable profits and allocating losses to cover those profits.
  • CES's claim was made outside of the time limit for amending the 2007 return. Instead, relief was given effect by Sch 1A Taxes Management Act 1970 (TMA 70), which specifically states that such claims do not amend the tax return.
  • S50 allows for the FTT, on appeal, to vary Assessments already in existence for any particular year.

It considered: was the FTT bound to give effect to the existing loss relief claim?

  • The issue under appeal was the assessment of profits as set out in the 2007 tax return: as the loss relief claim did not form part of the return (as it was given effect by Sch1A TMA 70 and not paras 58 & 59 Sch18 FA 98), it was not part of the closure notice issued by HMRC and, therefore, not within the remit of the FTT to consider.
  • On that basis, CES had no ability to amend the value of the claim as it did not form part of the return.

The appeal was dismissed.

Useful guides on this topic

Company payments not 'on behalf' of owner
In Peter Lowe & Civic Environmental Systems Ltd v HMRC [2022] UKUT 00084, the Upper Tribunal (UT) dismissed the appellant's claim to deduct enhancement expenditure incurred by his company when calculating the gain on a property disposal. There was no evidence the payments were made on his behalf.

Losses: Trading and other losses
When can a company offset its losses? What restrictions are there? How are loss claims made?

Closure notices
When does HMRC issue a Closure Notice? Can a taxpayer demand one? Are there appeal rights? 

Time limits for tax assessments, claims and refunds
What are the time limits for claiming a tax refund? How far can HMRC go back and raise an assessment? How many years back can a taxpayer appeal? What are the time limits for correcting a tax return?

External links

Civic Environmental Systems Ltd v HMRC [2023] EWCA Civ 722

Peter Lowe & Civic Environmental Systems Ltd v HMRC [2022] UKUT 00084


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