On appeal from: [2017] EWCA Civ 435.

This appeal considered the correct procedure HMRC is required to follow under the Taxes Management Act 1970, where it wishes to enquire into a claim for carry-back share loss relief made in a self-assessed and calculated tax return.

On 22 March 2010 (tax year 2009/10), Mr Derry bought 500,000 shares at a cost of £500,000 in a company called Media Pro Four Ltd. On 4 November 2010 (tax year 2010/11) he sold them to the ‘Island House Private Charitable Trust’ for £85,500, realising a loss of £414,500. In his tax return for 2009/10, submitted by his accountants on 24 January 2011, Mr Derry claimed share loss relief for that amount against his income for that year under of the Income Taxes Act 2007, s132 (‘the 2007 Act’), with the aim of reducing to that extent his taxable income for that year. HMRC have identified the claim as a case of possible tax avoidance.

In December 2011, Mr Derry’s accountants submitted his tax return for 2010/11 online, which said that the relief for the loss of £414,500 had already been claimed and relief obtained in 2009/10. In response, HMRC opened an enquiry into the claim for share loss relief.

Mr Derry began judicial review proceedings relating to the demand. The two issues were

  1. Whether, having exercised his right to claim the relevant loss relief in the previous year (2009/10), Mr Derry was correct to deduct that loss in calculating his net income for that year; or whether, as HMRC contend, that right was overridden by the 1970 Act, Sch 1B such that the loss, although claimed in year 2009/10, was to be treated as “relating to” the following year.
  2. Whether, if it was an error for Mr Derry to make a claim for relief in the tax return for 2009/10, that claim is nonetheless part of the tax return for that year.

Held: The Supreme Court unanimously dismisses the appeal as it finds in favour of Mr Derry on the first issue. The court found that 2007 Act,  s23 and ss131-132 create a clear and self-contained code for the treatment of a claim to share-loss relief such as that of Mr Derry. This legislation gives him an “entitlement” to make the claim, to specify the tax year to which it is to be applied, and to do so by deducting it in the calculation of his “net income”. The court finds that it would be extraordinary for that entitlement to be taken away, without any direct reference or signpost, by a provision in a relatively obscure schedule of another statute.

The court notes that the conclusion on the first issue makes it strictly unnecessary to reach a conclusion on the second issue

For judgment, please download: [2019] UKSC 19
For Court’s Press Summary, please download: Court’s Press Summary
For a non-PDF version of the judgment, please visit: BAILII

To watch the hearing, please visit: Supreme Court Website (12 Dec 2018 morning session) (12 Dec 2018 afternoon session)