Dundas Heritable Ltd (TC6476)
Enquiries into capital allowances claim backfires.
The taxpayer ran public houses and bars. Its tax return for the year to 31 March 2012, received by HMRC in February 2015, included a claim for capital allowances which should have been lodged by 31 March 2014. The return for the period to 31 March 2013, received by HMRC in November 2015, included a claim for capital allowances which should have been lodged by 31 March 2015.
HMRC opened enquiries in relation to capital allowances under FA 1998, Sch 18 para 24(1). It was accepted that both capital allowance claims were late (Sch 18 para 82(1)(a)), but the issue under appeal was whether HMRC’s enquiries had extended it (para 82(1)(b)).
HMRC said the key point was whether a claim was valid by reference to the time limit applicable when it was made. Only one time limit was relevant to a claim. In this case, no enquiries were open when the claims were made so the time limits in Sch 18 para 82(1)(b) to (d) did not apply. The taxpayer appealed.
The First-tier Tribunal said parliament wished a taxpayer who was subject to an enquiry to have the benefit of capital allowance reliefs – which explained para 82(1)(b) to (d). HMRC chose to enquire into the returns and argued that para 82(1)(b) applied only if a new claim was made after that enquiry began. The judge disagreed, saying: ‘There are four possible dates [in the legislation] and a claim will be timeous if lodged ‘at any time’ before the last of them.’ Therefore para 82(1)(b) was engaged because the claims were made ‘long before 30 days after the enquiries were completed’.
The taxpayer’s appeal was allowed.
The effect seems to be to allow a company to make a claim for capital allowances in any tax return regardless of how late the tax return is made. In such a case, the claim can be challenged only by the making of an enquiry into the return; and the very fact of making – or, at least, completing – the enquiry retrospectively extends the time limit for making the claim: Catch-22 against HMRC.
I expect HMRC either to appeal the decision or (as a First-tier Tribunal decision) simply ignore it. But, meanwhile, it should be noted.’