Hot on the heels of the Supreme Court decision in Cotter comes the Upper Tribunal decision in Rouse. Detail of the Cotter decision is here. But in a nutshell, the dispute was over the precise technical provision HMRC must use to make an enquiry into a claim to “carry back” a loss. Should it be an enquiry into the earlier year’s return? Or an enquiry into the carry-back claim as such?
The dispute isn’t an “angels on pinheads” one: the two candidate provisions have very different implications for the ability of HMRC to demand that tax be paid while their enquiries are in progress: suffice it to say that the taxpayer was rooting for the former, and HMRC for the latter.
The judgement in the Supreme Court in Cotter suggested that the answer might be different according to whether the taxpayer had included his own assessment of tax payable on his return or had (as he is in some circumstances entitled to do) left HMRC to do it for him.
The decision in Rouse expands on and clarifies the Cotter decision and seems to us to be the final nail in the coffin. There are two crucial points made in the decision. First, if a loss carried back from year 2 is deducted in assessing the liability for year 1, any enquiry would indeed (as the Supreme Court implied) have to be into the return. But since it is beyond dispute that the return would in that case plainly be wrong the outcome of the enquiry would be a foregone conclusion. And in any event, what Mr Rouse had done (and what most taxpayers in his position will have done) is not in fact to deduct the loss in assessing the liability for year 1, but to assess the liability for year 1 correctly and then deduct the cash value of the loss claim (along with payments on account and other cash adjustments) in working out what tax has physically to be paid: which is a quite different thing. Therefore HMRC were correct to enquire into the claim, and not to the return.
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