Case: HMRC adopted flawed methodology in appraising a late claim

[2018] UKUT 0190 TCC

Judge Hon Mr Justice Fancourt

UT Judge Greg Sinfield

Decision released 25 June 2018

Enterprise investment scheme - EIS3 - ICTA 1988, s. 306(1)(b) - Raftopoulou v R & C Commrs [2015] BTC 532 - Raftopoulou [2014] TC 03935 - TCGA 1992, s. 150A - ICTA 1988, s. 289A - Pollen Estate Trustee Co Ltd v R & C Commrs [2013] BTC 606 - Inco Europe Ltd v First Choice Distribution [2000] 1 WLR 586.

R (on application of Ames) v Revenue and Customs Commissioners [2018] BTC 518


HMRC considered that Mr Ames was only entitled to exemption from CGT if he had obtained EIS income tax relief on the acquisition of the shares. He had not and therefore, was liable for CGT on the gain. Mr Ames appealed the amendment to his return and, following a statutory review, appealed to the First-tier Tribunal.

The First-tier Tribunal (FTT) held that the CGT exemption under the EIS depended on there having been a claim for EIS income tax relief and that it did not have jurisdiction to allow a late claim or to consider the way in which HMRC had exercised their power of care and management. The FTT suggested the Appellant request HMRC to reconsider their refusal to accept the late claim. HMRC refused the request to admit the late claim.

The Appellant, with permission of the FTT, appealed on three grounds:

(1)The FTT erred when it failed to construe “attributable” in TCGA 1992, s. 150A(2) as meaning “able to be attributed”;

(2)The FTT erred when it failed to give the TCGA a rectifying construction;

(3)That the late claim for income tax relief should be admitted.

The Appellant also applied for judicial review of the refusal to allow the late claim for EIS income tax relief because the decision maker’s methodology was flawed and, in the alternative, that the decision was irrational and/or conspicuously unfair.

The Appeal was dismissed because the UT found the meaning of attributable did not mean able to be attributed, rectification was not possible and there was no jurisdiction to admit the late claim.

The remaining matters were that of the Judicial Review.

The Judicial Review identified two relevant matters which were not considered by the decision maker:

Claiming relief would result in no income tax relief being obtained by the Appellant; and

It was perfectly reasonable and understandable for the Appellant to believe that he did not have to make a claim for relief.

The grounds had come to light by virtue of a transcript of a telephone call between the Appellant and an officer in May 2011. The Appellant had provided detailed information about his personal circumstances, including the absence of any income tax liability in the relevant tax year, and was told that despite not having made an EIS income tax relief claim he would be fully exempt from CGT.

There was no guidance dealing specifically with the Appellant’s unusual circumstances, namely that he had no income on which he would pay income tax in the tax year in question. It was concluded that the decision-making process was flawed in that the decision maker misapplied HMRC guidance, thereby in effect fettering the exercise of his discretion.

The decision was quashed and remitted to HMRC for re-consideration.


The decision was arrived at despite no specific evidence that a thought process was applied and recorded to enable the issuing of notices. Also, there appeared to be no requirement to explain the place of effective management. It also appeared that HMRC need to meet measures consistent with the ordinary machinery of administration regarding FA 2004, s. 204. The outcome of the Judicial Review is likely to be surprisingly disappointing to taxpayers in similar situations.

For commentary on follower notices and accelerated payment notices, see Direct Tax Reporter at ¶192-762.

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