Benham – Upper Tribunal dismisses HMRC's appeal regarding the correct treatment of a purported amendment of a return relating to a failed rollover claim

In Benham (Specialist Cars) Limited v HMRC [2017] UKFT 389 (TCC), the Upper Tribunal (UT) dismissed HMRC's appeal upholding the decision of the First-tier Tribunal (FTT) that section 153A(4), Taxation of Chargeable Gains Act 1992 (TCGA), does not provide a freestanding right for HMRC to make or amend an assessment in order to bring a rolled-over gain back into charge following the lapse of a declaration of intention to claim roll-over relief made under section 153A(1), TCGA.

Background

Benham (Specialist Cars) Ltd (Benham) made a declaration for rollover relief, under section 153A, TCGA, on business assets that ceased to take effect when no relevant business assets were acquired within the time limits against which to set the gain.

Following the lapse of Benham's declaration for rollover relief, HMRC issued a notice of 'Amendment of return' in form CT620 for the accounting period 1 January 2007 to 31 December 2007 (the 2007 Accounting Period), with a separate letter purporting to make an assessment for the tax. HMRC sought payment of corporation tax of £622,134 in respect of the 2007 Accounting Period.

Benham appealed to the FTT and argued that HMRC should have raised a discovery assessment under paragraph 41, Schedule 18, Finance Act 1998. This would have allowed Benham to make a claim to carry back trading losses to offset against the gain and reduce its corporation tax liability for the relevant period to nil.

The FTT allowed the appeal and HMRC appealed to the UT.

UT decision  

The UT agreed with the FTT and dismissed HMRC's appeal.

The UT considered the following two questions:

(1) Does section 153A(4), TCGA, provide HMRC with a freestanding right to make or amend an assessment in order to bring gains into charge.

(2)  If there is no freestanding power of amendment and the only assessment power available to HMRC is a discovery assessment, did the disputed decision of HMRC amount to a discovery assessment?

On issue (1), the UT concluded that section 153A(4) does not provide HMRC with a freestanding right to make or amend an assessment in order to bring gains into charge.  An influential factor in reaching this conclusion was the absence of a right of appeal against an amendment.

With regard to issue (2), the UT said that the disputed decision of HMRC did not purport to be a discovery assessment and as such it was not one. In the view of the UT, the wording of the disputed decision was "perfectly clear". It was, on its face, described as an amendment and not as an assessment.

Comment 

This decision confirms that if a company makes a declaration under section 153A, TCGA, but fails to follow up with an actual claim, HMRC has to use its assessment or amendment powers contained in Schedule 18, Finance Act 1998, as appropriate. It cannot rely on section 153A(4) to amend the self-assessment independently of what Schedule 18 says. Section 153A(4),  does not provide HMRC with a freestanding right to make or amend an assessment in order to bring a rolled-over gain back into charge.