Comprehensive Attack Of Loss Claims
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23 January 2014
The need to be
show a profit could be made in order to claim losses has once again
challenged in the First-tier Tribunal (FTT) platform. So often the
losses are relieved
in the environment of the sideways loss claim or group relief. The
of Glapwell Football Club (GFC) (TC2904)
has emphasised the need for commerciality (CTA 2010 s.44) in order for
claim to be made.
In the Glapwell case the taxpayer,
Football Club Ltd (GFC) submitted returns claiming losses which it
use by way of group relief to its holding company, Denticheck. HMRC
the ground that the football club business was not being carried on
commercially (CTA 2010, s.44). This example shows that it is imperative
that the trading activity could make profit via business plans.
Potential to make
The FTT agreed
viewpoint regarding this case. After looking through the accounts, the
noted that, in the relevant accounting years for GFC, operating losses
made and staff costs exceeded turnover and operating income, increasing
club’s dependence on the holding company. As is normal where there are
or questions of solvency, the question is asked as to what is shown in
accounts. The director’s report showed that, while accounts were
prepared on a
going concern basis, this was only by reference to the directors’ and
shareholders’ intention to continue to support the club.
For directors who
financially support say a football club or any other sporting passion
of a group structure, they must be careful that there is the potential
these entities to make profits and it must be proved that this
potential can be
evidenced. The FTT concluded that the trade was not being carried on
expectation of gain, and the holding company was not entitled to claim
in respect of losses made by the club. The taxpayer’s appeal was not
the claim for loss relief being denied.
an essential criteria for tax losses to be allowed to be offset.
the expectation of profit can be made through the business plan. It is
secret that HMRC are undertaking a close review of loss claims of both
income tax and a corporation tax classification. Advisers beware!
The Robins case
Many advisers to
have considered that there have been attacks by HMRC from all angles on
loss claims. The recent case of M Robins
(TC2902) shows the need to look at the quantum of the loss
The taxpayer had
from a farming partnership and a haulage business. His 2010/11 return
submitted in time and produced a tax liability of £6,331 due for
payment on 31
January 2012, but this was not paid. The return for 2011/12 was also
May 2012 showing losses. With the subsequent return, the taxpayer
carry back the losses from 2011/12 to 2010/11.
The FTT said the
legislation was “quite specific in requiring claims to be quantified”.
calculation had to be included, no matter how straightforward. The
adviser had previously written to HMRC on 24 January 2012, saying that
taxpayer had losses for 2011/12 which he would be setting against his
profits. He would therefore not be paying the tax due on 31 January
penalty for late payment was followed through by HMRC. The penalty was
due to lack of clarity. HMRC imposed a late payment of the tax on the
that the letter was not a valid claim within the meaning of TMA 1970,
because the losses were not quantified. If they had been, the letter
been sufficient and the tax due cancelled.
and validity of all loss claims made. Is there evidence to support the
Have the clients been warned about the HMRC increasingly aggressive
losses? Have the details of the calculation been checked? There are
elements of loss claims that HMRC are placing focus on, eg calculations
the sixth year of loss, checking the fiscal year basis etc.
About the Author
Supplied by Julie
F.C.A. Butler & Co, Bennett House, The Dean, Alresford, Hampshire, SO24
Tel: 01962 735544. Email;
email@example.com, Website; www.butler-co.co.uk
F.C.A. is the author of Tax Planning for Farm and Land
Professional), Equine Tax Planning
ISBN: 0406966540, and Stanley: Taxation
of Farmers and Landowners (LexisNexis).
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Article Published/Sorted/Amended on Scopulus 2014-06-09 09:05:42 in Tax Articles