Robert Williams v The Commissioners for HMRC

This application concerns the validity or otherwise of a “negligible value” claim made under s 24 of the Taxation of Chargeable Gains Act 1992 (“TCGA”) which HMRC contend is not in “in such form as the Board may determine” as required by paragraph 2(3) of schedule 1A to the Taxes Management Act 1970 (“TMA”). It is HMRC’s case that the Tribunal does not have jurisdiction in relation to these proceedings which should therefore be struck out in accordance with Rule 8(2)(a) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009

The application is opposed by Mr Williams.

With the consent of the parties, the form of the hearing was V (video) using the Tribunal video hearing system.

Prior notice of the hearing had been published on the gov.uk website, with information about how representatives of the media or members of the public could apply to join the hearing remotely in order to observe the proceedings. As such, the hearing was held in public.

The Tribunal heard the application on 6 February 2023.

On 14 February 2023, a decision notice which included a summary of the findings of fact and reasons for the decision, which allowed HMRC’s application and struck out the proceedings, was issued by the Tribunal (pursuant to Rule 35(3)(a) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009).

By email dated 7 March 2023, Mr Phillip Williams of Gerald Thomas Chartered Accountants (the “Accountants”) acting for the appellant, notified the Tribunal that the appellant was considering the possibility of taking further action and, to “protect his position”, applied for a “full decision notice”. Under Rule 35(4) of the Procedure Rules it is made clear that if a Tribunal decision, as in this case, provides only summary findings and reasons a party wishing to appeal must apply for full written findings and reasons for the decision before seeking permission to do so.

This decision is therefore provided in accordance with Rule 35, in order to enable Mr Williams to decide whether to apply for permission to appeal against the decision of the Tribunal and, if so, to assist him in formulating any such appeal. However, and most regrettably, due to administrative difficulties and delays for which the Tribunal can only apologise, the 7 March 2023 email requesting the full decision notice was not referred to me until 28 April 2023 leading to the unavoidable delay in providing this decision.

It is not disputed that in his 2015-16 self-assessment tax return Mr Williams claimed a loss of £200,000, under s 253 TCGA, in respect of a loan made to a Sierra Leone company, Greenway Timber Company Limited (“Company”).

On 6 September 2018, during HMRC’s enquiry into Mr Williams’s 2015-16 return, the Accountants, on behalf of Mr Williams, wrote to HMRC explaining that the loan had been converted into shares in a British Virgin Islands company, Greenway Timber Group Limited (“Group”), the parent company of Company, in July 2009 and that Mr Williams’s capital contribution for the shares was £250,000. Of the £250,000, £200,000 was payment for the loan and £50,000 plant and machinery given to Greenway.

Enclosed with the 6 September 2018 letter was a shareholder agreement which clearly identified the name of the company, the class of shares and the number of shares in Greenway held by Mr Williams.

HMRC replied to the Accountants on 18 September 2018 asking whether it should be assumed that Mr Williams wished to make a negligible value claim under s 24 TCGA and requested further information to enable such a claim to be considered.

Although further information was subsequently provided to HMRC, it was not until 28 March 2019 that the Accountants, in a letter to HMRC, confirmed that Mr Williams did indeed wish to make a negligible value claim. That letter also acknowledged that Mr Williams was withdrawing his claim for losses under s 253 TCGA.

HMRC, by letter of 8 April 2019, sought additional information from Mr Williams. Although this was provided, on 15 July 2019, HMRC wrote to the Accountants stating that, in the absence of any valid negligible value claim under s 24 TCGA, the loss of £200,000 would be removed from the 2015-16 capital gains tax computation. A closure notice was issued by HMRC, under s 28A(1B) and (2) TMA, to amend the return and remove the loss on 16 July 2019.

On 26 July 2019 Mr Williams notified the Tribunal of his appeal against that closure notice on the grounds that the negligible value claim was valid.

On 22 December 2022 HMRC made this application for that appeal to be struck out.

Section 24 TCGA provides:

It is clear from the guidance contained in HMRC’s Internal Capital Gains Manual (at CG13135), which is headed How to make a negligible value claim – Time limit for claiming relief, that:

“There is no requirement for the claimant to make a claim to HMRC within a specified time of the asset having become of negligible value.

Section 31 TMA, “right of appeal” provides:

In so far as it applies to the present case, paragraph 2 of schedule 1A TMA provides:

Finally, Rule 8(2)(a) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, which makes it absolutely clear that if it does not have jurisdiction in relation to the proceedings or that part of them, the Tribunal has no discretion or choice but:

It is common ground that the issue before the Tribunal is whether Mr Williams, has made a valid “negligible value” claim, under s 24 TCGA. It is also common ground that such a claim was not made in a self-assessment tax return and that accordingly, and pursuant to s 42(11) TMA, schedule 1A TMA is applicable.

Mr Philip Williams, for the appellant Mr Robert Williams, contends that a valid and timely negligible value claim was made by the Accountants in the letter of 6 September 2018 sent to HMRC together with the shareholder agreement. He submits that this was clear to HMRC by its response of 18 September 2018 to that letter, because, as of that date, HMRC had in its possession all the information necessary for such a claim for which, as stated in HMRC’s Manual, there “is no specified form that must be used”

Moreover, he says that if that letter was not in the form required, HMRC should, in accordance with its own guidance, have written to Mr Williams setting out the necessary to put the claim in the proper form.

However, I agree with Ms McDonald who appeared for HMRC, who contends it is clear from the words used in paragraph 2 of schedule 1A TMA that is necessary for a claim for negligible value to be made and that the Accountants letter of 6 September 2018 does not satisfy the necessary requirements for such a claim. It is not “in such form” as required by HMRC under paragraph 2(3) of schedule 1A to TMA and does not contain a declaration to the effect that “all of the particulars given in the form are correctly stated to the best of the information and belief of the person making the claim” as required by paragraph 2(4) of that schedule.

Ms McDonald quite properly accepts that HMRC, rather than seeking clarification as to whether it should have assumed that a negligible value claim was being made, ought to have responded to the Accountants letter of 6 September 2018 by explaining, in accordance with its own guidance, what was needed to put the claim in the proper form and set out the information needed.

However, as to whether or not the claim is in the required “form” and HMRC’s failure to notify Mr Williams of how it could be corrected to comply, is in the absence of a right of appeal under s 31 TMA, a matter for HMRC (and possibly a formal complaint, reference to the Adjudicator and/or judicial review) rather than the Tribunal.

In HMRC v HOK Ltd[2012] UKUT 363 (TCC) the Tax and Chancery Chamber of the Upper Tribunal observed at [36] that the Tax Chamber of the First-tier Tribunal:

“… was created by s 3(1) of the Tribunals, Courts and Enforcement Act 2007 “for the purpose of exercising the functions conferred on it under or by virtue of this Act or any other Act”. It follows that its jurisdiction [unlike that of the High Court which has an inherent jurisdiction], is derived wholly from statute.

The Upper Tribunal went on to note at [56]:

“… It is impossible to read the legislation in a way which extends its jurisdiction to include—whatever one chooses to call it—a power to override a statute or supervise HMRC’s conduct.”

The applicable legislation, s 31 TMA, does not contain any right of appeal against HMRC’s decision not to admit a negligible value claim that is not in the required form and consequently not valid. Given that the Tribunal’s jurisdiction is governed by that legislation, it follows that the Tribunal does not have the jurisdiction to determine this issue or consider the conduct of HMRC not to allow the claim or refer the appellant to the appropriate guidance.

Under Rule 8 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 if the Tribunal does not have the jurisdiction to hear a case it no choice, but must strike out the proceedings.

This is the position in the present case and it therefore follows that, despite HMRC’s failings and while there would appear to be nothing to prevent Mr Williams from re-making the negligible value claim under s 24 TCGA, I am bound to allow HMRC’s application and strike out the appeal of Mr Williams.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.