Kaljinder Singh Kalay v The Commissioners for HMRC

The background facts are undisputed. Having considered the submissions and the documentary evidence, I find that:

The Appellant seeks to appeal against HMRC’s decision to refuse to admit his late claim for EIS tax relief. The Appellant further appeals against the decision to issue a closure notice under s 28A TMA, in relation to the 2019-20 tax year.

The EIS offers tax relief to individual investors who buy new shares in a company. When an investment is made, form EIS3 is issued to confirm that certain conditions of the scheme are satisfied. The time-limit for EIS income tax claims is specified in s 202(1)(b) ITA 2007. The time-limit is not later than the fifth anniversary of the normal self-assessment filing date for the year. The Capital Gains Tax (‘CGT’) exemption is set out at s 150A TCGA. For the gain to be exempt from tax, an amount of EIS relief must be “attributable to the shares”. This depends on the date that the shares are issued.

This is HMRC’s application to strike out the Appellant’s appeal under rule 8(2)(a) and 8(3)(c) of the Procedure Rules. As a starting point, the Procedure Rules provide the procedural framework for proceedings within the FtT, as well as the procedure in the FtT’s exercise of its case management powers. The overriding objective provides that:

The case management powers of the FtT are provided for at rule 5, as follows:

HMRC’s application in respect of the late claim is made pursuant to rule 8(2)(a) of the Procedure Rules, which provides that:

I now turn to the late claim and the jurisdictional issue:

HMRC have made an application to strike out the Appellant’s appeal on the basis that the FtT has no jurisdiction to consider HMRC’s refusal to exercise discretion to admit the late claim. Mr Anjum, for the Appellant, submits that HMRC have not considered the Appellant’s mitigating circumstances, and that the FtT has the jurisdiction to consider whether a reasonable excuse has been established by virtue of the mitigating circumstances put forward by the Appellant. He further submits that the FtT can direct HMRC to consider the late claim by making a declaration. I find that Mr Anjum’s submissions are misconceived in light of the accepted facts in this appeal, and give my reasons for so finding.

Section 202(1)(b) ITA 2007 requires any claim for EIS income tax relief to be made no later than the fifth anniversary of the 31st January following the year of assessment. It is common ground that, in the Appellant’s case, this meant 31 January 2020 for relief on the shares sold on 1 September 2013. This matter is not in issue between the parties. It is also common ground that HMRC have jurisdiction, under their care and management responsibilities in s 5(1) CRCA, to admit a late claim for EIS relief. HMRC’s discretion in this respect is unfettered.

Having considered the case law, and the statutory powers of the FtT, I am satisfied that the FtT has no jurisdiction to consider a late claim for EIS income tax relief.

In Ames v HMRC [2015] UKFTT 337 (TC) (‘Ames’), which I find to be persuasive though not binding on me, Mr Ames invested £50,000 in shares, which HMRC accepted were eligible for EIS income tax relief. The investment as made on 27 January 2005; however, Mr Ames did not claim that relief because he had no taxable income in the relevant year. Mr Ames sold the shares for £333,200 on 17 June 2011 and did not include the gain of £272,540 in his self-assessment calculation because he understood that there was no Capital Gains Tax (‘CGT’) on disposal. Mr Ames made a late claim for EIS income tax relief. HMRC subsequently opened an enquiry and amended Mr Ames’ tax return to include the gain on the basis that the CGT exemption was only available if EIS income tax relief had been claimed. Mr Ames asked HMRC to exercise their “care and management” discretion to allow the gain to be exempt from tax. HMRC did not accede to this request. Mr Ames consequently requested that the FtT consider the late claim and require HMRC to exercise their discretion in his favour.

The FtT held that it did not have jurisdiction to allow Mr Ames to make a late claim, or to consider the way in which HMRC had exercised their powers of care and management under s 5 CRCA. Judge Redston held, at [110], that:

And, at [117]:

Mr Ames appealed to the Upper Tribunal (‘UT’) on the grounds that, inter alia, the late claim for income tax relief should be admitted on the basis that he had a reasonable excuse for not making it earlier, and the claim was made without unreasonable delay after the excuse ceased: R (on the application of Ames) v R & C Comrs [2018] UKUT 190 (TCC) (Fancourt J and Judge Sinfield). The UT reached the same view as the FtT; that being that the FtT did not have the jurisdiction to entertain the appeal against the refusal to admit the late claim. The decision of the FtT was only quashed by the UT on the grounds that the decision-maker (within HMRC) had wrongly fettered his discretion and, accordingly, the decision-making process had been flawed. HMRC’s decision to refuse Mr Ames’ late claim was, therefore, remitted to HMRC for reconsideration.

During the hearing before me, Mr Anjum conceded that the FtT does not, in fact, have jurisdiction to hear an appeal against a refusal to admit a late claim. This was following his consideration of Ames. This was, however, despite his earlier submission that the FtT could consider whether a reasonable excuse had been provided for the late claim.

I have found that the FtT does not have jurisdiction to consider the refusal to admit the late claim. I am further satisfied that the FtT does not have jurisdiction over HMRC’s exercise of their care and management powers. The FtT was created by s 3(1) of the Tribunals, Courts and Enforcement Act 2007 (‘TCEA’), “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 is derived wholly from statute. The FtT has no judicial review function. That the FtT has no judicial review function is the only conclusion which can be drawn from the structure of the legislation which brought the FtT into being. The TCEA conferred a judicial review function on the UT, a function it would not have had - since it too is a creature of statute without any inherent jurisdiction - had the Act not done so; and it hedged the jurisdiction it did confer with some restrictions.

It is perfectly plain, from perusal of the TCEA itself that Parliament did not intend to, and did not, confer a judicial review jurisdiction on the FtT, and there is nothing in the Transfer of Tribunal Functions Order which points to a contrary conclusion. Furthermore, the FtT has no supervisory jurisdiction over HMRC. It follows that the Appellant’s appeal against the refusal to admit the late claim must be struck out for want of jurisdiction.

I now turn to the closure notice:

HMRC have applied to strike out this part of the appeal (i.e., that relating to the closure notice) on the ground that the Appellant’s appeal has no reasonable prospects of success. Ms Fairhurst submits that in order for the appeal against the closure notice to succeed, the Appellant needs to have met all of the relevant conditions under s 150A TCGA, one of which requires there to have been a valid claim for EIS income tax relief claim. She further submits that the FtT would not be conducting a mini-trial, but would be considering a short point of law in striking out the Appellant’s appeal on this basis.

The Procedure Rules provide a discretion to strike out an Appellant’s case if it has no reasonable prospect of success. Rule 8(3)(c) provides that:

The UT formulated the following test for assessing the “reasonable prospects of success” test in HMRC v Fairford Group [2014] UKUT 329 (TCC); [2015] STC 156 (‘Fairford’) (Simon J and Judge Bishopp). In Fairford, the UT was considering the issue as to the jurisdiction of the FtT, under rule 8(3)(c), to strike out the whole, or part, of an appellant’s case; and whether such powers should have been exercised in that appeal. The appeal related to 36 transactions and more than £13,000,000 input tax. The appeal was against HMRC’s decision to deny input tax for the periods 03/06 and 06/06 on the basis that the taxpayer’s transactions were connected with the fraudulent evasion of VAT, and that they knew, or should have known, of the connection. The alleged connection forming the basis of HMRC’s decision is with the Missing Trader Intra-Community (‘MTIC’) fraud. The fraud in that appeal involved both the “vanilla” version, where transactions carried out by the taxpayers can be traced directly to a fraudulent tax loss, and the “contra-trading” version, where the transactions carried out by the taxpayers can be traced through a “clean” chain to a trader involved in covering up the tax losses of fraudulent, defaulting traders in a linked dirty chain. At [30], the UT held:

At [41], the UT held that the FtT should consider a strike out application under rule 8(3)(c) in a similar way to the approach to an application under CPR rule 3.4:

At [48], the UT referred to what it described as a “practical and legitimate” procedure for dealing with applications of the nature in this appeal. The UT concluded that:

And at [49]:

In British Telecommunications Plc v R & C Comrs [2023] UKUT 00122 (TCC), at [68] and [69] (Leech J and Judge Aleksander), the approach was adopted as follows:

The UT further amplified this guidance in The First De Sales Limited Partnership v HMRC [2018] UKUT 396 (TCC); [2019] 4 WLR 21 (‘The First De Sales Ltd Partnership’) (Henry Carr J and Judge Sinfield), where the UT cited the judgment of Lewison J (as he then was) in Easyair Limited v Opal Telecom [2009] EWHC 339 and stated, at [33], that:

At [74], the UT said this:

On 5 October 2021, HMRC opened an enquiry into the Appellant’s 2019-20 self-assessment tax return, which was submitted on 2 November 2020. This was followed by a closure notice on 3 March 2023. The enquiry was closed in accordance with s 28A TMA, and an amendment was made to the Appellant’s tax return. Where a claim is included in a return made under ss 8 or 8A TMA, the enquiry must be under s 9A TMA. Enquiries under s 9A extend to anything contained in the return, or required to be contained in the return, including a claim or election included in the return. The time-limit for s 9A enquiries is 12 months from the filing of the return. The enquiry in this appeal was, therefore, within the time-limit of one year following the filing of the tax return on 2 November 2020.

Turning to the issue of whether there are reasonable prospects of success in the Appellant’s appeal against the closure notice, the Appellant made his claim for EIS income tax relief in his 2020 tax return, in respect of the 2013-14 tax year. In order for such relief to be allowable, statute and case law establishes that the Appellant is required to have made a valid claim for EIS income tax relief. This was confirmed by the UT in Ames.

A key issue for determination before the FtT in Ames had been whether the gain on Mr Ames’ shares was exempt from CGT. The CGT exemption is set out at s 150A TCGA (supra). The FtT found that the wording in the legislation meant that the CGT exemption is only available if an individual’s income tax has been reduced following a claim for EIS relief. The tax appeal before the UT turned on the meaning to be given to the words “an amount of EIS relief is attributable to the shares”. Mr Ames’ first ground of appeal, and primary case, was that “attributable” in s 150A(2) TCGA means “able to be attributed to” rather than “has been attributed to”. It was further argued on Mr Ames’ behalf that there were two stages to attribution: (i) eligibility; and (ii) quantification, and that it was not necessary for a person to make a claim for, and be granted, EIS income tax relief in order to be entitled to the CGT exemption. The UT held, at [37], that:

The UT held that the language of s 150A(2) is clear, and “an amount of relief is attributable” means that at the time that the CGT exemption is claimed, and a claim for EIS income tax relief is claimed, a claim for EIS income tax relief has to have been made and given effect. The CGT exemption under the EIS, therefore, depends on there having been a claim for EIS income tax relief under the scheme, and the grant of relief. The UT was further satisfied that the fact that Parliament had retained the link between an EIS income tax relief claim and the CGT exemption when amending the legislation in 1995 to correct an error showed that the link had been a deliberate, and intended, feature of the EIS. The appeal tribunal would not be entitled to apply a rectifying construction.

In relation to the conditions that must be satisfied, the UT in Ames held, at [28], [30] and [31], that:

I am satisfied that the issue before me in relation to the application to strike out the Appellant’s appeal against the closure notice is a short point of construction, and that I have before me all the evidence necessary for the proper determination of the question.

The Appellant in the appeal before me purchased his shares in 2013-14. It is clear from the authorities that in order for disposal relief to be allowable, the Appellant needs to have made a valid claim for EIS income tax relief. The time-limit for EIS income tax claims is provided for at s 202(1)(b) ITA 2007. The time-limit clearly is not later than the fifth anniversary of the normal self-assessment filing date for the tax year. The incontrovertible fact in this appeal is that the Appellant did not meet this time-limit, and I have found that the FtT does not have jurisdiction to entertain an appeal against the refusal to admit a late claim on public law grounds, nor indeed does it have the jurisdiction to exercise any supervisory jurisdiction over HMRC in relation to this issue. I am satisfied that the appeal against the closure notice has no reasonable prospects of success, in light of the wording under s 150A(2) TGCA, the absence of a valid claim and the statutory scheme.

Accordingly, therefore, the appeal against the closure notice is also struck out.

This document contains full findings of fact and reasons for the preliminary decision. Any party dissatisfied with this preliminary 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.