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:

“Overriding objective and parties' obligation to co-operate with the Tribunal

2.

—(1) The overriding objective of these Rules is to enable the Tribunal to deal with cases fairly and justly.

(2)

Dealing with a case fairly and justly includes—

(a)

dealing with the case in ways which are proportionate to the importance of the case, the complexity of the issues, the anticipated costs and the resources of the parties;

(b)

avoiding unnecessary formality and seeking flexibility in the proceedings;

(c)

ensuring, so far as practicable, that the parties are able to participate fully in the proceedings;

…

(3)

The Tribunal must seek to give effect to the overriding objective when it—

(a)

exercises any power under these Rules; or

(b)

interprets any rule or practice direction.

…”

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

“Case management powers

5.

—(1) Subject to the provisions of the 2007 Act and any other enactment, the Tribunal may regulate its own procedure.

(2)

The Tribunal may give a direction in relation to the conduct or disposal of proceedings at any time, including a direction amending, suspending or setting aside an earlier direction.

(3)

In particular, and without restricting the general powers in paragraphs (1) and (2), the Tribunal may by direction—

…

(e)

deal with an issue in the proceedings as a preliminary issue;

…

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

“Striking out a party’s case

8.-…

(2)

The Tribunal must strike out the whole or a part of the proceedings if the Tribunal—
(a) does not have jurisdiction in relation to the proceedings or that part of them; and (b) does not exercise its power under rule 5(3)(k)(i) (transfer to another court or tribunal) in relation to the proceedings or that part of them.”

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:

“Jurisdiction over late claims

110.

Not only does the Tribunal have no jurisdiction to allow a late claim under TMA s 118(2), we were also unable to identify any provision which gives a person the right to appeal against an HMRC refusal to allow a late claim.  TMA s 33 simply states the time limit.  TMA Sch 1A, which provides for claims made outside returns, only allows appeals against amendments to claims, not against a refusal to extend a time limit so as to admit a claim.  We therefore find that the Tribunal has no jurisdiction to allow Mr Ames to make a late claim.”

And, at [117]:

“…the Tribunal does not have jurisdiction over HMRC’s exercise of their care and management powers. Whether HMRC have exercised those powers unfairly is a matter for judicial review. This is clear from the case law. In Aspin v Estill [1987] STC 723 Donaldson LJ, giving the leading judgment with which the rest of the Court of Appeal concurred, found that the General Commissions had no judicial review powers. In HMRC v Hok Limited [2012] UKUT 363 Warren J and Judge Bishopp considered Asplin v Estill and also the statutory jurisdiction under which the Tribunal was established, before saying that there is “no room for doubt that the First-tier Tribunal does not have judicial review jurisdiction.”

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:

“8(3) The Tribunal may strike out the whole or a part of the proceedings if— […] (c) the Tribunal considers there is no reasonable prospect of the appellant’s case, or part of it, succeeding.”

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:

“30.

... The FTT has the power to strike out a part of the proceedings if it concludes that there is no reasonable prospect of all or part of an appellant’s case succeeding. A party’s case is not confined to its positive case, nor to a form of pleading. Although Rule 8(3)(c) is in different terms, the parties (rightly in our view) accepted that CPR Part 3.4, which applies to the formal statements of case which are served in civil proceedings, was a helpful source of guidance on the proper application of Rule 8(3)(c). CPR Part 3.4(2)(a) confers a power to strike out a statement of case, including a defence, even where the burden of proof is on the Claimant; and it would be surprising if it were otherwise. The Court’s powers may be exercised if a defence is vague, evasive, incoherent or obviously ill-founded, although in such cases the objectionable nature of the party’s case can often be cured by amendment or further particulars.”

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:

“41.

In our judgment an application to strike out in the FTT under Rule 8(3)(c) should be considered in a similar way to an application under CPR 3.4 in civil proceedings (whilst recognising that there is no equivalent jurisdiction in the First-tier Tribunal Rules to summary judgment under Part 24). The Tribunal must consider whether there is a realistic, as opposed to a fanciful (in the sense of it being entirely without substance) prospect of succeeding on the issue at a full hearing, see Swain v Hillman [2001] 2 All ER 91 and Three Rivers (see above) Lord Hope at [95]. A ‘realistic’ prospect of success is one that carries some degree of conviction and not one that is merely arguable, see ED & F Man Liquid Products v Patel [2003] EWCA Civ 472. The tribunal must avoid conducting a ‘mini-trial’. As Lord Hope observed in Three Rivers, the strike out procedure is to deal with cases that are not fit for a full hearing at all.”

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:

“48.

…An appellant who advances a positive case will be required, by virtue of other customary directions, to set it out in witness statements or, if that is not practicable, in a response or a letter, or in some similar way. Accordingly, an appellant putting a positive case must disclose his hand in advance; we see no reason why one merely putting HMRC to proof should be in a better position. If there is a real challenge to HMRC’s evidence it should be identified; if there is not, the evidence should be accepted. We see no reason why an appellant who does not advance a positive case should be entitled to require HMRC to produce witnesses for cross-examination when their evidence is not seriously disputed. Such a course is wasteful not only of HMRC’s resources but also of the resources of the FTT, since it increases the length of hearings and adds to the delays experienced by other tribunal users.”

And at [49]:

“49.

In our view the FTT should also direct that if an appellant raises no positive case, serves no evidence challenging the evidence of HMRC’s witnesses, and does not identify the respects in which the statements of those of HMRC’s witnesses who deal only with the questions set out at para 47 above are disputed, then their evidence can be given, and will be accepted by the tribunal, in the form of a written statement under FTT Rule 15(1) (see also Rule 5(3)(f)), and that cross-examination of that witness will not be permitted.”

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:

“68.

In HMRC v Fairford Group plc [2014] UKUT 329 (TCC) the Upper Tribunal addressed the approach that should be taken in the FTT when dealing with an application to strike out. The Fairford Group appeal related to an MTIC fraud and Judge Brooks declined to strike-out the appeal in the FTT because he could not conclude that the taxpayers had no reasonable prospect of challenging HMRC’s evidence without a detailed examination of that evidence. In doing so he formulated the following test at [41]:

In our judgment an application to strike out in the FTT under r 8(3)(c) should be considered in a similar way to an application under CPR 3.4 in civil proceedings (whilst recognising that there is no equivalent jurisdiction in the FTT Rules to summary judgment under Pt 24). The tribunal must consider whether there is a realistic, as opposed to a fanciful (in the sense of it being entirely without substance), prospect of succeeding on the issue at a full hearing, see Swain v Hillman [2001] 1 All ER 91 and Three Rivers [2000] 3 All ER 1 at [95], [2003] 2 AC 1 per Lord Hope of Craighead. A 'realistic' prospect of success is one that carries some degree of conviction and not one that is merely arguable, see ED & F Man Liquid Products Ltd v Patel [2003] EWCA Civ 472, [2003] 24 LS Gaz R 37. The tribunal must avoid conducting a 'mini-trial'. As Lord Hope observed in Three Rivers, the strike-out procedure is to deal with cases that are not fit for a full hearing at all.”

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:

“33.

Although the summary in Fairford Group plc is very helpful, we prefer to apply the more detailed statement of principles in respect of application for summary judgment set out by Lewison J, in Easyair Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch) at [15]. This was subsequently approved by the Court of Appeal in AC Ward & Son v Caitlin Five Ltd [2009] EWCA Civ 1098; [2010] Lloyd's Rep IR 301. The parties to this appeal did not suggest that any of these principles were inapplicable to strike out applications.

i)

The court must consider whether the claimant has a "realistic" as opposed to a "fanciful" prospect of success: Swain v Hillman [2001] 1 All ER 91

ii)

A "realistic" claim is one that carries some degree of conviction. This means a claim that is more than merely arguable: ED & F Man Liquid Products v Patel [2003] EWCA Civ 472 at [8]

iii)

In reaching its conclusion the court must not conduct a "mini-trial": Swain v Hillman

iv)

This does not mean that the court must take at face value and without analysis everything that a claimant says in his statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporaneous documents: ED & F Man Liquid Products v Patel at [10]

v)

However, in reaching its conclusion the court must take into account not only the evidence actually placed before it on the application for summary judgment, but also the evidence that can reasonably be expected to be available at trial: Royal Brompton Hospital NHS Trust v Hammond (No 5) [2001] EWCA Civ 550;

vi)

Although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without the fuller investigation into the facts at trial than is possible or permissible on summary judgment. Thus the court should hesitate about making a final decision without a trial, even where there is no obvious conflict of fact at the time of the application, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case: Doncaster Pharmaceuticals Group Ltd v Bolton Pharmaceutical Co 100 Ltd [2007] FSR 63;

vii)

On the other hand it is not uncommon for an application under Part 24 to give rise to a short point of law or construction and, if the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should grasp the nettle and decide it. The reason is quite simple: if the respondent's case is bad in law, he will in truth have no real prospect of succeeding on his claim or successfully defending the claim against him, as the case may be. Similarly, if the applicant's case is bad in law, the sooner that is determined, the better. If it is possible to show by evidence that although material in the form of documents or oral evidence that would put the documents in another light is not currently before the court, such material is likely to exist and can be expected to be available at trial, it would be wrong to give summary judgment because there would be a real, as opposed to a fanciful, prospect of success. However, it is not enough simply to argue that the case should be allowed to go to trial because something may turn up which would have a bearing on the question of construction: ICI Chemicals & Polymers Ltd v TTE Training Ltd [2007] EWCA Civ 725.”

At [74], the UT said this:

“The issue concerning section 225 ITEPA 2003 gave rise to a short point of construction. The FTT, correctly in our judgment, was satisfied that it had before it all the evidence necessary for the proper determination of the question and that the parties had an adequate opportunity to address it in argument. The Appellants’ evidential case was, in our view, hopeless, based on the evidence before the FTT. The FTT was right to conclude it is not enough simply to argue that the case should be allowed to go to trial because something may turn up which would have a bearing on the question of construction.”

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:

“…We do not consider that we can be “abundantly sure”, to use Lord Nicholls’ term, that the intended purpose of section 150A(2) was to allow CGT exemption on the disposal of shares where no EIS income tax relief had been obtained. Parliament could have decoupled the two tax reliefs in a way that would have benefited those who paid no income tax in the relevant year, but equally Parliament could have intended the question of eligibility for CGT exemption to be determined at the earlier stage of claiming and receiving income tax relief…”

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:

“28.

We consider that the meaning of “attributable” is made clear by section 150A(11) TCGA and section 289B ICTA. Section 150A(11) provides that section 289B (among other sections) applies for the purposes of determining whether EIS relief is attributable to any shares, and if so the amount of relief so attributable. Section 289B(1) provides that “relief attributable to any shares” must be read as a reference to “any reduction made in the individual’s liability to income tax which is attributed to those shares”. That interpretative provision therefore applies directly to section 150A(1) and (2). Those words are clear and show that “an amount of relief is attributable” in those subsections must be interpreted as referring to a reduction in liability to income tax. In our view, the argument that section 150A(2) is concerned only with eligibility is wrong. If the words “an amount of” were omitted from subsection (2) and subsection (11) of section 150A did not exist, the point would have been well arguable, but those two provisions mean that it is clearly wrong. Even though section 150A(1) does not apply in Mr Ames’ case, the words “an amount of relief is attributable” must have the same meaning in subsection (2) as they do in subsection (1), where they clearly connote an actual amount of relief having been given.

…

31.

In conclusion, it seems to us that the language of section 150A(2) is clear and “an amount of relief is attributable” means that, at the time that the CGT exemption is claimed, a claim for EIS income tax relief must have been made and given effect. We consider that, in the absence of a claim for EIS income tax relief which reduced the individual’s income tax, the individual has no right to the CGT exemption on any subsequent disposal of the shares. We do not consider that “attributable” can be interpreted as “available but not claimed” which is, in essence, what Mr Gordon asks us to accept. Had that been the draftsman’s intention then section 150A(2) and section 150A(11) would have been worded differently and section 150A(3) would have been unnecessary.”

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.