Paul Henley v The Commissioners for HMRC

There have been a number of cases dealing with the effectiveness of HMRC’s enquiries into the tax returns of individuals who have participated in failed avoidance schemes, including at least three which have been considered by the Supreme Court. At first sight, it is therefore surprising that this appeal is another such case. However, leaving aside the complexities of the rules relating to the carry back of losses, differences in the way taxpayers complete their tax returns and HMRC conduct their enquiries can have a significant impact on the outcome.

In this case the Appellant, Mr Henley, participated in schemes designed to generate share losses (through companies containing the name Media Pro) and trade losses (through a business known as Sovereign). We are concerned only with the tax years ended 5 April 2010, 5 April 2011 and 5 April 2012. For the purposes of these proceedings, Mr Henley accepts that the schemes in which he participated did not give rise to any losses which could be set against his income in those years.

Unlike most of the previous cases, Mr Henley’s position is complicated by the fact that he has sought to carry back both share losses and trade losses which, as we will see, are treated differently. The trade losses in question relate to the tax year ended 5 April 2012. Mr Henley has sought to set these losses off against his income in the tax years ended 5 April 2010 and 5 April 2011.

Mr Henley also realised trade losses in the year ended 5 April 2011. However, no carry back claim has been made in respect of those losses and so they are not part of this appeal. They are only relevant to the extent that they appear on his tax return for the year ended 5 April 2011 and are referred to in HMRC’s closure notice for that tax year.

As far as share losses are concerned, losses were realised in the year ended 5 April 2010, although we are not directly concerned with those losses as the carry back claim in relation to those losses is not the subject of this appeal. They are however relevant to the entries on Mr Henley’s tax return for the year ended 5 April 2010. Mr Henley also realised share losses in the tax year ended 5 April 2011 and has claimed to carry back those losses and set them against his income in the tax year ended 5 April 2010.

HMRC have opened various enquiries into the relevant tax returns and carry back claims and believe that they have disallowed all of the claims to carry back the losses to previous tax years by issuing appropriate closure notices.

Mr Henley’s appeal challenges the effectiveness of the actions taken by HMRC to deny the carry back claims. He suggests that there are some stand-alone claims to carry back the losses in respect of which HMRC have not opened enquiries. He also says that the effect of the losses has been included in his self-assessment of the tax due for the tax years ended 5 April 2010 and 5 April 2011 and that HMRC have not amended that self-assessment in the appropriate closure notices with the result that his self-assessment of the tax due for those years is now binding.

In his skeleton argument, Mr Carey, appearing on behalf of HMRC, suggested that Mr Henley’s appeal should be struck out on the basis that it had no reasonable prospect of success.

In support of this, Mr Carey, drew attention to an application made by Mr Henley on 11 July 2023 seeking a stay of the proceedings pending the decision of the High Court in Austick v HMRC [2024] EWHC 2175 (Ch) (referred to in the stay application as the “Parallel Proceedings”). That application was refused. However, in the stay application it was asserted that:-

“The factual differences between this case and the Parallel Proceedings are immaterial, the remedies sought in the Parallel Proceedings mirror the grounds of appeal in Mr Henley’s case and will result in declarations of law applicable to the issues in this appeal. Any decision in the Parallel Proceedings (being a decision of the High Court) will be binding on the Tribunal and will, therefore, be of material assistance, whether or not necessarily determinative of the appeal.”

Mr Carey submits that, as Mr Austick was unsuccessful in the High Court, it necessarily followed that Mr Henley would be unsuccessful in his appeal to this Tribunal, particularly in the light of the recent decision of the Upper Tribunal in Murphy v HMRC [2025] UKUT 165 (TCC).

Having considered the skeleton arguments in this case and the evidence with which we had been provided, it was clear to us that this was something of a simplification of the issues raised by Mr Henley’s appeal and that it was impossible to say that the appeal had no reasonable prospect of success. In any event, given that the parties had both already prepared for the hearing, it did not seem to us that there would be a significant saving in costs and resources in dealing with the strike-out application rather than hearing full submissions on the merits of the appeal.

For both of these reasons, we refused the application to strike out the proceedings.

Two days before the hearing, the Tribunal directed Mr Henley to produce a schedule setting out the losses which had been claimed, the years to which Mr Henley had claimed to carry back the relevant losses and to cross-reference that information to the relevant pages in the bundle to be prepared for the hearing.

Mr Avient, appearing on behalf of Mr Henley, produced a very helpful schedule in accordance with the directions. However, when the schedule was provided to the Tribunal, Mr Henley (through Mr Avient) made an application that the schedule should be withheld from HMRC’s witness, Michael Old, so that he would not be able to see it before giving his evidence.

In the event, after some discussion, Mr Avient withdrew the application and so Mr Old was able to consider the schedule before giving evidence.

We had before us a bundle of documents and correspondence. Two additional documents were introduced into the evidence by Mr Avient on behalf of Mr Henley immediately before the hearing and without any objection from HMRC. These were simply blank pages from the tax returns for the relevant tax years which were easier to read (and more complete) than some of the documents contained in the bundle.

In addition, we heard oral evidence from Mr Henley and, on behalf of HMRC, Mr Old.

Although Mr Henley was clearly choosing his words carefully, we are satisfied that both witnesses were truthful and are happy to accept their evidence at face value.

We should however note that much of the cross-examination of Mr Old related not to factual evidence, but Mr Old’s subjective understanding of the entries in Mr Henley’s tax returns and the wording of the relevant closure notices.

Mr Old worked as a project manager in what was then known as the Specialist Investigations Team (now Counter Avoidance) with responsibility for the Sovereign trade loss scheme. He was not involved with the Media Pro share loss scheme. He was also not involved in reviewing Mr Henley’s tax returns (which he saw for the first time in June 2021 in the context of these proceedings). Nor was he responsible for issuing the relevant closure notices, although he described these as being issued ‘under his supervision’.

Therefore, whilst the cross-examination was, as suggested by Mr Avient, a convenient way to go through the relevant entries on the tax returns and the wording of the closure notices, it is for the Tribunal to decide (objectively) the effect of the relevant entries and of the closure notices.

There is no dispute in relation to the relevant facts. The questions for the Tribunal relate to the legal effect of what has happened. Based on the evidence provided to us, we set out the key facts below.

Unfortunately, it is necessary to set out the entries in Mr Henley’s tax returns for the relevant years and the terms of the closure notices in some detail given the nature of the issues which we have to decide.

During the relevant period, Mr Henley worked as a management consultant with Deloitte Consulting, earning significant remuneration. He entered into a number of tax schemes designed to generate losses which could be set against his taxable income.

Mr Henley filed his tax return for the tax year ended 5 April 2010 on 23 February 2011. He filed an amended return on 31 January 2012. The submissions on behalf of both parties focused on the entries in the amended tax return and so this is the version which we have considered.

The amended tax return was filed online and Mr Henley elected to calculate his own tax using the tax calculation pages. To the extent relevant, the amended tax return shows the following:

Mr Henley also filed his tax return for the year ended 5 April 2011 on 31 January 2012. Again, the return was filed online and Mr Henley elected to calculate his own tax by completing the tax calculation pages. The key entries on this tax return are as follows:

On 18 April 2012, HMRC opened enquiries into Mr Henley’s tax returns for the years ended 5 April 2010 and 5 April 2011 under s 9A Taxes Management Act 1970 (“TMA”).

The enquiry notice for the year ended 5 April 2010 stated that HMRC would be looking at both capital losses and trading losses. Under the heading “Capital losses”, it is noted that the return “includes a claim to loss relief resulting from the loss on the disposal of shares in Media Pro Two Limited and Media Pro Three Limited”.

Again, under the heading “Capital losses”, the enquiry letter notes that the claim to loss relief is already under enquiry by virtue of schedule 1A TMA and refers to a previous letter dated 26 January 2012. No evidence of this schedule 1A enquiry was before the Tribunal and Mr Carey confirmed that HMRC did not rely on it in this appeal.

The enquiry letter for the tax year ended 5 April 2011 also referred to both capital losses and trading losses. Unlike the letter relating to the tax ending 5 April 2010, this letter did not go into any detail about the capital losses in question. It did however refer to a separate enquiry notice under schedule 1A TMA which was enclosed with the s 9A enquiry letter. Again, however, we had no evidence relating to the schedule 1A enquiry and, as with the year ended 5 April 2010, Mr Carey confirmed that HMRC do not rely on that enquiry in relation to this appeal.

On 25 May 2012, Mr Henley’s accountants sent a letter to HMRC about the Sovereign trading losses realised in the tax year ended 5 April 2012 in respect of which, as we have seen, carry back claims had already been made in Mr Henley’s tax returns for the tax years ended 5 April 2010 and 5 April 2011.

The letter noted that the accountants had now been able to quantify the trading losses for the tax year ended 5 April 2012 and that the letter should be treated as a stand-alone claim under schedule 1B TMA.

After explaining the amount of the losses, the letter made a claim for the entirety of the losses to be set off against Mr Henley’s income for the tax year ended 5 April 2009. Clearly this contradicted the claims made in the tax returns for the years ended 5 April 2010 and 5 April 2011 which claimed to set the losses off against Mr Henley’s income for those tax years and not for the year ended 5 April 2009.

It appears that Mr Henley’s accountants realised that they had made a mistake as they wrote again to HMRC on 30 May 2012 noting that there was an error in the claim submitted on 25 May 2012 and, instead, making a claim for £710,424 of the losses to be set against Mr Henley’s income for the tax year ended 5 April 2010 and for the remaining £269,792 of losses to be set against Mr Henley’s income for the tax year ended 5 April 2011. The letter of 30 May 2025 was said to supersede the letter of 25 May 2012.

We note that the figure of £710,424 corresponds with the figure claimed in Mr Henley’s tax return for the year ended 5 April 2010. We infer that the figure of £269,792 corresponds to the figure claimed in Mr Henley’s tax return for the year ended 5 April 2011 of £250,000 which was presumably an estimate as the tax return was submitted on 31 January 2012 before the precise amount of the losses for the period from January 2012 – 5 April 2012 could be quantified.

On 10 July 2013, HMRC opened an enquiry under schedule 1A TMA into the stand-alone claim for the carry back of trading losses made on 30 May 2012.

Mr Henley submitted his self-assessment tax return for the year ended 5 April 2012 on 25 July 2013. Fortunately, we do not need to go into detail about the entries on the return as HMRC did not open any enquiry into this return. It is sufficient to note that, in the self-employment pages, the return identifies the Sovereign trading losses relating to the tax year ended 5 April 2012 and refers to the stand-alone claim in the letter dated 30 May 2012 for the losses to be carried back and set against income for the tax years ended 5 April 2010 and 5 April 2011.

Following the various enquiry notices, there was an extended period of time during which we infer that discussions were taking place as to whether the schemes were effective. Eventually, on 20 September 2018, HMRC issued a closure notice under paragraph 7 of schedule 1A TMA (relating to the stand-alone carry back claim made in the letter of 30 May 2012). The conclusion was that Mr Henley had “not accurately reflected the tax consequences of arrangements which you describe as ‘Film Distribution and Other Rights’”.

As far as the loss carry back claim was concerned, the closure notice specifically stated that “The carry back claims have not been given”.

The closure notice then purported to amend Mr Henley’s tax return for the year ended 5 April 2012 by removing from the self-employment pages the figures shown in the boxes for the amount of the “Loss to be carried back to previous year(s) and set off against income”. The closure notice noted that the figure in the tax return for the total income tax due for the year ended 5 April 2012 was not affected by these amendments.

Somewhat oddly, the closure notice did however state that “The claim of £135,000 made on your 2010-11 return in respect of 2011/12 trading losses remains under enquiry until all other matters pertaining to this year are resolved”.

It is not at all clear what was intended by this statement given that the carry back claims had been refused. It also seems surprising that the tax relief claimed in the return for the year ended 5 April 2011 should be mentioned but not the tax relief of £255,562.21 claimed in respect of the trading losses in the return for the tax year ended 5 April 2010. We will return to this when considering the effect of the closure notices.

Closure notices under s2 8A TMA in respect of the s 9A TMA enquiries into the tax returns for the years ended 5 April 2010 and 5 April 2011 were sent to Mr Henley and his accountant on 16 December 2022.

The closure notice for the year ended 5 April 2010 specifically references a share loss relief claim involving Media Pro Two Limited and Media Pro Three Limited and concludes that “your claim for share loss relief arising from your use of those arrangements should not be allowed”.

The amendment to the tax return to give effect to this conclusion was to remove the share losses of £8,748 which had been set against Mr Henley’s income for the tax year in question. The result of this was to increase the tax which was shown as due in box 1 of the tax calculation pages by approximately £3,500 to £663,219.40. It will be noted that this is the figure for tax due before deducting any reliefs claimed in box 15 of the tax calculation pages.

There was no mention in the closure notice of any carry back claim relating to losses incurred in subsequent years. Nor was there any amendment to boxes 3 and 4 in the additional information pages or box 15 in the tax calculation pages where the carry back claims were shown.

In relation to the claim for share loss relief, the closure notice for the tax year ended 5 April 2011 followed a similar format, referencing the share losses relating to Media Pro Two Limited, Media Pro Three Limited and Media Pro Four Limited (i.e. the losses actually realised in the tax year ended 5 April 2011) concluding that “your tax return does not correctly reflect the tax consequences of these arrangements and that your claim for share loss relief arising from your use of those arrangements should not be allowed.”.

The resulting amendment to the tax return for the year ended 5 April 2011 simply reduced the total losses for the year shown in the capital gains tax summary pages to nil (although did not amend the figure shown on the capital gains tax summary pages for losses used against income in the tax year ended 5 April 2010).

As far as the Sovereign trade losses were concerned, the conclusion in the closure notice for the tax year ended 5 April 2011 was that “on your claim for the year ended 5 April 2011 you have not accurately reflected the tax consequences of arrangements which you describe as ‘Film Distribution and Other Rights’”.

The corresponding amendment to the tax return was to remove from the self-employment pages the loss of £25,000 which Mr Henley had claimed to set against his income for the tax year ended 5 April 2011. As will be noted from the entries described above on Mr Henley’s tax return for the year ended 5 April 2011, it is clear that this represents part of the losses actually realised in the tax year ended 5 April 2011 and has nothing to do with the trade losses realised in the tax year ended 5 April 2012 which he claimed to carry back and set against his income for the year ended 5 April 2011.

The effect of this amendment was to increase Mr Henley’s tax liability shown in box 1 of the tax calculation pages by approximately £12,500 to £167,631.59. As with the closure notice for the year ended 5 April 2010, this is the figure for tax due before taking account of any relief for losses which Mr Henley claimed to carry back from future years and set against his income for the year ended 5 April 2011. Similarly, there was no attempt to amend any of the boxes in the tax return for the year ended 5 April 2011 dealing with the effect of those carry back claims and the tax relief sought as a result.

Mr Henley appealed to HMRC against all of the closure notices and requested reviews which upheld the closure notices. He then appealed to the Tribunal.

As we have said, the way in which claims to carry back losses from one year to another should be made and the mechanism for enquiring into such claims is complex and has generated a significant amount of case law, some at the highest level. This appeal is particularly complex as, unlike other cases, Mr Henley has claimed to carry back both trade losses and share losses against his income for the tax year ended 5 April 2010. As we will see, carry back claims relating to share losses are treated differently to carry back claims in relation to trade losses.

The starting point is s 8 TMA which permits HMRC to require an individual to make a return “for the purpose of establishing the amounts in which a person is chargeable to income tax and capital gains tax for a year of assessment, and the amount payable by him by way of income tax for that year”.

Section 8(1AA) explains that:

“(a)

the amounts in which a person is chargeable to income tax and capital gains tax are net amounts, that is to say, amounts which take into account any relief or allowance a claim for which is included in the return;”

Section 9 TMA builds on this. Subject to certain exceptions which are not relevant to Mr Henley, s 9(1) TMA provides as follows:

“(1)

… every return under s 8 or 8A of this Act shall include a self-assessment, that is to say—

(a)

an assessment of the amounts in which, on the basis of the information contained in the return and taking into account any relief or allowance a claim for which is included in the return, the person making the return is chargeable to income tax and capital gains tax for the year of assessment; and

(b)

an assessment of the amount payable by him by way of income tax, that is to say, the difference between the amount in which he is assessed to income tax under paragraph (a) above and the aggregate amount of any income tax deducted at source and any tax credits to which s 397(1) or 397A(1) of ITTOIA 2005 applies.”

The key point is that the self-assessment must take into account any relief where the claim is included in the return and affects the amount of tax payable for the relevant tax year. As we shall see, in the context of the carry back of losses, there is a difference between a claim being made “in” a return and a claim simply being mentioned “on” or, as Mr Avient puts it “on the face of” the return. This difference relates to the fact that the purpose of the return is to establish the amount of tax payable by the person for the tax year in question (s 8(1) TMA).

Section 42 TMA sets out the procedure for making a claim. The default position is that, where a taxpayer has been required to file a tax return, the claim must be made “by being included in a return” under the relevant section (s 42(2) TMA).

Section 42(11A) however provides that “schedule 1B to this Act shall have effect as respects certain claims for relief involving two or more years of assessment”. Paragraph 2 of schedule 1B (to the extent relevant) provides as follows:

“(1)

This paragraph applies where a person makes a claim requiring relief for a loss incurred or treated as incurred, or a payment made, in one year of assessment (‘the later year’) to be given in an earlier year of assessment (‘the earlier year’).

(2)

Section 42(2) of this Act shall not apply in relation to the claim.

(3)

The claim shall relate to the later year.

(4)

Subject to sub-paragraph (5) below, the claim shall be for an amount equal to the difference between—

(a)

the amount in which the person is chargeable to tax for the earlier year (‘amount A’); and

(b)

the amount in which he would be so chargeable on the assumption that effect could be, and were, given to the claim in relation to that year (‘amount B’).

(6)

Effect shall be given to the claim in relation to the later year, whether by repayment or set-off, or by an increase in the aggregate amount given by s 59B(1)(b) of this Act, or otherwise.”

Two key points to note resulting from paragraphs 2(3) and 2(6) in respect of a carry back claim relating to losses, are that the claim relates to the year in which the loss is realised and that effect must be given to the claim in that year. This precludes any reduction in the taxpayer’s tax liability for the year to which the losses are carried back.

As can be seen, the effect of paragraph 2(2) of schedule 1B is that the default position in s 42(2) TMA does not apply so that the claim is not to be made in a return. Section 42(11) TMA provides that, where a claim is not made by being included in a self-assessment return, the claim must be made in accordance with schedule 1A TMA. This is sometimes known as a stand-alone claim. It is common ground that there is no particular form in which such a claim for the carry back of losses must be made.

On the face of it, all of the carry back claims made by Mr Henley fall within the scope of schedule 1B TMA as they are all claims requiring relief for a loss incurred in a later year to be given in an earlier year. However, as we shall see, this is not the end of the story for share loss relief.

Section 9A TMA enables HMRC to enquire into a self-assessment tax return. Section 9A(4)(a) confirms that the enquiry may extend into “any claim… included in the return”. Where a claim is included “in” a return, this is therefore the mechanism which must be used if HMRC wish to challenge the claim. When HMRC’s enquiries are complete, they must issue a closure notice under s 28A TMA. Section 28A(2) requires the relevant HMRC officer to state their conclusions and to “make the amendments of the return required to give effect to his conclusions”.

Where there is a stand-alone claim, HMRC have a similar ability to enquire into the claim (or any amendment to a claim) under paragraph 5 of schedule 1A TMA.

Paragraph 7 of schedule 1A provides for HMRC to issue a closure notice once their enquiries are complete. In the context of a carry back claim, the closure notice must either allow the claim or disallow the claim (wholly or in part).

Having set out the statutory framework, it is now necessary to look at the authorities to see how the statutory provisions apply in the context of share loss relief and trade loss relief.

In relation to share loss relief, the key authority is the decision of the Supreme Court in R (on the application of Derry) v HMRC [2019] UKSC 19.

The facts in Derry are very similar to Mr Henley’s position. Indeed, the losses related to the same scheme involving Media Pro Four Limited and was a claim to carry back share losses realised in the tax year ended 5 April 2011 against income arising in the tax year ended 5 April 2010.

As with Mr Henley, Mr Derry filed his tax return for the year ended 5 April 2010 online. He completed boxes 3 and 4 on the additional information pages referring to the losses from the tax year ended 5 April 2011 in respect of which he was claiming relief. Like Mr Henley, Mr Derry also calculated his own tax, completing the tax calculation pages.

Mr Derry entered the amount of tax relief to which he considered he was entitled in box 15 of the tax calculation pages. The note he included in box 16 of the tax calculation pages was however slightly different to the form of words used by Mr Henley. Mr Derry stated:

“The reduction in tax payable in box 15 of page TC2 relates to the loss carry back claim arising from the carry back of losses of GBP414,500 as set out on page Ai3. The corresponding reduction in tax payable in the year ended 5 April 2010 following this loss carry back claim is GBP165,800 being GBP414,500 at 40 per cent.”

HMRC opened an enquiry into Mr Derry’s carry back claim contained in his tax return for the year ended 5 April 2021 under schedule 1A TMA and also opened an enquiry into Mr Derry’s tax return for the tax year ended 5 April 2011 under s 9A TMA. However, HMRC did not open a s 9A enquiry into Mr Derry’s tax return for the year ended 5 April 2010.

When Mr Derry’s case came to the Court of Appeal (R (on the application ofDerry (v HMRC [2017] EWCA Civ 435), there were two grounds of appeal. Ground 1 was whether a claim to carry back share loss relief was within schedule 1B TMA. In relation to this, the Court of Appeal concluded that it was and that HMRC had therefore opened a valid enquiry under schedule 1A TMA.

Ground 2 dealt with the question as to whether, despite the fact that a claim for share loss relief should be dealt with under schedule 1B (so that any claim should not be included in the tax return for the year ended 5 April 2010), the entries which Mr Derry made on his tax return for that year nonetheless (mistakenly) affected his self-assessment of the amount of tax due for that year, thus requiring HMRC to enquire into the tax return under s 9A TMA in order to amend the self-assessment by disallowing the relief claimed.

On the second ground, the Court of Appeal found in favour of Mr Derry. The result was that, as HMRC had not opened an enquiry into the tax return for the year ended 5 April 2010 under s 9A TMA, Mr Derry’s appeal was successful and his self-assessment stood as it had not been challenged.

We will need to come back to this point when we consider trade loss relief as it is relevant to a situation where schedule 1B applies to the carry back claim but the taxpayer nonetheless purports to take account of the relief in their self-assessment for the earlier year to which the loss is carried back.

Mr Derry appealed to the Supreme Court in respect of ground 1 and HMRC appealed in respect of ground 2. Lord Carnwath gave a decision with which, as far as ground 1 was concerned, all the other members of the Court agreed.

Having reviewed the statutory provisions in detail, Lord Carnwath concluded at [35] that, unlike other forms of loss relief (including trade loss relief), a carry back claim in relation to share loss relief could be made in the tax return for the earlier year to which the relief was to be carried back and resulted in a reduction in the taxpayer’s net income for that year and therefore in their tax liability for the earlier year (see the discussion at paragraphs [34-39]).

Having reached this conclusion, the Supreme Court did not need to consider ground 2 although Lord Carnwath expressed some doubt as to the conclusions reached by the Court of Appeal and Lady Arden provisionally concluded that the Court of Appeal’s decision in relation to ground 2 was wrong. We will need to consider these comments further when dealing with trade loss relief.

However, as far as share losses are concerned, it is clear that schedule 1B TMA does not apply to a claim to carry back share losses to set against income of an earlier year and that the claim is therefore correctly included in the tax return relating to the earlier year and can only be challenged by a s 9A enquiry notice in relation to the return for that year.

In Mr Henley’s case, HMRC did of course open a s 9A enquiry into the tax return for the year ended 5 April 2010. The issue we will need to deal with is the effect of the closure notice relating to that enquiry.

There is no dispute that a claim to carry back trade loss relief is within schedule 1B TMA. This is specifically provided for in s 60(2) Income Tax Act 2007.

The effect of schedule 1B was explained by the Supreme Court in HMRC v Cotter [2013] UKSC 69. Lord Hodge noted at [16] that:

“16.

In my view it is clear, in particular from paragraphs 2(3) and (6), that the scheme in schedule 1B allows a taxpayer, who has suffered a loss in a later year (‘year 2’) and seeks to attribute the loss to an earlier year of assessment (‘year 1’), to obtain his relief by reducing his liability to pay tax in respect of year 2 or by obtaining a repayment of tax in year 2. It does not countenance by virtue of the relief any alteration of the tax chargeable and payable in respect of year 1.”

As we understand it, there is no dispute between the parties in relation to this. The effect is that, although a taxpayer may make a stand-alone claim under schedule 1A TMA and obtain a repayment of tax before submitting their tax return for year 2, this is a repayment of tax for year 2 and is not a reduction in their tax liability for year 1 (we refer to year 1 and year 2 in the sense described by Lord Hodge in Cotter above).

The question, however, is what happens if the taxpayer purports to claim relief by entries contained on the face of their tax return for year 1? This was considered by Lord Hodge in Cotter. The key issue is whether the entries, although contained in the tax return, actually form part of the “return” for the purposes of the relevant provisions of the TMA. Lord Hodge observed at [25] that:

“… in the context of ss 8(1), 9, 9A and 42(11)(a) of the TMA, a ‘return’ refers to the information in the tax return form which is submitted for ‘the purpose of establishing the amounts in which a person is chargeable to income tax and capital gains tax’ for the relevant year of assessment and ‘the amount payable by him by way of income tax for that year’ (s 8(1) TMA)”.

In the case of Mr Cotter, whilst he had completed box 3 on page A(i)(3) of the additional information pages (as did Mr Henley), Mr Cotter did not calculate his own liability to tax for the relevant tax year. The carry back claim, although appearing on the face of the return for year 1, was not therefore part of the return as, given the way in which schedule 1B works, it did not affect the amount of his tax liability for year 1.

Lord Hodge however went on to say the following at [27]:

“27.

Matters would have been different if the taxpayer had calculated his liability to income and capital gains tax by requesting and completing the tax calculation summary pages of the tax return. In such circumstances the Revenue would have his assessment that, as a result of the claim, specific sums or no sums were due as the tax chargeable and payable for 2007/08. Such information and self-assessment would in my view fall within a ‘return’ under s 9A of TMA as it would be the taxpayer’s assessment of his liability in respect of the relevant tax year. The Revenue could not go behind the taxpayer’s self-assessment without either amending the tax return (s 9ZB of TMA) or instituting an enquiry under s 9A of TMA.”

It should be noted that Lord Carnwath’s comments in this respect were obiter but they provide a strong indication that, despite the effect of schedule 1B TMA, if a taxpayer completes a self-assessment for year 1 which reduces the amount of tax payable for that year as a result of a relief claimed on a carry back of losses, this does form part of the return and can only be counteracted by HMRC opening an enquiry under s 9A TMA and issuing an appropriate closure notice under s 28A TMA.

This was precisely what the Court of Appeal found the position to be in the case of Mr Derry when considering ground 2 of the appeal. Having considered the comments of Lord Hodge in Cotter, Henderson LJ concluded at [57] that:

“There is a clear distinction between, on the one hand, the inclusion of information which is irrelevant in law to the taxpayer’s liability for the year of assessment covered by the return, and, on the other hand, the taxpayer’s self-assessment of the tax which he is due to pay. Irrelevant information of the former type, even if entered in the return at the implicit invitation of the Revenue, is not to be regarded as included in the return when it comes to enquiring into the taxpayer’s liability for the relevant year. But a taxpayer’s self-assessment is a different matter. Plainly, errors of many different kinds may be made in such an assessment, and they may include errors about the availability of a relief. If the Revenue is dissatisfied with the taxpayer’s self-assessment, its remedy is either to amend the return or to open an enquiry into it under s 9A of TMA 1970. As pointed out at [20], above, such an enquiry may extend to anything contained (or required to be contained) in the return. The boxes on p TC2 for ‘adjustments to tax due’ must in my view be regarded as containing information required to be contained in the return, where the taxpayer elects to perform his own self-assessment, because such adjustments form an integral part of the calculation of the tax due to be paid by him for the year in accordance with ss 23 and 24 of ITA 2007. It follows that the information contained in those boxes cannot be regarded as extraneous to the return. As I understand it, this is the essential point which Lord Hodge was making in Cotter at [27], and if I may respectfully say so, I agree with it.”

In effect, Henderson LJ concluded that, although box 15 in the tax calculation pages did not result in any amendment to the figure in box 1, it was nonetheless part of the taxpayer’s self-assessment. The result of this was that HMRC could only enquire into the tax relief claimed under s 9A TMA, which they had failed to do. Mr Avient submits that, as a decision of the Court of Appeal, this reasoning is binding on us.

Mr Carey however draws attention to the decision of the Upper Tribunal in Murphy v HMRC [2025] UKUT 00165 (TCC). Murphy related to share loss relief. However, as the losses were incurred before Income Tax Act 2007 came into force, it was concluded that any carry back claim fell within schedule 1B TMA. The Upper Tribunal therefore had to consider the decision of the Court of Appeal on ground 2 in Derry as Mr Murphy had claimed relief for the losses in his tax return for year 1.

Based on the principles set out by the Court of Appeal in Al-Mehdawi v Secretary of State for the Home Department [1989] 1 All E.R. 777 (which was reversed by the House of Lords but without the House of Lords making any comment on this particular principle), the Upper Tribunal concluded at [110] that the decision of the Court of Appeal in Derry on ground 2 was not a binding precedent given the way in which the Supreme Court had reached its decision in Derry.

In Al-Mehdawi, the question was whether the reasoning for a previous decision of the Court of Appeal in respect of an issue which the House of Lords had, on appeal, concluded did not arise for decision was binding on the Court. Two submissions had been made. The first was that a case must be considered as one continuous piece of litigation and that, as a result, the true ratio of a case is to be found in the reasoning of the House of Lords.

The second submission related to the circumstances set out in Young v Bristol Aeroplane Co Limited [1944] K.B. 718 at [729] in which the Court of Appeal would not be bound to follow a previous decision of that Court. The submission was that the exceptions were not exhaustive and that the Court of Appeal may not be bound to follow a previous decision where the House of Lords has expressly indicated that the issue determined by the Court of Appeal did not require to be decided (see pages 881E-882A of the report of the decision in Al-Mehdawi contained at [1990] 1 A.C. 876).

In relation to the previous decision of the Court of Appeal in question, the House of Lords had indicated that “it would be dangerous … to discuss the point save in a case where the circumstances and the facts require it to be decided”. In the light of this, and the submissions mentioned above, Taylor LJ in the Court of Appeal in Al-Mehdawi concluded at [882E-F] that:

“It would be strange indeed if despite these final words, the decision of this court is to be regarded as binding authority on the point of principle.”

Taylor LJ did however observe that the relevant reasoning of the Court of Appeal remained “a powerful persuasive influence” (referring in support of this to the decision of the Court of Appeal in Balabel v Air-India [1988] Ch. 317 at [325].

It is not at all clear to us whether the Court of Appeal in Al-Mehdawi considered that, in circumstances where the House of Lords (or, now, the Supreme Court) decides that a particular point does not arise for consideration, the relevant decision of the Court of Appeal does not have to be followed by the Court of Appeal in another case in the future or whether the reasoning is no longer binding on any lower court.

However, having reviewed subsequent authorities, the Employment Appeal Tribunal concluded in Basfar v Wong [2020] 1 WLUK 330 at [56-59] that Al-Mehdawi should be interpreted as deciding that, where the relevant conditions are satisfied, the decision of the Court of Appeal is no longer binding on lower courts. Both Mr Carey and Mr Avient agreed that this is the correct interpretation. In relation to this, we accept that we are bound by the authorities mentioned in Basfar as to the reasoning in Al-Mehdawi.

Mr Avient nonetheless submits that the principles set out in Al-Mehdawi are not engaged in Derry as, rather than the Supreme Court concluding that ground 2 did not arise for decision, HMRC should be treated as having withdrawn their appeal in respect of ground 2. In support of this, Mr Avient refers to the comments of Lord Carnwath in Derry in paragraphs [40] and [65].

However, it is quite clear to us from these paragraphs that HMRC simply accepted that, if the Supreme Court found in favour of Mr Derry on ground 1, it would be unnecessary for the Supreme Court to reach a conclusion in respect of ground 2. Had HMRC withdrawn their appeal in respect of ground 2 or had the Supreme Court considered that HMRC should be treated as having withdrawn their appeal, it would be very surprising if this was not somewhere recorded by Lord Carnwath in his judgment.

In our view therefore, this is a situation where the principles in Al-Mehdawi are engaged as, having found in favour of Mr Derry in respect of ground 1, the Supreme Court concluded that ground 2 did not arise for decision.

We should note that Mr Avient submitted that the decision of the Upper Tribunal in Murphy that the findings of the Court of Appeal in Derry in relation to ground 2 were not binding was itself not part of the ratio of the decision in Murphy (and therefore not binding on us) on the basis that the Upper Tribunal also found that the decision of the Court of Appeal in Derry could be distinguished on the facts (see paragraph [112] in Murphy).

Given our own findings in relation to the application of Al-Mehdawi to the decision of the Court of Appeal in Derry, it does not make any difference whether the decision of the Upper Tribunal in this respect is binding on us.

We do however accept Mr Carey’s submission (based on the comments of the Court of Appeal in R (on the application of Shimei Youngsam) v The Parole Board v The Secretary of State for Justice [2019] EWCA Civ. 229 at [49]) that, where two reasons are given for a decision, both of them will generally be treated as part of the ratio of the decision. On that basis, the decision of the Upper Tribunal in Murphy that the Court of Appeal’s decision in Derry in relation to ground 2 is not binding on us is, itself, a binding authority even though the Upper Tribunal decided that the decision in Derry could nonetheless be distinguished on the facts.

As we have seen, although, on the basis of Al-Mehdawi, the decision of the Court of Appeal in Derry in relation to ground 2 is not binding, in principle it remains of strong persuasive authority. There is however a question as to how these comments should be considered in the light of the observations made by the Supreme Court in Derry, particularly the comments of Lady Arden who provisionally concluded that the Court of Appeal may have been wrong on the basis that any relief claimed through box 15 of the tax calculation pages did not form part of the return as it did not feed through to the self-assessment in box 1.

Mr Avient submitted that the comments of Lady Arden did not even constitute obiter dicta, relying on the comment of the Court of Appeal in DH (by his litigation friend Sally Prestt) v The Secretary of State for the Home Department [2020] UKUT 223 at [57] that:

“…the Upper Tribunal (or indeed any other court) would, and should, be very reluctant not to follow the thought-out (but obiter) views of a majority of the House of Lords even though not bound by stare decisis to do so.”

We do not think it follows from this that the views expressed by a single member of the Supreme Court (and not contradicted by the majority who declined to express a view) does not constitute obiter and therefore is of no persuasive authority. We can however see that the views expressed by a single member of the Supreme Court in obiter comments might be given less weight than such comments which represent the views of the whole Court.

In commenting on ground two, the Supreme Court referred to a witness statement made by an HMRC officer, Graham Dean. Mr Dean’s evidence was not considered by the Court of Appeal in Derry. He appears to have given some evidence of the way in which online tax returns operate, whether using HMRC’s own software or software provided by approved third-party suppliers. In summary, his evidence was that box 15 is not part of the tax return but is simply a space to provide additional information which, in the case of a carry back of losses, generates what HMRC call a free standing credit.

Ultimately, Lord Carnwath concluded at [59] that, although there was some uncertainty as to the status of Mr Dean’s evidence, that evidence was not critical to a determination of the issue as:

“…neither the Revenue’s internal management systems, nor Mr Dean’s subjective understanding of them, can ultimately be determinative of the issue before us. That must turn on the correct interpretation of the law, and an objective reading of the tax return within its statutory framework.”

Whilst not ruling out the possibility that Lady Arden’s provisional conclusions might be correct, he took the view that “on the limited material before us, it is difficult to draw any firm conclusions.” So, whilst acknowledging at [69] that “these are potentially important issues”, Lord Carnwath’s preference was “to leave them open for further consideration in an appropriate case with the benefit of full examination of the relevant law and practice.”

In reaching her conclusion at [73] that an erroneous entry of a loss-relief relief claim in box 15 of the online return does not form part of the return for enquiry purposes, Lady Arden relied specifically on the comments of Lord Hodge in Cotter and on Mr Dean’s evidence. However, the only parts of Mr Dean’s evidence which Lady Arden appears to rely on (at [77]) are that the figures inserted into box 15 of the tax calculation pages do not affect the figure shown for the total tax payable in box 1 and that box 15 is simply permitting a taxpayer to make an early claim for relief and to adjust his tax liability for the following year.

Given the reliance by Lady Arden on Mr Dean’s evidence in reaching her provisional conclusion, Mr Avient criticises HMRC in not putting forward a witness able to provide evidence as to the workings of an online return and the software which lies behind such a return. Indeed, he invites the Tribunal to draw an adverse inference when considering whether the figure included in box 15 in relation to a carry back of losses forms part of the tax return for the year.

It is not at all clear to us that this is a situation where it is appropriate to draw any adverse inference. Mr Carey referred us to the summary of the principles contained in British Airways PLC v Airways Pension Scheme Trustee Ltd. [2017] EWHC 1191 (Ch) at [141]. One of the requirements is that the party inviting the Tribunal to draw an adverse inference must have adduced some evidence (however weak) in relation to the matter in question. As Mr Carey points out, Mr Henley has not adduced any evidence in relation to the workings of the online tax return form.

In any event, it is difficult to see what assistance a witness tendered by HMRC could provide in relation to this. As we have said, it is not disputed that, where a tax return is filed online, the figure entered in box 15 of the tax calculation pages does not affect the figure in box 1. That leaves open the purpose of box 15 but, as Lord Carnwath pointed out in Derry at [59], the subjective understanding of an HMRC witness cannot be determinative of this issue (see paragraph [109] above).

Given the potential conflict between the findings of the Court of Appeal in Derry in relation to ground 2 and the comments made by the Supreme Court but bearing in mind the provisional nature of Lady Arden’s conclusions we consider that, whilst we must bear all of those comments in mind, we must come to our own conclusion as to the effect of the relevant parts of the tax return in these circumstances.

In this regard, we do not consider that the decision of the Upper Tribunal in Murphy provides any binding authority as it is clear from the brief description of the entries on Mr Murphy’s tax return (at [14] of the decision of the Upper Tribunal, quoting in particular [10] of the decision of the First-tier tribunal) that the tax return form was different to those completed by Mr Henley for the tax years ended 5 April 2010 and 5 April 2011.

Turning to the purpose and effect of Box 15 in the tax calculation pages for the relevant tax years, the key question is whether any entry in that box forms part of the return for the relevant tax year.

Given the conclusions of the Supreme Court in Derry, both parties are agreed that any figure inserted into box 15 which relates to a carry back claim in respect of share losses does form part of the return (and therefore can only be challenged by HMRC opening a s 9A enquiry). This is confirmed by Lord Carnwath at [65] (the point being that Mr Derry was “lawfully entitled” to claim relief in respect of the carry back of share losses in year 1) and by Lady Arden at [78].

Mr Avient submits that, this being the case, box 15 of the tax calculation pages cannot have two different purposes depending on the nature or origin of the figure which is entered into that box; either box 15 forms part of the self-assessment (and is therefore part of the return) or it does not form part of the self-assessment (and is not therefore part of the return).

Mr Carey, on the other hand, submits that box 15 can indeed have different functions depending on the nature of the amounts which make up the figure inserted into box 15. Mr Carey’s explanation for this is that a box on the tax return cannot override the effect of the relevant legislation. Therefore, if the carry back claim is within schedule 1B (as is the case in relation to the trade losses), this cannot, as a matter of law, affect a taxpayer’s liability to tax for year 1, and so, even if included on the tax return for year 1, does not form part of the return.

In relation to this, we prefer Mr Carey’s submissions. Unsatisfactory as it may seem, we consider that the purpose and effect of any figure included in box 15 of the tax calculation pages and, in particular, whether the figure comprises part of the return depends on the nature of the claim being made and, in particular, whether it is a claim to carry back losses from a subsequent tax year where the claim falls within schedule 1B TMA.

Our starting point (using the 2009-10 return form by way of example) is that the individual’s self-assessment is the figure contained in box 1 of the tax calculation pages which, as we have said, appears under the heading “Self assessment” and is said to be the “total tax due for 2009-10”. That corresponds with the requirement in s 9 TMA that the tax return includes an assessment of the amount in which the person is chargeable to income tax and capital gains tax for the year of assessment.

It is true that s 9 TMA requires account to be taken of any relief which is claimed in the return but given that the purpose is to determine how much tax the taxpayer has to pay for the relevant tax year, this must refer to reliefs which are legally capable of affecting that tax liability.

Although box 15 appears under the heading “Adjustments to tax due” and refers to “an adjustment to increase or decrease your tax for 2009-10 because you are… carrying back to 2009-10 certain losses from 2010-11”, box 15 itself is headed “Any 2010-11 repayment you are claiming now”.

This carries the clear implication that the figure in box 15 is a repayment of tax due for the following tax year (ended 5 April 2011) rather than being a reduction in the self-assessment for the tax year ended 5 April 2010. This, of course, reflects the way in which schedule 1B TMA works where it is clear from paragraph 2 of schedule 1B that the claim relates to the later year and that effect must be given to the claim in relation to the later year.

We note that, in response to a question from the Tribunal, Mr Avient suggested that, if a taxpayer were filling in their return correctly, they would not put any figure in box 15 where a claim was being made to carry back losses which fell within schedule 1B TMA. However, given that the heading for box 15 is clearly consistent with a carry back claim of this sort, we do not consider this to be correct. There seems little doubt that box 15 is intended to allow a taxpayer to reclaim tax relating to a subsequent year.

In these circumstances, it is difficult to see how box 15 could be interpreted as amending or reducing the self-assessment of the amount of tax due the tax year ended 5 April 2010.

We acknowledge that, if this is right, the wording explaining the group of boxes under the heading “Adjustments to tax due” is, in this respect, misleading as it indicates that those boxes may indeed increase or decrease the tax liability of the taxpayer for 2009-10. No doubt it was partly for this reason that Lord Hodge in Cotter suggested, at [36] that the tax return form might be amended to make it clear which boxes were requesting information which were not strictly part of the return but were instead stand-alone claims relating to another tax year.

In Cotter, Lord Hodge did not consider the tax calculation pages in any detail. He observed, at [27] that, if the taxpayer did complete the tax calculation pages, HMRC would be bound by the taxpayer’s self-assessment of his liability in respect to the relevant tax year and would need to open an enquiry under s 9A TMA in order to amend the self-assessment (or make an amendment under s 9ZB TMA). He did not however address the question as to what would form part of the self-assessment and therefore part of the return.

Where box 15 of the tax calculation pages is completed but there is no explicit assertion that the result of this is to reduce the taxpayer’s tax liability for the relevant tax year, the position is, in our view, analogous to the situation dealt with by Lord Hodge in Cotter where there was no assessment by Mr Cotter of the tax due.

In these circumstances, the effect of the entry on the tax return must follow the way in which such a claim is treated under the relevant legislation. In the case of a carry back of share losses, this affects the tax liability for the earlier tax year and so must be taken as forming part of the self-assessment and as part of the return. On the other hand, in the case of trade losses where schedule 1B applies, the claim to carry back the trade losses does not affect the tax liability for the earlier year and so is not part of the self-assessment or of the tax return.

Although we have, broadly speaking, accepted Mr Carey’s submission that the treatment of any figure contained in box 15 of the tax calculation pages in principle follows the legal treatment of the claim which is being made, we do consider that the position may be different depending on the explanation given by the taxpayer in the additional information box 16.

As we have mentioned, for example, Mr Derry specifically calculated the reduction in his tax liability for the year ended 5 April 2010 in the additional information box. It may well be that this is what Henderson LJ had in mind when referring at [63] to the fact that Mr Derry “calculated the repayment of tax due to him”. We note in this context that, although we have reached a different conclusion to Henderson LJ in Derry, it is clear (see for example paragraphs [54], [55] and [60]) that reliance was placed in that case not just on the figure in box 15 but also on the contents of the additional information box (box 16).

We also derive some support for our conclusion from the tax calculation summary produced by the tax return software used by Mr Henley in this particular case. We infer from Mr Old’s evidence that this summary is produced automatically by the software which is used to file the return online and is based on the figures included in the tax return. As we have said, the summary contains a figure for “Total tax and NIC due or repayable for 2009/10” which is the equivalent of box 1 in the tax calculation pages. The figure corresponding to box 15 is shown as “Amount of 2010/11 tax being reclaimed”.

Again, this suggests that the figure in box 15 does not alter the amount of tax actually due for the tax year ended 5 April 2010 which would support the conclusion that box 15 is not part of the self-assessment and therefore not part of the return. As we have said, in our view this is subject to important qualifications:

We should say that, although we have concluded that the decision of the Upper Tribunal in Murphy is not binding on us, we do not consider that our conclusions are inconsistent with the Upper Tribunal’s decision in Murphy. Derry was distinguished specifically on the basis that Mr Derry had calculated the reduction in his tax liability for the year ended 5 April 2010, the Upper Tribunal referring at [113] to the note included by Mr Derry in box 16 of his tax return for the year ended 5 April 2010.

Although Mr Murphy was completing a different tax return form, the additional information box on that return (which was box 23.9) only referred to a claim for losses of the subsequent year to be set against income of the previous year. There was no attempt to calculate any revised tax liability or reduction in that tax liability (see Murphy at [10]).

Before leaving the legal principles and applying them to the facts of Mr Henley’s appeal, we need to touch briefly on the interpretation of closure notices. We do not understand the principles to be controversial.

As explained by the Supreme Court in Tower MCashback LLP 1 v HMRC [2011] UKSC 19 at [16], the closure notice sets the parameters for any appeal to the First-tier Tribunal, the appeal being confined to the subject matter of the enquiry and of the conclusions in the closure notice. This cannot be altered by the subsequent review process (see Shinelock Limited v HMRC [2023] UKUT 00107 (TCC) at [64]).

In interpreting a closure notice (or an enquiry notice), the question is how it would be read by a reasonable recipient in the position of the taxpayer (see the comments of the Court of Appeal in Raftopoulou v HMRC [2018] EWCA Civ 818 at [36]). This is a question of law and not of the subjective understanding of the actual recipient.

In this context, the Court of Appeal in Fidex Limited v HMRC [2016] EWCA Civ 385 observed at [51] that:

“….it is not appropriate to construe a closure notice as if it is a statute or as though its conclusions, grounds and amendments are necessarily contained in watertight compartments, labelled accordingly.”

It is apparent, therefore, that the precise wording of the closure notice is less important than how it would be understood by a reasonable taxpayer with the knowledge and background of the particular taxpayer in question. That is not to say however that a closure notice can be treated as reaching conclusions or making amendments which are simply not mentioned at all unless those conclusions or amendments would clearly be understood by a reasonable taxpayer with the relevant background.

We should note that Mr Carey suggested that, if the closure notices were defective in some way, it may be possible to cure this either by reference to s 114 TMA (which applies where there is a mistake in an assessment) or by s 50 TMA (which allows the Tribunal to increase an assessment if it concludes that the taxpayer has been undercharged). No detailed submissions were made in relation to these provisions. For the reasons which we set out below, we do not consider them to be relevant.

We turn now to consider the application of these principles to the facts of Mr Henley’s appeal.

In the light of our explanation of the principles to be applied, the issues which need to be determined are as follows:

As we have explained, in his tax return for the year ended 5 April 2010, Mr Henley claimed relief against his income for that year for just over £1m of losses realised in the tax year ended 5 April 2011 on the disposal of unquoted shares in Media Pro Two Limited, Media Pro Three Limited and Media Pro Four Limited. The amount of tax relief claimed was £400,632 and this made up part of the figure entered in box 15 in the tax calculation pages. The claim for relief was also mentioned in box 3 of page Ai3 of the additional information pages.

It is accepted by HMRC that, in the light of the decision of the Supreme Court in Derry, the claim to carry back these share losses and set them against income for the tax year ended 5 April 2010 forms part of the tax return for the year ended 5 April 2010 and must therefore be challenged by an enquiry under s 9A TMA.

Mr Henley’s tax return for the year ended 5 April 2010 also contained details of share losses realised in that tax year on the disposal of unquoted shares in Media Pro Two Limited and Media Pro Three Limited.

The s 9A enquiry letter for the tax year ended 5 April 2010 refers specifically to a claim to loss relief resulting from the loss on the disposal of shares in Media Pro Two Limited and Media Pro Three Limited. There is no mention of Media Pro Four Limited. This suggests that the enquiry related to the losses realised in the tax year ended 5 April 2010 and not to the carry back claim in respect of losses realised in the tax year ended 5 April 2011.

This conclusion is reinforced by the s 28A TMA closure notice for the tax year ended 5 April 2010 which again refers only to share losses incurred on the disposal of shares in Media Pro Two Limited and Media Pro Three Limited.

If further clarity were needed, this is provided by the fact that the only amendment to the tax return for the year ended 5 April 2010 is the removal of losses totalling £8,748 from box 12 in the capital gains summary page. As we have previously mentioned, this figure of £8,748 was part of the losses realised in the tax year ended 5 April 2010 on the disposal of shares in Media Pro Two Limited and Media Pro Three Limited and has nothing to do with the share losses carried back from the year ended 5 April 2011.

The lack of any intention on the part of HMRC in the closure notice for the year ended 5 April 2010 to counteract the relief claimed by Mr  Henley for that tax year in respect of the share losses carried back from the tax year ended 5 April 2011 is evident from the fact that HMRC make no attempt in their closure notice to amend the figure in box 15 in the tax calculation pages or the figure in box 3 of the additional information pages.

The inescapable conclusion is that the closure notice for the tax year ended 5 April 2010 does not disallow the claim for relief made by Mr Henley in his tax return for the year ended 5 April 2010 which relates to the share losses carried back from the tax year ended 5 April 2011.

It seems to be the case that HMRC did not appreciate that the effect of the carry back claim for share loss relief (in accordance with the decision of the Supreme Court in Derry) was to reduce Mr Henley’s income for the tax year ended 5 April 2010 and to correspondingly reduce his tax liability for that year. This is apparent from the fact that the closure notice refers to tax due of £659,720.20 before the amendment made by the closure notice whereas, the result of making the carry back claim in respect of the share losses for the tax year ended 5 April 2011 was that Mr Henley’s tax liability was in fact reduced by just over £400,000.

Mr Carey submits that any reasonable taxpayer with the background and understanding of Mr Henley would have appreciated that HMRC was denying all of the carry back claims and the relief associated with them. Indeed, Mr Henley accepted during cross-examination that he understood that HMRC were denying all of the claims, although he added that he had been advised that HMRC’s attempts to do so were procedurally defective.

However, it is not Mr Henley’s understanding which is relevant. It is how a reasonable taxpayer would understand the closure notice. This is an objective test. In our view, taking into account the points we have made in paragraphs [148-152] above, there is no basis on which a reasonable taxpayer, even with the same knowledge and understanding of the background as Mr Henley could have understood the closure notice for the tax year ended 5 April 2010 as denying relief for the share losses carried back from the year ended 5 April 2011.

It is worth remembering that the closure notice for the tax year ended 5 April 2010 was sent to Mr Henley at the same time as the closure notice for the tax year ended 5 April 2011. That closure notice does conclude that Mr Henley’s tax return for the year ended 5 April 2011 does not correctly reflect the tax consequences of the share losses said to have been realised in respect of Media Pro Two Limited, Media Pro Three Limited and Media Pro Four Limited (i.e. the losses subject to the carry back claim).

However, as Mr Avient submits, the closure notices each relate to separate tax returns for separate tax years. In these circumstances, it is hard to see how a reasonable taxpayer could conclude that the closure notice for the tax year ended 5 April 2011 had any impact on their tax return for the tax year ended 5 April 2010 in circumstances where the closure notice for the tax year ended 5 April 2011 does not purport to make any amendments to the tax return for the tax year ended 5 April 2010 and does not even amend the box on the tax return for the tax year ended 5 April 2011, which claims to carry back the share losses to the tax year ended 5 April 2010 (box 13 on the capital gains summary page).

By the time the closure notices were issued in December 2022, HMRC must have been well aware, as a result of the decision of the Supreme Court in Derry (in respect of which judgment was given in April 2019), that the effect of the share loss carry back claim was to reduce Mr Henley’s income (and his corresponding tax liability) for the tax year ended 5 April 2010 and that, in order to counteract this successfully, this needed to be dealt with in the closure notice for the enquiry into that tax return. Unfortunately, they failed to do so.

Mr Carey suggested that, if the closure notice did not have the desired effect, this could be remedied by reference to s 114 TMA. However, any omission or error was not a want of form but goes to the substance of the closure notice. Although, as we have said, we did not hear any detailed submissions as to the circumstances in which s 114 might be applicable, it is clear to us that it is not available to remedy an error or omission of this nature.

Mr Carey also submitted that the Tribunal could in any event simply increase Mr Henley’s self-assessment by reference to s 50(6) TMA. Again, no detailed submissions were made as to how this might be possible if the closure notice were ineffective to counteract the carry back claim.

In any event, we accept Mr Avient’s submission that s 50(6) TMA cannot be used to extend the scope of an appeal beyond the matters set out in the closure notice which is the subject of the appeal and which, as we have explained, sets the parameters for the appeal. As the closure notice simply does not deal with the reduction in Mr Henley’s tax liability resulting from his claim to carry back the share losses from the tax year 5 April 2011 and set them against his income for the tax year ended 5 April 2010, there is no basis for the Tribunal to increase Mr Henley’s self-assessment as it is not within the scope of the appeal.

As far as the carry back claim in relation to the share losses realised in the tax year ended 5 April 2011 are concerned, our conclusion therefore is that Mr Henley’s self-assessment (which includes the effect of the share losses set against his income for the tax year ended 5 April 2010) must stand.

In accordance with our findings set out above in relation to the legal principles to be applied, we do not consider that the entries on Mr Henley’s tax returns for the years ended 5 April 2010 and 5 April 2011, to the extent that they relate to the carry back claims in respect of the trade losses realised in the tax year ending 5 April 2012, form part of Mr Henley’s self-assessment for those tax years and are not therefore part of his tax returns for those years.

As we have explained, we consider that the general position in relation to box 15 of the tax calculation pages is that the figure contained in that box is not part of the tax return to the extent that it relates to a claim to carry back losses from a future tax year where the claim falls within the scope of schedule 1B TMA as such claims do not affect the taxpayer’s tax liability for the earlier year.

The position is different where, as a matter of law, the effect of the carry back claim is to reduce the income for the earlier tax year and therefore the corresponding tax liability, as is the case in relation to the carry back claim relating to share losses which is not within schedule 1B TMA. That is not however the case in relation to trade loss relief.

The other situation where the entry in box 15 may form part of the tax return is where the taxpayer has specifically indicated in the additional information box that they are seeking to reduce their tax liability for the earlier tax year, as was the case with Mr Derry. However, the entry made by Mr Henley in the additional information box (box 16) has more similarities to the entry made by Mr Murphy.

In box 16 of his tax return for the tax year ended 5 April 2010, Mr Henley stated that he wished to “claim relief of £255,562.21 against income in 2009/10”. Whilst we accept that the figure of £255,562.21 is the amount of tax relief Mr Henley thought he was entitled to, on the face of it he is claiming relief against his 2009/10 income (which is what the relevant legislation relating to the carry back of losses provides for). There is no suggestion of a claim to reduce his actual tax liability for the tax year ended 5 April 2010 (which the relevant legislation does not allow).

We do not therefore consider that these entries can be taken as reducing (or attempting to reduce) Mr Henley’s self-assessment for the tax year ended 5 April 2010 and they do not, as a result, form part of the return. Instead, they represent information contained on the face of the return about the carry back claim in respect of the trade losses.

The wording in the tax return for the year ended 5 April 2011 is slightly different. Mr Henley states that he wishes to “claim relief for trading losses in 2011/12 to be carried back to 2010/11”. Again, there is no suggestion that any claim is being made to reduce the amount of income tax due for the tax year ended 5 April 2011 as opposed to simply claiming relief for the trading losses in an earlier year in accordance with the relevant legislation. Again, we do not therefore consider this to form part of Mr Henley’s self-assessment or tax return for the year ended 5 April 2011.

Based on our conclusion, HMRC’s s 28A TMA closure notices for these tax years are irrelevant as there is no claim made in those tax returns to which the closure notices apply as far as the trade losses are concerned.

Given our conclusion that the entries in the tax returns for the tax years ended 5 April 2010 and 5 April 2011 in respect of the trade loss carry back do not form part of the returns, we accept that those entries do represent a stand-alone claim under schedule 1A TMA. Mr Carey, did not attempt to suggest to the contrary.

Mr Henley also made a stand-alone claim through the letter written by his accountant to HMRC on 30 May 2012 which superseded the claim made on 25 May 2012.

As we have seen, HMRC opened a valid schedule 1A enquiry into the stand-alone claim contained in the letter dated 30 May 2012. No enquiry was opened under schedule 1A in relation to the stand-alone claims contained in the tax returns (or, at least, if they were, HMRC do not rely on any such enquiries).

Mr Avient accepts that the closure notice issued under paragraph 7 of schedule 1A is effective to disallow the stand-alone carry back claims in respect of the trade losses contained in the letter of 30 May 2012. However, he submits that the entries contained in the tax returns are separate stand-alone claims in respect of which HMRC have not opened any enquiries and so the closure notice (which relates only to the claim made in the letter of 30 May 2012) cannot affect those earlier claims which were contained in the tax returns.

Mr Carey’s position on behalf of HMRC is that the entries in the tax returns and the letters of 25 May 2012 and 30 May 2012 must be interpreted as one continuous claim and that the effect of the schedule 1A closure notice was therefore to disallow any carry back of the trade losses realised in the tax year ended 5 April 2012 against income arising in the tax years ended 5 April 2010 or 5 April 2011, irrespective of whether the claim might originally have been made in the tax returns for those years.

In response to this, Mr Avient notes that Mr Carey has not referred to any authority in support of his suggestion that, where a taxpayer makes more than one claim to carry back the same trade losses and set them against income of earlier years, this can be treated as one continuous claim rather than as separate claims.

Mr Avient also observes that paragraph 5 of schedule 1A TMA allows HMRC to enquire into “a claim” and that the enquiry must be started within a specific time period which is, in part, defined by reference to the date on which the claim was made (paragraph 5(2)(a) of schedule 1A to TMA). He submits that all of this suggests that each claim must be considered separately rather than treated as a continuous process.

Although not mentioned by Mr Avient, we note that paragraph 3 of schedule 1A (dealing with amendments to claims) provides a time limit of 12 months from the date of the original claim for the taxpayer to make any amendments to the claim.

In relation to a claim to carry back losses, as far as we can see, there is nothing in schedule 1A which deals specifically with a situation where more than one claim is made to carry back the same losses, either in circumstances where the claims are identical or in a situation where the claims conflict with each other.

On the basis of the relatively limited submissions provided by the parties, our conclusion is that, on the facts of this particular case, HMRC’s enquiry under schedule 1A in relation to the carry back claims set out in Mr Henley’s accountant’s letter of 30 May 2012 was effective to deal with the carry back claims contained in that letter and also in Mr Henley’s tax returns for the years ended 5 April 2010 and 5 April 2011.

In relation to the year ended 5 April 2010, Mr Henley’s amended tax return made a claim to carry back trade losses from the year ended 5 April 2012 (in one place there was a mistaken reference to the year ended 5 April 2011, but we do not think that anything turns on this) of £710,424. This is confirmed in box 3 on page Ai3 of the additional information pages and an attachment to the tax return which breaks down that figure between the share losses and the trade losses. That tax return was filed on 31 January 2012 which is therefore the date the claim was made.

We note that Mr Henley’s original tax return for the tax year ended 5 April 2010 which was filed on 23 February 2011 gives a figure of £175,990 for the trading losses which were carried back and set against income for the year ended 5 April 2010. However, these were said to be losses incurred in the year ended 5 April 2011 not 5 April 2012. Neither party mentioned this original claim. We infer that this is because it is not relevant to the trading losses incurred in the tax year ended 5 April 2012 as the claim related only to losses realised in the tax year ended 5 April 2011.

The letter from Mr Henley’s accountant to HMRC on 25 May 2012 purported to make a stand-alone claim in relation to the trading losses for the tax year ended 5 April 2012 by carrying all of those losses back to set against income arising in the tax year ended 5 April 2009. Clearly this conflicted with the claim made on the tax return for the year ended 5 April 2010 (and indeed the claim on the tax return for the year ended 5 April 2011). Had this been the end of the matter, there would have been an interesting question as to whether the claim in the letter dated 25 May 2012 was valid given that it was inconsistent with the previous claims. It might perhaps be understood as an amendment to those claims.

In any event, the letter of 25 May 2012 was swiftly superseded by the subsequent letter of 30 May 2012. As far as the tax year ended 5 April 2010 is concerned, the claim made was precisely the same as that set out on the tax return for the year ended 5 April 2010, as the claim was for £710,424 of the losses incurred in the year ended 5 April 2012 to be set against income arising in the tax year ended 5 April 2010.

In the light of this, our view is that the letter of 30 May 2012 must be interpreted as simply confirming the claim set out on the face of the tax return for the year ended 5 April 2010. That claim had already been made and no amendment to the claim was made in the letter of 30 May 2012.

In these circumstances, we conclude that HMRC’s enquiry under paragraph 5 of schedule 1A into the claim made in the letter dated 30 May 2012 must, in relation to the losses being carried back to set against income in the tax year ended 5 April 2010, be interpreted as an enquiry into the claim set out on the face of the tax return for the year ended 5 April 2010, as confirmed by the letter of 30 May 2012.

As we have seen (see [140] above), the effect of an enquiry notice must be judged by reference to a reasonable taxpayer in the circumstances of the individual in question. We have no doubt that a reasonable taxpayer in the situation of Mr Henley would have understood the schedule 1A TMA enquiry notice dated 10 July 2013 to relate to the claim to carry back to the tax year ended 5 April 2010 £710,424 of the Sovereign trading losses incurred in the tax year ended 5 April 2012, whether this claim was contained in the letter dated 30 May 2012 or whether the claim appeared on the face of the tax return given that, in effect, it was the same claim.

We note that, in his witness statement, Mr Old describes the letter dated 25 May 2012 as “a supplementary claim to the amended 2009/10 tax return” and describes the letter of 30 May 2012 as “a supplementary claim to that made on 25 May”. In cross-examination, Mr Old accepted that this description of the May 2012 letters was inaccurate given that the claim in the letter dated 25 May 2012 was to set the losses against income arising in the tax year ended 5 April 2009 (and therefore had nothing to do with the tax return for the year ended 5 April 2010). He also accepted Mr Avient’s suggestion that the letter dated 30 May 2012 did not purport to amend any previous claim which had been made and that it did not dislodge any earlier claims.

Whilst it is clearly right that we should take into account Mr Old’s evidence, given his 44 years of experience with HMRC, his subjective views offered under the pressure of cross-examination are not a substitute for an objective consideration of the effect of the 30 May 2012 letter. As we have said, in relation to the losses carried back to the tax year ended 5 April 2010, our view is that it can only sensibly be understood as confirming the claim which had already been made on the face of the tax return for that year.

Turning to the losses carried back to set against income in the tax year ended 5 April 2011, the tax return for that year made a claim to carry back losses of £250,000. We have found as a fact that this must have been an estimated figure given that the precise amount of the losses up to 5 April 2012 were not known at the time the tax return was filed on 31 January 2012.

Although there is no reference in the letters dated 25 May 2012 and 30 May 2012 to the tax return for the year ended 5 April 2011, it is clear that the main purpose of the letters was to provide a final figure for the losses incurred in the period from 25 January 2012 to 5 April 2012 which, as it turned out, amounted to £269,792. This is apparent from the fact that the letter dated 25 May 2012 opens with the words “We are now able to quantify our client’s 2011/12 trading loss”.

In these circumstances, the letter dated 30 May 2012 can, in our view, only sensibly be understood as an amendment to the claim made in the tax return for the year ended 5 April 2011, an amendment which Mr Henley was perfectly entitled to make under paragraph 3 of schedule 1A.

Paragraph 5(1) of schedule 1A allows HMRC to enquire into a claim or any amendment of a claim. A reasonable person in Mr Henley’s position would understand the enquiry letter to be an enquiry into the amended claim to carry back losses totalling £269,792 from the tax year ended 5 April 2012 to set against income arising in the tax year ended 5 April 2011.

Where, as here, the amendment encompasses the whole of the original claim the enquiry into the amended claim must include the original claim itself. It would make no sense, if the result of the enquiry was that the amended claim was rejected, for a taxpayer still to be able to say that the original, unamended claim remained good.

In reaching this conclusion, we have taken account of Mr Old’s evidence but, with all due respect to him, we do not agree with the views which he expressed during cross-examination as to the effect of the 30 May 2012 letter.

Although we have gone into more detail than Mr Carey did in his submissions, it will be apparent that we are, in substance agreeing with him that, on the facts of this case, the claims made in the tax returns and the letters dated 25 May 2012 and 30 May 2012 were, in effect, one continuous process and that there was no requirement for HMRC to open a separate enquiry under paragraph 5 of schedule 1A into the claims made on the face of the tax returns for the years ended 5 April 2010 and 5 April 2011 for the reasons which we have explained.

We accept that there are time limits that run from the date a claim is originally made. However, in this case, any amendment to a claim and any enquiry into a claim, whether this relates to the original claims made on 31 January 2012 or the letter of 30 May 2012, were within the relevant time limits.

Given what we have said above, we also do not accept that, on the facts of this case, the existence of such time limits means that we must treat the claims made in the tax returns and those made in the letter of 30 May 2012 as completely independent and separate claims.

Mr Avient accepted (and we agree) that the closure notice issued under paragraph 7 of schedule 1A in relation to the schedule 1A enquiry was effective to deny the carry back claims made in the letter of 30 May 2012. It must, in our view, follow that the carry back claims originally made in the tax returns for the years ended 5 April 2010 and 5 April 2011 are also disallowed given the relationship which we have found to exist between the letter of 30 May 2012 and those claims.

Paragraph 7 of schedule 1A deals with the contents of a closure notice. The position is different depending on whether or not the claim is for a discharge or repayment of tax. It is common ground that a claim to carry back losses is not a claim for a discharge or repayment of tax. We agree with this.

In these circumstances paragraph 7(3) of schedule 1A provides that the closure notice must either allow the claim or disallow the claim (in whole or in part). There is no other requirement in relation to the contents of the closure notice.

It is apparent therefore that Parliament clearly envisaged that nothing further was needed to give effect to the disallowance of the relevant claim and that, as the parties agreed during submissions, the consequences will flow automatically from the fact that the claim is disallowed. As we see it, in this case the consequence is that the losses cannot be carried back and set against the income of the previous years and so no tax repayment is due.

In fact, as well as disallowing the claims, the closure notice issued by HMRC on 20 September 2018, purports to amend Mr Henley’s tax return for the year ended 5 April 2012. However, the only amendment is to remove the figures from the boxes in the self-employment pages which refer to the carry back of the losses.

Whilst this is not required and there may be no statutory authority for HMRC actually to make an amendment to Mr Henley’s tax return for the year ended 5 April 2012 (in the absence of a s 9A TMA enquiry), it might be said to be helpful in signposting to Mr Henley the decision that has been made by HMRC. As the closure notice confirms, the amendment does not make any change to the amount of tax payable by Mr Henley for the tax year ended 5 April 2012 as set out in his self-assessment for that year. Whether or not there is a valid amendment to Mr Henley’s tax return for the tax year ended 5 April 2012 therefore has no bearing on the issues which we needed to determine.

As we have already mentioned, the closure notice goes on to say that “The claim of £135,000 made on your 2010-11 return in respect of 2011-12 trading losses remains under enquiry until all other matters pertaining to this year are resolved”.

It is hard to know what to make of this statement. Mr Old’s explanation was that the tax return for the year ended 5 April 2011 was still under enquiry (as a result of the s 9A TMA Enquiry), in particular in relation to the share loss scheme and so it was necessary to wait for a closure notice before taking action in relation to £135,000. Mr Old also agreed with Mr Avient’s suggestion that HMRC, in their closure notice, did not intend to disallow the tax reclaim of £135,000 mentioned in the tax return for the year ended 5 April 2011.

Again, whilst we take account of Mr Old’s comments, we cannot agree that the schedule 1A closure notice somehow had the effect of preserving Mr Henley’s claim for a tax repayment of £135,000. This is because, once the carry back claim had been disallowed (which was clearly the effect of the closure notice), there is no legal basis on which any tax repayment was due assuming it is accepted, as we have found, that the carry back/repayment claim did not form part of the return for the tax year ended 5 April 2011.

The statement made in the schedule 1A closure notice relating to the £135,000 repayment claim does not therefore, in our view, affect the closure notice. A reasonable recipient of the closure notice would clearly have understood that the carry back claim had been denied. The legal consequences flow automatically from that denial.

Whilst the statement relating to the £135,000 might have led a reasonable recipient of the closure notice to wonder whether that repayment claim might somehow still succeed, it would not have caused them any doubt as to whether the carry back claims had in fact been denied given the clear statement that this was the case.

Mr Avient also submitted that the reference in the closure notice to the £135,000 claim remaining under enquiry demonstrates that the original enquiry letter cannot have been intended to cover the stand-alone claim made by Mr Henley in his tax return for the year ended 5 April 2011.

However, we think this is placing too much weight on a statement made some five years after that enquiry letter was written, the reasons for which, as we have said, are very difficult to discern. If Mr Avient were right, it would, for example, be difficult to see why there is no reference to the equivalent claim for a repayment of £255,562.21 in respect of carried back trade losses contained in Mr Henley’s tax return for the year ended 5 April 2010. In any event, it cannot affect how the enquiry letter would be understood by a reasonable taxpayer at the time it was received.

Mr Henley’s claim to carry back share losses from the tax year 5 April 2011 to set against his income in the tax year 5 April 2010 is successful. HMRC should have counteracted this as part of their s 9A TMA enquiry and s 28A TMA closure notice but failed to do so. They cannot now deny the resulting tax repayment.

The carry back claims in respect of the trade losses from the year ended 5 April 2012 to the tax years ending 5 April 2010 and 5 April 2011 were not part of the tax returns for those tax years but were stand-alone claims contained on the face of the tax returns. There was therefore no need for the claims to be dealt with by way of an enquiry under s 9A TMA. The enquiry under schedule 1A TMA into the stand-alone claims was effective to deny the carry back claims. No repayment of tax is therefore due in respect of these claims.

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.