A4.203 Complications relating to enquiries into claims, including claims involving two or more years of assessment
A number of tax avoidance cases have questioned the basic principles of making claims, the meaning of a claim being included in a return and the operation of HMRC's powers to enquire into claims (whether or not made as part of a return).
Each of these cases is fact specific and apparently conflicting conclusions have been reached, leading to difficulties in clearly defining how the law actually operates. What does seem to be clear is that the courts are taking a purposive approach to the legislation, such that if loss relief is found not to be available in relation to a tax avoidance scheme, a means of denying claims made in relation to those losses has often been found, irrespective of the legislation HMRC has used to open enquiries.
While understandably protecting the Exchequer from significant losses due to tax avoidance, this has unfortunately created uncertainty for all taxpayers making claims as to when they might regard their affairs as settled.
In HMRC v Cotter1 an individual (C) submitted a 2007/08 tax return showing a significant liability. In January 2009 he submitted an amendment to the return, stating that he had made a loss in an employment for 2008/09 and that he should be allowed to set this loss against his income for 2007/08 under ITA 2007, s 128(2).
HMRC began an enquiry into the loss claim, on the basis that it arose from an avoidance