There have been instances when the HMRC’s decisions with regard to UK tax have come under judicial review. One was the recent case, Ames v HMRC  UKUT 0190 TCC which was taken up in the Upper Tribunal (UT) about HMRC’s decision not to accept a late claim for Enterprise Investment Scheme (EIS) income tax relief.
EIS provisions required for CGT Relief
The case – In January 2005, the person known as Ames had invested £50,000 in an indoor skydiving company. HMRC had accepted that his subscription for shares was eligible for relief under the EIS provisions. Since his other income was only £42 for 2004/05, and was wholly covered by his personal allowance, he had not claimed income tax relief. These shares were sold by Ames in 2011 for £333,200. Then he claimed exemption from Capital Gains Tax (CGT) on the sale under the EIS CGT relief provisions. The exemption was denied by HMRC as Ames had not claimed EIS income tax relief.
HMRC’s position was upheld by the First Tier Tribunal (FTT) which claimed that exemption from CGT under EIS rules depended on there having been a claim for relief. HMRC also explained to Ames that it had the power to allow late claims where the taxpayer had a “reasonable excuse”, although it did not accept that Ames had such an excuse.
The FTT’s decision suggested to Ames that he could ask the HMRC to reconsider its decision under the UK tax system. However, HMRC again refused to allow a late claim and advised that incorrect information had been given at the FTT hearing.
Appeal to the UT
Then Ames appealed to the UT, that it was not necessary for EIS income tax relief to be given for the CGT exemption to be available: That only the shares should be eligible for relief. It was also not Parliament’s intention to deny CGT relief where income tax relief was available and not claimed. A judicial review of HMRC’s decision not to allow late claims for income tax relief was also sought by Ames, which was dismissed by the UT as he should have made a claim for relief.
The statutory power to extend the normal time limit for some claims (ex, claims to corporation tax group relief) lies with HMRC which can also, at its discretion, admit late claims. In this instance, HMRC hadn’t acted on its discretion as Ames’ situation hadn’t fallen within the “exceptional circumstances” listed in its self-assessment claims manual, SACM10040.
The UT decided that HMRC had not acted on its own guidelines when it refused Ames’ claim. It also decided that claiming income tax relief that year wouldn’t have made any difference to Ames’s income tax position and that the claim was just a formality. The outcome of further deliberations in this regard is not known.