The 'B&K Lavery Property Trading Partnership' purchased properties before the global credit crunch in 2008. The partnership was required to reduce the value of those investments on its books shortly afterwards in 2009 and 2010. The partnership claimed tax losses in the 2009/10 tax year in accordance with their accounting loss for that period.
Property revaluations are generally treated as extraordinary accounting items and therefore aren't included in a taxpayers profit or loss from ordinary trading activities during the year. However, the taxpayer contends in this case that the profit or loss from properties should be included in ordinary trading profits because the properties formed part of trading stock (as is generally the case in a property development business). This conclusion was also readily available in a reading of the taxpayer's name: The B&K Lavery "Property Trading" Partnership.
The HMRC disagreed and issued the taxpayer with an amended assessment by way of a closure notice in May 2013. The closure notice stated that the HMRC was of the view that a "trade" was never carried on by the taxpayer, and therefore the revaluation loss claims were untenable and should be set aside. However, in court the HMRCs position changed, the HMRC now argued that the real issue was whether or not the properties formed part of the partnership's "trading stock" - and in HMRCs view the properties weren't.
The taxpayer did not necessarily disagree with the HMRCs conclusions about what constitutes "trading stock", however they questioned whether or not the HMRC were able to change their argument after a closure notice had been submitted (as an administrative point) - presumably HMRC were out of time to change their closure notice. If the taxpayer was correct, the HMRC should be forced to defend their original view or fold on the case altogether.
The HMRC contended that the context of a closure notice must be taken into account by the First Tier Tribunal ("FTT") and once that is done the window for additional arguments stemming from the original investigation can be raised in the courts once litigation has commenced. HMRC relied on Tower MCashback LLP vs HMRC in the Supreme Court ([2011] UKSC 19). The FTT concluded at p62:
"The Tribunal also notes that in circumstances where a taxpayer must fulfil several requirements in order to be eligible for a relief, the enquiring officer would only need to determine that any one of those requirements is not satisfied in order to conclude that the taxpayer is not eligible for that relief. If it is clear to the enquiring officer that one of the requirements is not satisfied, it would be unnecessary for the enquiring officer to consider whether or not each of the other requirements is satisfied. The enquiring officer could simply conclude that the taxpayer is not entitled to the relief for the reason that one of the requirements has not been satisfied."
The Upper tribunal agreed with the FTT at p41 of their ruling:
"[The FTT] treated the subject-matter as context rather than as something which could broaden the scope of the appeal. The FTT reached the view, and in our view was perfectly entitled and indeed correct to do so, that neither the initial notice of enquiry nor the correspondence during it were confined to the Commencement Issue or indeed to the revaluation adjustment, and that HMRC did not concede the Stock Issue during the enquiry."
Consequently the taxpayer's appeal was dismissed.
The case: http://www.bailii.org/uk/cases/UKUT/TCC/2016/525.pdf
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