Set-off of corporation tax loss against income tax profit
Our pick of this week's cases
In English Holdings v HMRC [2016] UKFTT 436 (20 June 2016), the FTT found that a corporation tax loss could be set off against an income tax profit.
English Holdings was not resident in the UK but it had a permanent establishment (PE) there, through which it carried out its activity of trading in UK land. Had it made profits on this trade, the company would have been chargeable to corporation tax on those profits (CTA 2009 ss 5 and 19). It had however made a trading loss of over £2m. In addition to this trade, English Holdings owned a number of investment properties in the UK on which it earned rental income. This letting business was not carried out through a PE, so that the company was within the charge to UK income tax on the profits arising from this business. It had made a claim for tax relief, under TMA 1970 Sch 1B, to set off the loss incurred in the trade against the profits of the letting business and this claim had been rejected by HMRC.
The issue was whether a corporation tax loss could be set off against an income tax profit. The FTT found that under ITA 2007 s 64 and the rules on basis periods, and on a literal interpretation of the legislation, English Holdings was entitled to set its ‘corporation tax loss’ against its trading income within the income tax regime; and as the statutory language could only reasonably bear one interpretation, there was no need to resort to a purposive interpretation. Furthermore, there was no requirement in s 64 for the loss to arise in a trade which was charged to income tax. The loss only had to arise in a trade which took place in a year for which income tax was charged.
English Holdings also appealed against the penalty imposed by HMRC for the late filing of its return. The FTT found that English Holdings had failed to file its return on time and that its view of the law on its right to claim income tax relief was irrelevant in this respect. The penalty was therefore due.
Why it matters: The FTT observed: ‘There seems to me to be no obvious reason why Parliament would have intended taxpayers in the appellant’s situation to be unable to set a loss from one trade against a profit from another trade, but every reason to suppose they did not intend any taxpayer to get relief twice for the same loss’.
Set-off of corporation tax loss against income tax profit
Our pick of this week's cases
In English Holdings v HMRC [2016] UKFTT 436 (20 June 2016), the FTT found that a corporation tax loss could be set off against an income tax profit.
English Holdings was not resident in the UK but it had a permanent establishment (PE) there, through which it carried out its activity of trading in UK land. Had it made profits on this trade, the company would have been chargeable to corporation tax on those profits (CTA 2009 ss 5 and 19). It had however made a trading loss of over £2m. In addition to this trade, English Holdings owned a number of investment properties in the UK on which it earned rental income. This letting business was not carried out through a PE, so that the company was within the charge to UK income tax on the profits arising from this business. It had made a claim for tax relief, under TMA 1970 Sch 1B, to set off the loss incurred in the trade against the profits of the letting business and this claim had been rejected by HMRC.
The issue was whether a corporation tax loss could be set off against an income tax profit. The FTT found that under ITA 2007 s 64 and the rules on basis periods, and on a literal interpretation of the legislation, English Holdings was entitled to set its ‘corporation tax loss’ against its trading income within the income tax regime; and as the statutory language could only reasonably bear one interpretation, there was no need to resort to a purposive interpretation. Furthermore, there was no requirement in s 64 for the loss to arise in a trade which was charged to income tax. The loss only had to arise in a trade which took place in a year for which income tax was charged.
English Holdings also appealed against the penalty imposed by HMRC for the late filing of its return. The FTT found that English Holdings had failed to file its return on time and that its view of the law on its right to claim income tax relief was irrelevant in this respect. The penalty was therefore due.
Why it matters: The FTT observed: ‘There seems to me to be no obvious reason why Parliament would have intended taxpayers in the appellant’s situation to be unable to set a loss from one trade against a profit from another trade, but every reason to suppose they did not intend any taxpayer to get relief twice for the same loss’.
