Scott v HMRC

Applying principles of statutory construction, Judge Greenbank, sitting in the First-tier Tribunal (Tax Chamber) (FTT), determined that taxpayer’s income, as reduced by the amount of a deduction that is made for corresponding deficiency relief, cannot be negative for the purposes of calculating capital gains tax. In reaching this conclusion, the Judge considered the relevant statutory context, including the Income Tax (Trading and Other Income) Act 2005 and the Taxation of Chargeable Gains Act 1992 and rejected the argument that it was necessary to have regard to a statement made by the Chancellor of the Exchequer in March 1988. As a result, the taxpayer’s claim to be entitled to pay capital gains tax at a rate of 20% (as opposed to 40%) for tax years 2006/7 and 2007/8 was rejected. 

In addition, the FTT rejected the taxpayer’s argument that HMRC could not enquire into his tax return in circumstances where his accountants had used third party software, based on HMRC specifications, to prepare the return. The software had erroneously calculated Mr Scott’s capital gains tax liability at a rate of 20%. The FTT decided that HMRC was entitled to enquire into ‘anything contained in the return’ and that included the tax calculation. 

Simon Pritchard represented HMRC