CT offset against IT

The First-tier Tribunal has allowed an appeal by a non-UK resident company against HMRC’s rejection of its claim to offset losses arising in its UK permanent establishment against profits from its UK property rental business. Had the PE realised a profit instead of a loss, it would have been liable to corporation tax under section 19 CTA 2009. The appellant’s UK property income was liable to income tax under section 264 ITTOIA 2005) because it was not conducted by the PE.

HMRC argued that section 3 CTA 2009 disapplied the income tax provisions, including the calculation of losses (section 26, ITTOIA 2005), if profits from the trade were chargeable to corporation tax. The tribunal disagreed, finding no references to losses in the legislation and dismissing a call for a purposive interpretation as there was no ambiguity in the drafting. HMRC raised a further argument concerning the claim to offset the trading loss against profits of the same or preceding tax year (section 64, ITA 2007). It contended that there was no basis period for IT purposes and, therefore, no loss capable of offset. The tribunal, however, found that, as the trade had not been started or discontinued in the tax year, the basis period was, by default, the accounting period ending in the tax year (section 198, ITTOIA 2005).

Although the tribunal concurred that there was no legislative provision to prevent a claim for loss relief against CT as well as IT, it did not consider that this defect was relevant to the current appeal. It opined that, in the event of an attempted double claim, a purposive interpretation of section 63 ITA 2007 and section 37 CTA 2009 read together might be permissible.

Copy produced for Monthly Tax Review (MTR) – July 2016

English Holdings Ltd v HMRC [2016] UKFTT 0346, reported on Practical Law Tax and available on GOV.UK at http://tinyurl.com/hrpm8tj