In Hector Lester v HMRC [2026] TC09807, the First Tier Tribunal (FTT) found that the extended loss carry-back time limits applied and that the taxpayer's appeal was valid, despite HMRC not issuing a formal enquiry notice in time.
On 5 June 2008, HMRC opened an enquiry into the 2006-07 tax return of a taxpayer in a partnership.
- On 25 June 2018, HMRC ended their enquiry, following the conclusion of connected litigation. They disallowed purported trading losses of the partnership.
- On 4 October 2019, HMRC amended the taxpayer's 2006-07 personal tax return to reduce the recorded trading losses. This resulted in a tax charge of £606,937.
- On 21 February 2020, the taxpayer sought to offset the charge by claiming to carry-back early-year Trading losses arising in 2009-10 to 2006-07, and losses arising in 2010-11 to 2009-10.
- These losses had originally been included in box 22 of the partnership pages of his tax return, which was for losses being carried forward for use against future profits.
- The deadline for HMRC to enquire into the claims was 30 April 2021.
- On 16 March 2020, HMRC replied, querying the legislative basis for the claim.
- Following an exchange of correspondence with the taxpayer's agent, HMRC rejected the claims on 6 November 2020 on the basis that they were made out of time.
- HMRC advised there was no right of appeal. Their view was that there had only been an informal discussion about the claim, and no formal enquiry notice had been issued under Sch 1A TMA 1970.
- Following an exchange of correspondence with the taxpayer's agent, HMRC rejected the claims on 6 November 2020 on the basis that they were made out of time.
- On 4 December 2020, the taxpayer's agent Appealed the decision.
- They considered the 16 March letter to be the opening of an enquiry and the 6 November letter to be the closing of the enquiry.
- In their reply on 22 January 2021, HMRC rejected the appeal but expressed an intention to issue a formal Sch 1A notice to the taxpayer.
- HMRC intended to open and close an enquiry so that the taxpayer would have an appealable decision to take to the tribunal.
- The taxpayer's agent desisted from their previous efforts to appeal in view of HMRC's expressed intention.
- A formal notice for the enquiry was sent on 24 June 2021, with a closure notice subsequently sent on 6 August 2021.
- It was subsequently realised that, because the formal notice was sent after 30 April 2021, the enquiry deadline had already passed.
- HMRC returned to their previous position that there was no right of appeal.
- On 26 October 2022, the taxpayer appealed to the First Tier Tribunal (FTT).
The FTT found that:
- An enquiry had taken place, and so the appeal was valid.
- The key question was not whether a formal document had been issued, but whether an enquiry or closure notice would be understood by a reasonable recipient as giving notice of HMRC's intention to enquire into a claim or close an enquiry.
- The FTT considered that the notice of intention expressed in HMRC's letter of 22 January 2021 fulfilled that requirement. This meant that the enquiry was in time, and the taxpayer was entitled to appeal.
- The carry-back claims were valid and made within the statutory time limit.
- The FTT considered that the 4 October 2019 amendment by HMRC meant that s.43(2) and s.43C(2) TMA applied, giving the taxpayer until 5 April 2021 to make the carry-back claim.
- Nothing prevents a taxpayer who has claimed to carry-forward losses but not yet used them from making a subsequent claim to use those losses in a different way, subject to legislation and applicable time limits.
- Making the carry-back claim by letter was sufficient for a claim.
- The focus was on whether the taxpayer had brought to HMRC's attention, or had clearly articulated to HMRC, that they wished to obtain the benefit of a specific relief.
- The carry-forward claim did not need to be amended to revoke it. It was plain from the claims letter that the taxpayer wished to revoke their previous carry-forward claim to the extent necessary to make the carry-back claim.
- The focus was on whether the taxpayer had brought to HMRC's attention, or had clearly articulated to HMRC, that they wished to obtain the benefit of a specific relief.
The appeal was allowed.
Useful guides on this topic
How to appeal an HMRC decision
Disagree with an HMRC decision? How do you appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?
Partnerships: Losses
What loss reliefs are available to partners and what restrictions are there? How to calculate a partner's capital contribution? What are the anti-avoidance rules?
Losses, trade losses and sideways relief
How can trade losses be utilised? What are the restrictions?
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