Statute Overrides Fairness and Common Sense

A taxpayer who submitted his tax return well before the deadline had cause to regret doing so recently when the Tribunal supported the rejection by HM Revenue and Customs of his right to carry back a charitable contribution of nearly £1 million against a chargeable gain arising in the previous tax year.

Although the circumstances were somewhat complicated, the issue was simple. The taxpayer had submitted his tax return for the 2005/6 year very promptly – in the September following its issue in April. The taxpayer’s return was required to be filed by the end of the following January – four months later than was the case in this instance.

The taxpayer subsequently submitted a revised 2005/6 return incorporating the election that the charitable donation be treated as made in the previous tax year. This was done in January 2007 – still before the date on which the tax return for the previous tax year was due.

The problem arose because the legislation that allows a charitable gift to be ‘set back’ states that ‘Any such election must be made by notice in writing to an officer of the Inland Revenue [sic] –

(a) on or before the date on which the donor delivers his return for the previous year of assessment under section 8 of the Taxes Management Act 1970 (personal return); and

(b) not later than 31 January next following the end of that year.’

The judge hearing the case examined the relevant legislation and concluded that, for this purpose, the delivery of an amended return did not alter the date on which the original return was submitted. Since the taxpayer had already delivered his return for the previous year before the date on which the amended return incorporating the election was submitted, the first condition was not satisfied and the contribution could not be set back.

The unfairness of the decision is clear – indeed, in his opening remarks the judge made his appreciation of this evident when he said, “This is a case where common sense and fairness appear to be on the taxpayer’s side. If I were permitted to use only those concepts as my guides I would find for the taxpayer.” However, the statute was sufficiently clear to make it necessary for him to decide as he did.