Tribunal allows appeal and confirms unused trade losses can be reallocated to alternative reliefs

In Hector Lester v HMRC [2026] UKFTT 00323 (TC), the First-tier Tribunal (FTT) allowed the taxpayer's appeal and confirmed that extended time limits for loss carry-back applied and that the appeal was valid, despite HMRC's failure to issue a formal notice of enquiry.

Background

Hector Lester was a partner in four trading partnerships which made significant trading losses during the 2009/10 and 2010/11 tax years.

In a letter to HMRC, dated 21 February 2020 (the Claim Letter), Mr Lester's agent made claims under section 72, Income Tax Act 2007 (ITA), to carry back losses from 2009/10 to 2006/07 and 2010/11 to 2009/10 (the Carry-back Claims). These losses had previously been included in Mr Lester's tax returns as losses to be carried forward. HMRC rejected the Carry-Back Claims on multiple grounds and Mr Lester appealed.

The issues in the appeal were:

(1) whether the FTT lacked jurisdiction because no valid enquiry or closure notices (under paragraphs 5 and 7, Schedule 1A, Taxes Management Act 1970 (TMA)) had been issued to Mr Lester;

(2)  assuming the FTT had jurisdiction, whether Mr Lester had made a prior claim to utilise the majority of the relevant losses under section 83, ITA 2007 (the Carry-forward Claims) by including them in his tax returns for 2009/10 and 2010/11 in box 22 of the partnership pages;

(3) if he had, whether Mr Lester was entitled to "undo" those prior claims (by amending them to zero or withdrawing them), and whether he in fact had done so; and

(4) whether any such amendment, revocation or withdrawal, and the Carry-back Claims themselves, were made within the applicable statutory time limits.

Appellant's arguments

Mr Lester argued that the inclusion of the figure in box 22 did not constitute a claim for carry-forward relief under section 83, ITA. Accordingly, the losses remained available for other statutory reliefs, including section 72 carry-back.

Alternatively, if it was determined that the Carry-forward Claims had been made, Mr Lester argued that he was entitled to revoke, withdraw or amend them to zero, and that he had implicitly done so through the Claim Letter. 

He also relied on the extended time limit in sections 43(2) and 43C(2), TMA.

HMRC's arguments

HMRC argued that Mr Lester had made claims under section 83, ITA, by including the losses in box 22 of the relevant returns, and he therefore needed to amend those claims to zero before the losses could be carried back.

HMRC also argued that Mr Lester was out of time to do so and denied that sections 43(2) and 43C(2), TMA, extended the statutory time limit. 

FTT decision

The appeal was allowed.

Issue 1

With regard to the jurisdiction issue, the FTT held it had jurisdiction to hear the appeal.

Applying the test in Raftopoulou v HMRC [2019] 1 WLR 1528, the FTT said that a "reasonable recipient" of a letter from HMRC sent to Mr Lester's agent in January 2021, expressing an intention to issue a closure notice although not specifically referring to Schedule 1A, TMA, would regard it as giving notice of HMRC's intention to enquire into the Carry-back Claims. The FTT was also of the view that a reasonable recipient of HMRC's subsequent letter of August 2021, concluding its enquiry, would regard it as giving notice of the closure of its enquiry. 

Issue 2

The FTT found that Mr Lester made the Carry-forward Claims by inserting the relevant losses in box 22 on the partnership pages of his 2009/10 and 2010/11 returns.

Issue 3

In the view of the FTT, there was nothing in principle to prevent a taxpayer who has made a section 83 carry-forward claim, but who has not utilised the losses under those provisions, later claiming relief for those unused losses under different provisions, such as sections 72 and 73, ITA.

The FTT noted that the legislation is silent on how sections 83 and 84, ITA, interact with other reliefs for unused losses. There was no obvious policy reason why a different claim could not be made in respect of unrelieved losses and section 63, ITA, prevents double relief. 

If any amendment/withdrawal was required, the Claim Letter was sufficient in clearly articulating the intended use of the losses. It would be apparent to a reasonable HMRC officer that the losses could not simultaneously remain available for carry-forward.

Issue 4

The FTT concluded that sections 43(2) and 43C(2), TMA, applied, so the Carry-back Claims (and any necessary amendment/withdrawal of the prior Carry-forward Claims) were in time.

The claims could be made up to the end of the 2020/21 tax year. Mr Lester therefore had until 5 April 2021 and the Claim Letter was within the statutory time limits.

Comment

This decision confirms that taxpayers may, in appropriate circumstances, be permitted to reallocate unused trade losses to alternative reliefs.

It also indicates that trade loss claims may be implicitly revoked, amended or withdrawn, including where a taxpayer indicates an intention to apply the unused losses under different statutory relief provisions.

The decision can be viewed here.