The recent matter of David Adams, case number TC48 in the First Tier Tax Tribunal, could prove helpful. Mr Adams disposed of some shares that included some deferred consideration. Clearance under the paper for paper provisions under Section 137 TCGA 1992 was granted, and he should have made an election under Section 138A so that the right to the deferred consideration could be treated as a security of the acquiring company. Unfortunately, no such election was made, but Mr Evans submitted his return as if such an election had been made.
HMRC had two claims to make here – the first is that in the absence of an election, the value of the right to defer consideration should have been included in his computation and tax paid accordingly. The second point was that the tax return was incorrect and this represented neglect.
The tribunal was extremely sympathetic. They said that the election under Section 138A did not have to be in any prescribed form and did not have to be in the return. It could be in any form and the guidance given in the CGT Help Sheet was irrelevant. The submission of a capital gains tax computation with the return excluding the deferred consideration could be correct only if Section 138A applied and therefore “any officer with sufficient knowledge of the law who received the return with the computation could not have been under any misapprehension that the appellant wished Section 138A to apply”. Wow. Whilst I would not want to look a gift horse in the mouth, I cannot help feeling this is rather generous. Just think, if for some reason it had been to the taxpayer’s disadvantage for such an election to be made, it would surely have been quite reasonable for him or her to say that he or she did not make an election and none could be implied, so maybe this gives the taxpayer the best of all worlds. I certainly hope so.
Almost as good are the references to negligence. Of course, there could be no negligence having regard to the above decision because the tax return was not incorrect – but what the tribunal said about it is very interesting. Apparently Mr Adams had relied on his professional advisers. He was entitled to do so, and once this had been made clear, any allegation of negligence against him personally should have been withdrawn by HMRC.