No time limit for issuing closure notices

The taxpayer set up a film business using Premiere Picture Sovereign an arrangement promoted by Premiere Picture. The business involved buying film distribution rights and selling them in return for a share of any income generated by the film. As a result of the way film distribution rights are valued for accounting purposes the taxpayer’s business accounts for the first accounting period showed a loss of £583 881. In his 2007-08 tax return the taxpayer claimed to carry back the losses and set them against other income for the previous three years. The business generated further losses in the next two years.

After enquiries into the taxpayer’s returns HMRC issued closure notices disallowing the loss claims on the basis that the film business was not a trade or even if it was it was not commercial. The taxpayer appealed on the grounds that...