Wynchgate Construction Ltd, an associated company of the taxpayer company, (‘WCL’), commenced a trade in 1994 of providing the services of British construction workers to a contractor operating in Germany. The trade only lasted for about 5 months. WCL discontinued it in May 1994 but had not received payment, or ‘full payment’ for its services. In October 1994 WCL received a payment of just over pounds 100,000 and put it on deposit at the bank. It also had a current account which contained a small credit balance of pounds 300 or so. In the relevant period, 1995, WCL: (i) carried on no trade; (ii) closed its current account and transferred the small credit balance to the deposit account; (iii) paid a corporation tax liability; and (iv) earned interest on its deposit account.
Held: An associated company ceasing to trade and whose only activity was in receiving interest on that deposit was not trading for the purposes of calculating lower rates of tax.
CS Park J: ‘ [The Special Commissioner] has taken it for granted, rightly in my judgment, that if WCL was not carrying on an investment business it was not carrying on any other kind of business. The kinds of activities which our tax law recognises as species of business are trades, professions, vocations and investment. I am not aware of any other, and if another exists I am sure that it does not apply to the facts of WCL in 1995.
Mr Furness accepts that WCL was not carrying on an investment business merely by having its money on deposit at the bank. When I asked him what sort of business WCL was carrying on he said: ‘It was in the business of gainfully employing its assets while keeping itself in existence pending any trading opportunity which might arise.’ That is not a kind of business. It is just a description of the company’s profile in the relevant period, stated in the grandest terms that can be managed for facts which amounted to scarcely anything, and then the epithet ‘business’ is attached.
It seems to me that the question which [the Special Commissioner] asked himself, though not couched in the precise words of the statute, was nevertheless the real question to which the statute gave rise on the particular facts of this case. He tacitly assumed that if WCL was not carrying on an investment business, it was not carrying on any business at all. In my judgment he was entirely right, and there is no misstatement of law to be found in his decision.’
Judges:
Park J
Citations:
Times 25-Mar-1998, [1998] STC 482
Statutes:
Income and Corporation Taxes Act 1988 13
Jurisdiction:
England and Wales
Cited by:
Cited – HM Revenue and Customs v Salaried Persons Postal Loans Ltd ChD 7-Apr-2006
The company had ceased trading, but rental income was still generated from its former premises. The Revenue sought to include the receipt in calculations of whether the company was entitled to a small company corporation tax rate. The Revenue . .
Lists of cited by and citing cases may be incomplete.
Corporation Tax
Updated: 05 November 2022; Ref: scu.82632