The taxpayer had entered into a ‘repo’ loan to its bank, agreeing to purchase a block of gilt edged securities, and to resell them at a later date at a fixed figure. The profit and figures included an allowance for the interest payments to be made. The company now appealed against being refused permission to set off the interest against trading losses. The 1988 Act deemed that the parties respective profit and loss accounts were to be deemed to include the respective income payments and were taxable accordingly.
Held: The taxpayer’s appeal failed. The purpose of the deemed payment of pounds 2.9m manufactured interest by DCC being to cancel out that receipt and to allow it to be taxed as income in the hands of the Bank, the debit for that payment was equally pounds 2.9m. The 1996 Act had introduced a substantial change. Interest was now to be computed in accordance with some authorised accounting method. The parties here had used the accruals basis. It was proper to expect that, in making this change, Parliament had intended to preserve the essential arrangements of the existing provisions. A deeming provision in a tax statute should be read no more widely than was warranted.
Lord Hope, Deputy President, Lord Walker, Lord Collins, Lord Kerr, Lord Clarke
[2010] UKSC 58, [2010] WLR (D) 333, [2011] 1 WLR 44, [2011] BTC 13, UKSC 2009/0223, [2011] STI 133, [2011] STC 326, [2011] 1 All ER 537
Bailii, WLRD, SC Summ, SC, Bailii Summary
Income and Corporation Taxes Act 1988 730A 737A, Finance Act 1996 84(1)
England and Wales
Citing:
Cited – Wigmore v Thomas Summerson and Sons Ltd 1926
The Revenue was unable to charge to income tax a holder of gilts who, by a well-timed sale just before payment of a half-yearly instalment of interest, in effect turned his accrued income into a capital gain. Rowlatt J said that: ‘The result is that . .
Cited – Leigh v Inland Revenue Commissioners ChD 1928
For income tax purposes, interest is only derived, or arises, when it is actually or constructively received or credited. Rowlatt J said: ‘Before a good debt is paid there is no such thing as income tax upon it. The meaning of the section must be . .
Cited – Dewar v Commissioners for Inland Revenue CA 1935
The executor had been left a legacy of andpound;1,000,000 free of duty. When it came due to be paid, he was entitled to interest at 4%, but did not claim the interest. He was assessed to surtax on the sum he could have received.
Held: Since he . .
Cited – Schaffer v Cattermole 1980
A purchaser of short-dated gilts pregnant with interest would not be to escape liability to tax on the whole of the interest payment, even if he had paid an extra sum expressed to be for the accrued interest. . .
Appeal from – Revenue and Customs v DCC Holdings (UK) Ltd CA 10-Nov-2009
The company had entered into an agreement to purchase gilts, and at the same time to resell them at a future date for a fixed sum. In effect they provided a loan against the gilts. It sought to offset the profit against its trading losses.
Cited – Inland Revenue Commissioners v Metrolands (Property Finance) Ltd 1981
Nourse J said: ‘When considering the extent to which a deeming provision should be applied, the court is entitled and bound to ascertain for what purposes and between what persons the statutory fiction is to be resorted to. It will not always be . .
At Special Commissioners – DCC Holdings (UK) Ltd v Revenue and Customs SCIT 8-May-2007
Gilt repo – purchase and resale of gilts – interest paid to interim holder not required to be paid to original holder but recognised in repurchase price – application of paragraph 15 Schedule 9 FA 96 – related transaction – effect of section 737A to . .
In Chancery – DCC Holdings (UK) Ltd v HM Revenue and Customs ChD 17-Oct-2008
The court considered the taxation of ‘repo’ transactions. The revenue had charged to tax, an element of interest paid on a block og gilts purchased by the taxpayer company under a resale agreement at a price which allowed for the interest payments . .
Cited – Marshall (Inspector of Taxes) v Kerr CA 7-Apr-1993
A variation of trusts in Jersey will be deemed to have been made by the deceased – no Capital Gains Tax arising. Interpretation of deeming Provisions. The taxpayer was not a settlor in an overseas trust. Deeming provisions should not generally be . .
Cited – Marshall (Inspector of Taxes) v Kerr HL 30-Jun-1994
A settlor by will was deemed to have had an interest as funds were passed to a Jersey Trust. The section merely made or allowed that a variation of a will would not be a taxable event in UK law. It had no other effects. A deed of family arrangement . .
Cited – Jenks v Dickinson (Inspector of Taxes) ChD 16-Jun-1997
Legislation which created a clear anomaly can be interpreted so as to avoid the anomaly if the words used are sufficiently ambiguous as to allow an alternative construction.
Neuberger J discussed the case of Marshall v Kerr, saying: ‘It appears . .
Cited by:
Cited – Fowler v Revenue and Customs SC 20-May-2020
The taxpayer, a diver resident in South Africa had undertaken engagements within UK waters and now disputed his liability to Income Tax using a deeming provision in section 5 of the 2005 Act being self employed.
Held: HMRC’s appeal succeeded. . .
Lists of cited by and citing cases may be incomplete.
Corporation Tax
Updated: 31 October 2021; Ref: scu.427166
