The Court considered the interpretation of the sections which applied corporation tax to post-cessation receipts. Companies had received from the Inland Revenue substantial repayments of VAT together with interest. There had been reorganisations of the group, the company which had made the overpayment did not exist, and the payee of the repayment had only later come into existent. The parties now disputed liability to income tax on such repayments and the interest. At each earlier stage the group had been found liable to income tax, and they now appealed again, suggesting that the original source of the sums repaid had been trading receipts.
Held: The appeal failed. Section does not contain any implied restriction so limiting the charge to tax on post-cessation receipts falls only on the former trader whose trade was the source of the income. Three reasons supported the conclusion: First, there is nothing in the wording of section 103(1) or (2) which necessitated such implication.
The charge to tax is clear: where a trade has been permanently discontinued, corporation tax shall be charged on ‘sums arising from the carrying on of the trade . . during any period before the discontinuance’. Section 103(1) required only that the sums ‘are received’ after the discontinuance;
it specified the source of the sums falling within the charge but imposed no further restriction
Section 103 was designed to catch the ‘fruit’ of the trade. Its aim was to make sure that sums which a person received, which arose from a discontinued trade and which were not otherwise taxed, were brought into a charge to tax. No sound policy reason had been suggested for confining the charge to the former trader
Thirdly, the neighbouring provisions of section 103 drew a distinction between the person chargeable to tax and the person who had previously carried on the trade. This suggested that the former was not confined to the latter.
Lord Hodge said: ‘In summary, (i) the basic rule in section 103 is that sums arising from the carrying on of the trade before discontinuance are, if received after discontinuance, charged to tax under Case VI of Schedule D; (ii) there is no restriction in section 103 itself on who the recipient of those fruits of the trade may be; (iii) section 106(1) quantifies the section 103 charge at the amount of the consideration or the market value of the rights to such sums when the former trader transfers its rights to those future receipts for value and the subsection imposes the charge on the former trader; and (iv) section 106(2) disapplies section 103 and substitutes Case I of Schedule D only if the transferee company is carrying on the continuing business when it receives the fruits of the trade, which is deemed to have been discontinued.!
Judges:
Lord Neuberger, President, Lord Reed, Lord Carnwath, Lord Hughes, Lord Hodge
Citations:
[2016] UKSC 7, [2016] BTC 8, [2016] 1 WLR 733, [2016] STC 747, [2016] WLR(D) 83, [2016] STI 393, [2016] 2 All ER 725, [2017] AC 387, UKSC 2014/0110
Links:
Bailii, Bailii Summary, SC, SC Summary
Statutes:
Income and Corporation Taxes Act 1988 103 106
Jurisdiction:
England and Wales
Citing:
At FTTTx – Shop Direct Group and Others v Revenue and Customs FTTTx 14-Feb-2012
FTTTx Corporation tax – receipts of payments in respect of overpaid VAT and statutory interest – whether VAT repayments trading receipts – whether payments in respect of supplies made in discontinued trades . .
Cited – Bennett v Ogston (HM Inspector of Taxes) KBD 30-Apr-1930
Income Tax, Schedule D, Case III – Instalments on moneylender’s promissory notes – Whether such part of instalments falling due after the death of the lender as did not represent repayment of capital was assessable as interest under Case III – . .
At UTTC – Shop Direct Group, Littlewoods Retail Ltd and Others v HMRC UTTC 19-Apr-2013
UTTC Corporation Tax: Effect of receipt by trader or successor to trade of sums in respect of VAT repaid under s80 VATA to representative member of VAT group plus interest paid under s78 VATA. Question of . .
Cited – Carson (H M Inspector of Taxes) v Cheyney’s Executor HL 25-Nov-1958
Income Tax, Schedule D – Copyright royalties – Payable to executor of author under agreement made in his lifetime – Income Tax Act, 1952 (15 and 16 Geo. VI and 1 Eliz. II, c. 10), Schedule D, Cases III, V and VI. . .
Cited – Purchase (H M Inspector of Taxes) v Stainer’s Executorsz HL 29-Nov-1951
HL Income Tax, Schedule D – Film actor and producer-Remuneration including right of participation in profits of, or receipts from, particular films-Sums in respect of such participations paid to executors – . .
Cited – The National Provident Institution v Brown (Surveyor of Taxes) HL 3-Jun-1921
The House was asked (inter alia) whether discounts on certain Treasury Bills could be subject to taxation, on a preceding year basis, for a year in which the taxpayer did not hold or have any transactions in the relevant securities.
Held: The . .
Cited – Reynolds and Gibson v Crompton (H M Inspector of Taxes), Reynolds and Gibson v Inland Revenue HL 26-Mar-1952
HL Income Tax, Schedule D, and Profits Tax-Profits of trade-Debt taken over at reduced valuation on change of partnership and subsequently recovered in full-Whether profit assessable.
A partnership of cotton . .
Cited – Hochstrasser (HM Inspector of Taxes) v Mayes ; Jennings v Kinder (HM Inspector of Taxes) HL 20-Nov-1959
A company operated a housing scheme for married employees who made transferred from one part of a country to another. Under the scheme an employee might be offered a loan to assist in the purchase of a house and, provided the house was maintained in . .
Cited – Abbott v Philbin (Inspector of Taxes) HL 21-Jun-1960
A company’s senior employees had been given an option to subscribe for its shares at the then current market price, the option being exercisable at any time within the next ten years. The employees were thus incentivised to increase the company’s . .
Cited – Chinn v Hochstrasser (Inspector of Taxes) HL 11-Dec-1980
The House considered the meaning of the word ‘bounty’ in an income tax context, where it had been used by the courts: ‘My Lords, I would venture to point out that the word ‘bounty’ appears nowhere in the statute. It is a judicial gloss upon the . .
Cited – W T Ramsay Ltd v Inland Revenue Commissioners HL 12-Mar-1981
The taxpayers used schemes to create allowable losses, and now appealed assessment to tax. The schemes involved a series of transactions none of which were a sham, but which had the effect of cancelling each other out.
Held: If the true nature . .
At ChD – Shop Direct Group and Others v HM Revenue and Customs ChD 19-Apr-2013
. .
Appeal from – Shop Direct Group v Revenue and Customs CA 11-Mar-2014
The company sought to challenge the assessment to corporation tax of a very large repayment of VAT, together with an even larger amount of interest.
Held: The appeal failed. . .
Lists of cited by and citing cases may be incomplete.
Corporation Tax
Updated: 25 September 2022; Ref: scu.560127