Guidance

Tax tribunal: lead case appeals

Details of appeals which have been chosen by the tax tribunal as lead cases, where there are a number of similar appeals.

The tribunal can specify lead cases if there are a number of appeals which bring up common or related issues of fact or law. It will then stay the other appeals and put them on hold until it has reached a decision on the lead case or cases.

The tribunal can select an appeal to be made into a lead case under Rule 18 of the Tax Chamber procedure rules.

Mr Nicholas Trigg

Date of direction

22 May 2014

Tribunal reference

TC/2014/2575

Under a joint reference under section 28ZA of the Taxes Management Act 1970, in determining whether Bonds are qualifying Bonds, does the inclusion in the Bonds (at the time of their issue) of a clause in the form set out in Schedule A or B to the Joint Reference prevent the Bonds from being qualifying corporate bonds by virtue of section 117(1)(b) of the Taxation of Chargeable Gains Act 1992?

OCCO Ltd

Date of direction

22 May 2014

Tribunal reference

TC/2012/04959

In particular, the appointment of assets to a sub-trust of the Employee Benefit Trust (EBT) does not give rise to PAYE or National Insurance contributions.

Funds contributed to the EBT did not fall within the meaning of ‘employee benefit contribution’ for the purposes of paragraph 1(2) of Schedule 24 to Finance Act 2003 and as a consequence relief for corporation tax purposes is not denied by schedule 24 to Finance Act 2003.

Funds contributed to the EBT, and the legal and professional fees incurred in the ‘arrangement’, were incurred wholly and exclusively for the purposes of the appellant’s trade and were revenue in nature.

Section 43 of Finance Act 1989 does not operate to deny a deduction in respect of the contribution to the EBT.

Shanklin and Unionist Club

Date of direction

29 May 2014

Tribunal reference

TC/2013/7347

(1) Whether a ‘Conservative Club’ provides facilities to enable its members to engage in political activity?

(2) If so, should that be reflected in an apportionment of the membership subscriptions for VAT purposes?

Paul Wilson

Date of direction

28 August 2014

Tribunal reference

TC/2013/02022

(1) In the light of the decision of the Supreme Court in Tower MCashback v Commissioners for HM Revenue & Customs [2011] UKSC 19, were the arrangements in place pursuant to which the Appellants purported to acquire a software licence in the Vismail computer software system in 2006-07 such that the Appellants ‘incurred’ expenditure on the provision of plant and machinery for capital allowances purposes?

(2) Were the said arrangements such that the sole or main benefit that might be expected to accrue to the Appellants was to obtain capital allowances so as to restrict or eliminate the capital allowances claimed by virtue of section 215 Capital Allowances Act 2001?

(3) In the light of those issues, to what extent if at all are the Appellants entitled to capital allowances in 2006-07 and subsequent tax years?

Stagecoach Group plc

Date of direction

8 October 2014

Tribunal reference

TC/2013/07413

(1) Whether the deductability of debits under section 320 Corporation Tax Act 2009 (CTA 2009) is subject to the provisions of section 307(3) CTA 2009 (‘Issue a’);

(2) If so, whether section 307(3) CTA 2009 requires the debits and credits to be tested to establish their nature (‘Issue b’);

(3) If so, the issue of whether the debits claimed by the appellants fairly represent losses arising from their respective loan relationships under section 307 CTA 2009 (‘Issue c’);

(4) Whether there is an amount to be bought into account under the relevant provisions of the Taxation (International and Other Provisions) Act 2010 (TIOPA 2010), and in particular whether the receipt scheme conditions in section 250 TIOPA 2010 were satisfied (‘Issue d’);

(5) Whether, under section 254(1)(b) TIOPA 2010, each of the receipt scheme conditions has to be met in relation to the company at the time the notice is given, so that notices given after the ‘schemes’ have been completed are invalid (‘Issue e’);

(6) Whether there could be a charge to tax under Case VI of Schedule D in the relevant periods, as stated in HMRC’s closure notices (‘Issue f’).

Mrs Louise White

Date of direction

15 January 2015

Tribunal reference

TC/2011/4165

a. Is Drummond v HMRC [2009] EWCA Civ 608 (‘Drummond’) determinative of the whole or part of these appeals?

b. To the extent that Drummond is not determinative of these appeals, following the surrender of the second hand insurance policy (‘SHIP’) what amounts (if any) are to be excluded from the surrender proceeds received by the taxpayer, by virtue of section 37(1) Taxation of Chargeable Gains Act 1992?

c. To the extent that Drummond is not determinative of these appeals, following the surrender of the SHIP what amounts (if any) are to be deducted from the surrender proceeds received by the taxpayer, by virtue of section 38(1) Taxation of Chargeable Gains Act 1992?

d. Whether, absent the amendments to section 210 Taxation of Chargeable Gains Act 1992 made by the Finance Act 2003, the combined effect of sections 210 and 37 Taxation of Chargeable Gains Act 1992 was to permit the generation of allowable losses?

Berkshire Golf Club, Glen Golf Club and Wilmslow Golf Club

Date of direction

16 May 2015

Tribunal references

TC/2009/11716, TC/2012/07487, TC/2009/11023, TC/2012/10291, TC/2009/11597 and TC/2012/09070

(1) Whether the economic evidence contained in the reports prepared by Professor Stefan Szymanski dated 23 December 2014 and 20 March 2015 and relied upon by the respondent demonstrate that on the balance of probabilities the appellants will be unjustly enriched if the whole or part of the sums claimed are repaid.

(2) If the respondents economic evidence does establish that the appellants will be unjustly enriched what percentage restriction should be applied to each of the appellants’ claims.

(3) Whether supplies of Green Fees by the appellants which are on-supplied to individuals by tour operators are exempt or subject to VAT at the standard rate.

(4) Whether, if the customer of the appellant is a body corporate, there is a distinction between a ‘corporate day’ package (which all parties accept is taxable) and the supply of access to play golf.

(5) Which categories of course maintenance costs are properly treated as residual in each of the following circumstances:

a. The club provides advertising services from locations on the golf course but has no corporate day income;
b. The club has neither corporate day income nor course advertising income; and
c. The club has taxable income from the hire of other golfing equipment, including but not limited to golf buggies, trolleys or clubs.

(6) Whether the link between course maintenance costs and taxable tee advertising, corporate day or rental income is sufficiently direct and immediate to give rise to at least partial input tax and whether this depends on the category of cost incurred and is the tribunal able to identify, on the evidence before it, which categories do give rise to a sufficiently direct and immediate link.

Cyclops Electronics Limited, David Mather Supplies Limited, Graceland Fixing Limited and Cabaret of the Angels Ltd

Date of direction

25 August 2015

Tribunal references

TC/2014/01035, TC/2014/01559, TC/2014/01832 and TC/2014/02010

Facts common to each lead case

(1) The facts common to each Lead Case are:

a. An individual (‘the Employee’) was an employee or director of a company (‘the Employer’);
b. The Employee incorporated, or acquired ‘off the shelf’, a company (‘NewCo’);
c. The Employee became the sole shareholder and a director of NewCo;
d. NewCo’s authorised (but not issued) share capital included a class of preference shares (‘the Preference Shares’);
e. NewCo issued, and the Employer subscribed for, loan notes (‘the Loan Notes’) of £X, in denominations of £10;
f. The Employer transferred the Loan Notes to the Employee.

(2) The key common terms of the Loan Notes can be summarised as follows:

a. The redemption price was a sum equal to £10 for each £10 Loan Note (‘the Redemption Price’).
b. There were two redemption periods during which the holder of the Loan Note (‘the Noteholder’) could give notice to redeem some or all of the Loan Notes. The exact periods and notice requirements varied from case to case, but in general:

i. The ‘First Early Redemption Period’ began several weeks after the issue of the Loan Notes and lasted for several weeks. During this period the Noteholder could require redemption upon several days’ notice.

ii. The ‘Second Early Redemption Period’ began immediately upon the issue of the Loan Notes and lasted for several months. If notice was given in the appropriate form during the Second Early Redemption Period then redemption was to take place several days after the expiry of the period.

c. The Loan Notes were immediately repayable at the Redemption Price at the option of the Noteholder, such option only to be exercised by the Noteholder giving notice in writing during the Second Early Redemption Period following the occurrence of certain specified events, including the passing of any resolution for the winding up or dissolution of NewCo.

d. In the event of the death of the Employee within 365 days of the date of the Loan Note instrument, all Loan Notes which had not been redeemed or converted were to be immediately re-registered with the Employer without compensation for the Noteholder at the date of death.

(3) In each of the Lead Cases, if and to the extent that the Loan Notes had not been redeemed during either the First Early Redemption Period or notice given during the Second Early Redemption Period, there followed a ‘Conversion Period’. During this period NewCo had discretion to convert each £10 Loan Note into one 10p Preference Share issued fully paid with a share premium of £9.90.

Facts common to particular categories of lead case

(4) In some cases the Loan Notes had no fixed term and were expressed to be redeemable at any time at the absolute discretion of NewCo by payment of the Redemption Price. The relevant clause was generally numbered 2.7 and so this term of the Loan Notes is referred to as ‘Clause 2.7’.

(5) In other cases the Loan Notes had a fixed redemption date so far as they had not been converted, cancelled or otherwise dealt with by agreement outside the terms of the Loan Notes prior to that date. These Loan Notes did not contain Clause 2.7.

(6) The steps taken after the transfer of the Loan Notes to the Employee varied from case to case.

a. In Cyclops Electronics Limited’s case, NewCo converted all the Loan Notes to Preference Shares.
b. In Cabaret of the Angels Limited’s case, the Employees redeemed a proportion of the Loan Notes, but not all. The steps taken in relation to the unredeemed Loan Notes vary. The Loan Notes did not contain Clause 2.7.
c. In Graceland Fixing Limited’s case, the Employees redeemed a proportion of the Loan Notes, but not all. The steps taken in relation to the unredeemed Loan Notes vary. The Loan Notes did contain Clause 2.7.
d. In David Mather Supplies Limited case, the Employee redeemed all the Loan Notes.

The common issues

(7) The first common issue (‘the First Common Issue’) is:

A. Is the Employer liable to income tax and Class 1 NICs as a result of the subscription for the Loan Notes and/or the transfer of the Loan Notes to the Employee, or do section 425(2), Part 7 of the Income Tax (Earnings and Pensions) Act 2003 (‘ITEPA’) and Schedule 3 of the Social Security (Contributions) Regulations (SI 2001/1004) apply to prevent such a liability arising?

(8) The following common issues arise only to the extent that the Employer is not liable to income tax and Class 1 NICs as a result of the subscription for the Loan Notes and/or the transfer of the Loan Notes to the Employee by reason of the application of legislation specified in the First Common Issue:

B. In cases where there is a disposal of some or all of the Loan Notes on their redemption constituting a chargeable event under section 427(3)(c) ITEPA, how is the taxable amount determined for the purposes of section 426 ITEPA? In particular:

i. If the Loan Notes no longer exist immediately after their redemption how is ‘UMV’ to be determined?

ii. Does the value of the Loan Notes on acquisition constitute earnings from the employee’s employment under Chapter 1 of Part 3 ITEPA for the purposes of section 428(7)(b) ITEPA?

C. In cases where the Employee gave notice to redeem some or all of the Loan Notes and, on a date before the Redemption Price had been paid and the Loan Notes cancelled, pursuant to such notice NewCo resolved to redeem the Loan Notes:

i. At what point did the Loan Notes cease to be restricted securities in a manner which amounts to a chargeable event under section 427(3)(a) ITEPA?

ii. Did that event (the Loan Notes ceasing to be restricted securities) occur at a time before the Loan Notes ceased to exist?

D. In cases where the Employee redeemed some or all of the Loan Notes, does Chapter 3C of Part 7 apply on the redemption?

i. If Chapter 3C of Part 7 does apply, does the value of the Loan Notes on acquisition constitute earnings from the employee’s employment under Chapter 1 of Part 3 ITEPA for the purposes of section 446T(3)(b) ITEPA?

ii. If Chapter 3C of Part 7 does apply, how is the amount which counts as employment income to be determined?

E. In cases where the Employee redeemed some or all of the Loan Notes:

i. Is the receipt of the Redemption Price a benefit received within the definition of section 447 ITEPA?

ii. If yes, is the amount received on redemption the taxable amount under section 448?

F. In cases where the Employee converted some or all of the Loan Notes into preference shares:

i. Is any increase in value of the Employee’s ordinary shares in NewCo as a result of the conversion a benefit received within the definition of section 447 ITEPA?
ii. If yes, is that increase in value the taxable amount under section 448?

Scoto Ltd

Date of direction

15 March 2016

Tribunal reference

TC/2012/09708

(1) Whether a debit that satisfies the requirements of s321 of the Corporation Tax Act 2009 (‘CTA 2009’) is to be brought into account without regard to the requirement in s307(3) of CTA 2009 that ‘the credits and debits to be brought into account in respect of a company’s loan relationships are the amounts that, when taken together, fairly represent for the accounting period in question – (a) all profits and losses of the company that arise to it from its loan relationships and related transactions (excluding interest or expenses), (b) all interest under those relationships, and (c) all expenses incurred by the company under or for the purpose of those relationships and transactions’ or whether the requirement contained in s321(2) of CTA 2009 that it be brought into account ‘in the same way as a … debit which is brought into account in determining the company’s profit or loss for the period in accordance with generally accepted accounting practice’ renders the debit subject to the requirement in s307(3) of CTA 2009.

(2) If s307(3) of CTA 2009 does apply, whether the debit arising to the subsidiary that enters into a Bonus Share Transaction is an amount which when taken together with any other credits and debits to be brought into account in respect of a company’s loan relationships, ‘fairly represents for the accounting period in question … all profits and losses of the company that arise to it from its loan relationships and related transactions’ within the meaning of s307(3) of CTA 2009.

(3) Alternatively, whether the debit arising to the subsidiary that enters into a Bonus Share Transaction is precluded from being brought into account by s465 CTA 2009 on the basis that it relates to an amount falling, when paid, to be treated as a distribution.

(4) Alternatively, whether the issue of bonus shares by the subsidiary to its parent company in a Bonus Share Transaction is a provision that falls within the scope of the transfer pricing rules in section 147 of the Taxation (International and other Provisions) Act 2010 or Schedule 28AA of the Income and Corporation Taxes Act 1988.

(5) If the transfer pricing rules do apply as set out in 3(5) above, whether the effect of those rules applying is that the bonus shares are regarded as issued for consideration equal to the value of the dividend payable in respect of those shares so reducing to nil the amount deductible under s321 of CTA 2009.