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HMRC internal manual

International Manual

Non-residents trading in the UK: domestic law permanent establishment/branch or agency

Branch or agency - Case Law - CIR v Brackett

This case is an example of the circumstances in which a non-resident could trade in the UK through a branch or agency. It also provides judicial support for the view that it is not necessary to attempt to reduce the term ‘branch or agency’ into its component parts. And it illustrates the close relationship between the test under the ICTA88/S18 (now ITTOIA05/S6) (income tax) or the pre FA2003 ICTA88/S11 (corporation tax) charging provisions and the FA95/S126 and Sch23 machinery provisions for assessment of liabilities on the UK representative person that acts as the UK branch or agency.

Mr Brackett, a surveyor by profession, had in rather unusual circumstances contracted himself to a Jersey property development company (incidentally beneficially owned by a Jersey trust that Brackett had settled although this was not a material issue). He became its employee. Clients in the UK who wanted his services contracted with the Jersey company but then Mr Brackett did all the work in the UK using facilities available to him at the offices of the firm in which he was previously a partner. The Jersey company was assessed to corporation tax in the name of Mr Brackett, as the agent of the company. He claimed he was neither agent nor branch.

The Special Commissioners took the view that the Jersey company was `effectively trading only in this country, through Mr Brackett’ and that it would be perverse to hold that the company was not within the charge to tax `because of some semantic difficulty in fitting its arrangements within the wording of the definition of a branch or agency’. They thought he could reasonably be described as a branch or as a manager but that the assessment describing him as agent was good. The High Court upheld their decision. The judge found it difficult to imagine how a non-resident company which trades in the UK could do so other than through a branch or agency. He also upheld the principle that it is not necessary to decide whether the vehicle through which the trade is carried on is specifically a branch or an agency.

The appeals in the Brackett case were against assessments made under the machinery provisions (INTM268010). The underlying charge depended of course on ICTA88/S11 CT charging provisions and neither the Special Commissioners nor the Courts lost sight of that. But the answer to the question of whether Mr Brackett was a branch or agent of the Jersey company determined the validity both of the underlying charge and the form of the assessment. There is guidance on the practical aspects of assessment of non-residents at INTM268040.