N2-5: Specific words and phrases
"Adjustment required or authorised by law" generally limited to statutory adjustments
" Leaving aside the question, discussed further below, of whether it is appropriate to refer to pre-tax rewrite authority, we do not consider that Lowry assists HMRC. There was no finding in that case of what ordinary principles of commercial accounting then required. There was no equivalent to section 46 CTA 2009 giving statutory primacy to generally accepted accounting practice. Tax is the creature of statute and, as the citations above from Odeon and William Grant make clear, adjustments required or authorised to be made to profits calculated in accordance with generally accepted accounting principles are likely to be adjustments specified by statute. While it is possible for a judge-made rule to require or authorise such an adjustment to be made, it would have to be a rule which it is clear applies notwithstanding that the company’s profits have been calculated in accordance with generally accepted accounting principles. Lowry provides no support for there being such a rule. Nor have we been referred to any other authority which shows there to be a relevant such rule. In addition, as Pennycuick VC pointed out in Odeon, there is no general theoretical basis for the courts to calculate profits other than generally accepted accounting principles.
 There is nothing in the cases cited to us, or in the taxing statute or in the accounting standards themselves that make a distinction between those accounting practices which are directed at showing a true and fair picture of profit and those which are directed at showing a true and fair picture of something else. There is no adjustment required or authorised by law to the effect that if profits in the P&L account are depressed because of an entry which is matching an entry in the balance sheet, then that is to be left out of account in calculating profits for corporation tax. Nor do we see any policy justification for drawing that distinction. On the contrary, a company’s balance sheet and P&L account are not separate and severable in the way that Mr Ghosh’s argument suggests because entries on one may affect entries on the other in order that, overall, they give a true and fair view of the financial state of the company. The requirements set out in IFRS2 themselves demonstrate the interrelation between the two documents by specifying that a P&L account item is matched by a balance sheet item. Further, the logic behind identifying a capital contribution from the parent in the grant of share options to the subsidiary’s employees and in treating the consideration for that as the ephemeral additional services provided by the subsidiary’s employees incentivised by the grant of the options is a logic that is based in the real world - that is indeed what is happening in a commercial sense. There is in our judgment no basis for ignoring those aspects of the transaction when applying section 46." (HMRC v. NCL Investments Ltd  UKSC 9)
“Arrangement” includes a single plan of which the parties are aware
" The Tribunal considers that transactions entered into by different parties at different points in time will in practice almost inevitably be part of the same “arrangements” if they are effected pursuant to a single plan formulated before they are effected, and if the parties to each of the transactions are aware of that plan and are acting with the intention of giving effect to it." (The Tower One St George Wharf Limited v. HMRC  UKFTT 154 (TC), Judge Staker)
Entirely separate businesses may form part of same arrangement
" The Respondents take no issue with this description of the arrangements other than to make the following argument. They argue that HMRC have confused two separate sets of arrangements. This is because UKCO is involved in two separate businesses which have nothing to do with each other. The first is an “umbrella company” business which has nothing to do with the arrangements involving the Lender. The second is the business of providing “contract management” services on behalf of IOMCO.
 This is an unattractive argument when one considers the deliberately wide definition given to “arrangements” by section 318 FA 2004 which provides that “arrangements” includes any scheme, transaction or series of transactions. The transactions, as evidenced by the movement of funds, clearly show the involvement of UKCO in the arrangement. It is, of course, entirely possible to have two very separate businesses (even when not carried on by the same legal entity) which form part of a scheme or series of transactions. Just because UKCO carries on two separate businesses does not mean that the two businesses cannot be part of the “arrangements”. Even if I were to exclude from consideration the “umbrella company” part of the business I am still left with the “contract management” part. That involved, even on the Respondents case, UKCO acting, at all times, as an undisclosed agent for IOMCO in order to present, wrongly, to the UK agencies or intermediaries (and perhaps to the individual users) that they were dealing with a UK domiciled and resident company. Even acting as an agent, in these circumstances, is sufficient in my view to bring UKCO within the arrangements.
 What the Respondents seek to do here is to artificially restrict the arrangements in question so that they exclude (or at the very least minimise) the involvement of UKCO. This is clearly misconceived." (HMRC v. Smartpay Limited  UKFTT 146 (TC), Judge Malek)
Focus is on transaction under which income arose and not connected transactions
" In Khan, it was held that on a purposive reading of identical words in a different provision of legislation, focus had to be on the particular transaction under which the distribution arose, and not on the connected transactions considered as a composite whole . The same applies here, and the focus must be on the transaction giving rise to the income in question. I do not understand that approach to be disputed in principle although there is a dispute about the way it is applied and with what result." (Good v. HMRC  EWCA Civ 114)
Person is entitled to income if they assign the right to it and the assignee must use it for their benefit
" In agreement with HMRC's case, I reject the proposition that the taxpayer had completely alienated his rights in the MAPs so as no longer to be entitled to them. That does not reflect the reality of these arrangements. The MAPs were assigned in parallel with the Lender's obligation to use them to discharge the taxpayer's obligations under the Loan. The taxpayer derived a clear benefit from the MAPs, each time they were paid while the Loan remained outstanding, sufficient to mean that the taxpayer remained "entitled to" the MAPs for the purposes of s 611." (Good v. HMRC  EWCA Civ 114)
Back to back contractual arrangements for the receipt and payment of interest meaning that the intermediary is not beneficially entitled to it
" The exception in s. 933 thus looks to the practical reality of whether there are sums that can readily and fairly be collected from a UK resident company. That function suggests that the term “beneficially entitled” in s. 933 does not only exclude situations where the recipient is a fiduciary, but may also (depending on the particular circumstances) exclude situations where the commercial and practical reality of the matter is that the interest, once received by the UK resident company, is then paid on to an entity outside the UK, because in that situation there is the same underlying concern that tax on the income will not in practice be able to be collected.
 We also agree with Mr Vallat that it would be extraordinary if one could avoid the imposition of the s. 874 collection mechanism simply by interposing a company such as Houmet, which has no commercial function other than to sidestep the withholding provisions. Purposively construed, the exception is drawn for the benefit of UK companies who are substantively entitled to receive and enjoy the income, not those who are beneficially entitled only in the narrower technical sense used to distinguish between legal and equitable interests in English common law.
...Section 933 is therefore a provision for which the lack of business purpose for the company’s involvement in receiving the interest is relevant in considering whether the company is beneficially entitled to the sum." (Hargreaves Property Holdings Limited  UKUT 120 (TCC), Bacon J and Judge Raghavan)
“Treated as” implies a result that would not otherwise be the case
“It is to be noted that these profits are not “to be treated” as included but are actually included. This indicates that the word “contribution” in this context subsumes capitalised profits, a meaning which I consider to be a perfectly normal interpretation of the word.” (HMRC v. Hamilton & Kinneil (Archerfield) Limited  UKUT 130 (TCC), §68, Warren J).
“So far as not included” does not necessarily imply Parliament had in mind circumstances in which it would be included
“It is right that the draftsman wished to cover the possibility that an amount falling within amount A might also fall within amount B and thus inserted a provision precluding double-counting. The fact that he wished to do so does not, however, demonstrate that he had in mind actual circumstances in which this might occur. He may well have included the exclusion out of caution.” (HMRC v. Hamilton & Kinneil (Archerfield) Limited  UKUT 130 (TCC), §70, Warren J).
"Person entitled to possession" does not include a company with no real or practical ability to exercise legal right to possession
" In our view, Parliament cannot sensibly be taken to have intended that “the person entitled to possession” of an unoccupied property on whom the liability for rates is imposed should encompass a company which has no real or practical ability to exercise its legal right to possession and on which that legal right has been conferred for no purpose other than the avoidance of liability for rates. Still less can Parliament rationally be taken to have intended that an entitlement created with the aim of acting unlawfully and abusing procedures provided by company and insolvency law should fall within the statutory description.
 We emphasise that this conclusion is not founded on the fact that the defendant’s only motive in granting the lease was to avoid paying business rates, although that was undoubtedly so. If the leases entered into by the defendants had the effect that they were not liable for business rates, their motive for granting the leases is irrelevant. Nor does it illuminate the legal issues to use words such as “artificial” or “contrived” to describe the leases, when it is now accepted that they created genuine legal rights and obligations and were not shams. Our conclusion is based squarely and solely on a purposive interpretation of the relevant statutory provisions and an analysis of the facts in the light of the provisions so construed." (Hurstwood Properties (A) Ltd v. Rossendale BC  UKSC 16)
"Purpose" means the intended effect not the motive for wanting that effect
" “Purpose” means the intended effect of the arrangements, not the motive of the taxpayer for wanting to achieve the intended effects. A determination of “purpose” therefore does not necessarily require a determination of the subjective state of mind of the taxpayer, but may be ascertainable from the terms of the arrangements themselves. Where there is a complicated series of transactions that were the result of a concerted plan, and where a consideration of the whole of the transactions shows that there was concerted action to achieve an end of the avoidance of tax, then one of the ends sought to be achieved was the avoidance of liability to tax (Newton v Commissioner of Taxation  AC 450, 465-467)." (The Tower One St George Wharf Limited v. HMRC  UKFTT 154 (TC), Judge Staker)
The fact that the purpose was not/could not be achieved does not negate the purpose
" There is a distinction between the purpose of arrangements, and the question whether the arrangements are effective in achieving that purpose. The fact that arrangements ultimately fail to achieve their purpose (for instance, because they ultimately fail to satisfy the necessary legal criteria to produce the intended legal effect) will not retrospectively negate the fact that they had that purpose. Purpose does not mean “end result in fact”, as opposed to the end result that the arrangements were designed to achieve. Arrangements may be intended to achieve a purpose, even if they ultimately fail to achieve it due to an inherent flaw in the design of the arrangements themselves. Thus, arrangements can have the purpose of avoidance of liability to tax, even if ultimately no liability to tax is avoided." (The Tower One St George Wharf Limited v. HMRC  UKFTT 154 (TC), Judge Staker)
- "Main purpose" connotes importance, but may be one of several main purposes
"The parties were largely agreed in relation to the “ordinary meaning” of this phrase. They agreed that:
(1) the phrase “main purpose or one of the main purposes” was not defined in the Treaty;
(2) however, it was legitimate to interpret the phrase in accordance with relevant UK case law pursuant to Article 3(2) of the Treaty, which specified that terms which were not defined in the Treaty were to be interpreted in accordance with the provisions of the tax law of the relevant contracting state (in this case, the UK);
(3) determining a person’s main purpose was a question of fact - see Inland Revenue Commissioners v Brebner  2 AC 18 (“Brebner”) at paragraphs 26B-C and 30C-E;
(4) the conclusion of fact was to be made “upon a consideration of all the relevant evidence…and the proper inferences to be drawn from that evidence” - see Brebner at paragraph 30G;
(5) the test required consideration of the subjective intentions of the relevant person - see Brebner at 27D-E and 30B;
(6) the word “main” did not mean “more than trivial”. Instead, it had the connotation of importance - Travel Document Services v The Commissioners for Her Majesty’s Revenue and Customs  STC 723 (“TDS”) at paragraph ; and
(7) in order for this test to be satisfied, it was not necessary for the relevant matter - in this case, taking advantage of Article 12(5) - to be the sole purpose or the only main purpose. It was sufficient for the relevant matter to be one of several main purposes." (Burlington Loan Management DAC v. HMRC  UKFTT 290 (TC), Judge Beare)
- Reason for choosing a particular means of implementing a purpose may also give rise to another purpose (e.g. tax avoidance)
" The Tribunal does not accept the Appellant’s argument that there is necessarily a distinction between the purpose of arrangements, and the reason for choosing particular means for giving effect to that purpose. The Appellant gives the hypothetical example of a businessperson who travels from A to B to attend a business meeting, and who decides to travel by rail by a particular circuitous route in the belief that a discount will be offered on all future rail travel for 12 months if the trip is undertaken by that specific route. The Appellant suggests that in this example, the sole purpose of the journey is to attend the business meeting, and obtaining a discount on future travel is merely the reason for choosing a particular means for achieving this purpose. The Tribunal does not consider this to be a valid analysis for purposes of paragraph 2(4A) Schedule 7 FA 2003.
 In this example, the overall arrangement is not for a trip from A to B, but rather for a trip from A to B via the particular route chosen. The overall arrangement as a whole has two purposes, namely (1) to attend a business meeting in B, and (2) to obtain a discount on future travel. Even if, at the outset, the businessperson is unaware of the possibility of the discount, and is only proposing to travel from A to B by the quickest route, once that person becomes aware of the possibility of the discount and deliberately decides to travel specifically by the more circuitous route in order to obtain this benefit, the specific route becomes part of the overall arrangement, and obtaining the discount becomes one of the purposes of the trip.
 Where there are two ways for a taxpayer to carry out a bona fide commercial transaction, one of which involves tax avoidance and one of which does not, and where the taxpayer chooses the way that involves tax avoidance, then tax avoidance will be at least one of the purposes of adopting that course, whether or not the taxpayer has a subjective motive of avoiding tax (Willoughby at 1079C-D, 1081B-D)." (The Tower One St George Wharf Limited v. HMRC  UKFTT 154 (TC), Judge Staker)
Commercial transaction can be undertaken in a way with a main purpose of tax avoidance
" Finally, I think it follows from the wording of the legislation that even if the overall purpose of any transaction in securities is a non-tax purpose, section 684(1)(c) can still apply, and the transaction be subject to counteraction, if the way in which the transaction is carried out demonstrates that the obtaining of an income tax transaction was also a main purpose. This is, in a sense, merely demonstrating the point that a transaction can have more than one main purpose, as explained above. The transaction can have a non- tax related main purpose but at the same time be carried out in a manner that demonstrates that obtaining an income tax advantage was also a main purpose. Obtaining a tax advantage does not have to be a predominant purpose – it is enough that is simply a main purpose.
 I do not, therefore, accept Mr Timms' evidence that the tax benefit of achieving capital gains tax, rather than income tax, treatment for the extraction of £1.8 million from Jenbest/Proline was merely incidental or, as he put it, “the icing on the cake”. It seems to me that, although there were other commercial and personal (i.e. non tax) purposes involved, one of the main purposes of the reorganisation, and of the way in which it was structured, was to enable the Appellants to achieve an income tax advantage on the subsequent repurchase of the preference shares.
 In any event, as [HMRC] submitted, it is hard to see how the issue and repurchase of the preference shares furthered the objective of facilitating the retirement plans of the Appellants. Even after the repurchase of the preference shares, the three Appellants together still held 75% of the ordinary shares in Jenbest, thus retaining a collective controlling stake, regardless of whether they retired. In fact, they only retired in 2019 after they had sold their ordinary shares to a third party in 2017.
 I therefore accept [HMRC's] submission that in reality the main result of the issue and repurchase of the preference shares was the extraction of £1.8 million from Jenbest/Proline by the Appellants and that, indeed, this was a main purpose of that issue and repurchase." (Wroe v. HMRC  UKFTT 143 (TC) Judge Brannan)
- Can still be a main purpose even if less significant than another main purpose
" A purpose will be a “main” purpose if its achievement is one of the primary aims of the arrangements. A purpose can be a “main” purpose, even if it is not as significant a consideration as another main purpose. Thus, if arrangements are driven by two particularly significant aims, A and B, as well as other subsidiary aims, both A and B may both be “main” purposes even if the taxpayer considers A to be more important than B.
 Indeed, purpose B could be a main purpose of the arrangements, even if the arrangements would not have been entered into at all but for the need to achieve purpose A. Even if purpose A is the sole reason for entering into arrangements in the first place, once the decision to enter into the arrangements has been taken, an additional purpose can become an additional main purpose of the arrangements. Whether this is the case will be a question of fact, depending on the individual case. The question is whether a purpose is one of the main purposes, not whether it is the most important purpose, and not whether the arrangements would be proceeded with in the absence of any of the other purposes." (The Tower One St George Wharf Limited v. HMRC  UKFTT 154 (TC), Judge Staker)
- “Incidental” means subordinate
" Notwithstanding those differences, we agree that the question of whether one thing is incidental to another is a qualitative rather than a quantitative test. However, it is possible to contemplate situations in which the sheer quantity of one thing relative to another might call into question whether the former could be properly described as incidental to the latter.
We consider that the FTT did not make an error of law in stating (at paragraph ) that something is incidental to another matter if it is subordinate, or secondary, to it. The critical element in our opinion is the element of subordination. This is not the same as merely identifying anticipated uses and ranking them in terms of importance, and, as the FTT recognised (again at paragraph ), is not the same as a test of main or primary use." (HMRC v. Dolphin Drilling Limited  UKUT 212 (TCC), Falk J and Judge Thomas Scott)
An incidental purpose may still be of some importance
" It follows from this that we consider that the FTT was right to state (at paragraph ) that their conclusion that “the use of the Borgsten to provide accommodation to offshore workers could reasonably be supposed to be of some importance” did not preclude a finding that such use was nevertheless incidental to Permitted Uses. The fact that a use is desirable, sought-after or important (by whatever measure) may on its face suggest that it is unlikely to be incidental; but whether it is incidental depends on all the facts and whether such use is (or in this case can reasonably be supposed to be) subordinate or secondary to another use." (HMRC v. Dolphin Drilling Limited  UKUT 212 (TCC), Falk J and Judge Thomas Scott)
"Purpose" of contract determined objectively
" The Appellants highlighted London Capital Group, R (On the Application Of) v The Financial Ombudsman Service Ltd  EWHC 2425 in support of the argument that the purpose to which the statute refers is that of the customer entering into the contract. HMRC contended that the reference to the parties’ intention did not support the Appellants’ argument, per Leggatt J at  and :
“In accordance with general principle, the purpose of the contract and the intention of the parties must be ascertained objectively by construing the terms of the contract in its factual setting. It is not relevant to ask what Mr Shrubb or London Capital subjectively intended. The task for the court is to ascertain what purpose and intention reasonable people in the situation of the parties to the contract may fairly be taken to have had. …
…the purpose and intention of the parties to the relevant contract must be determined from what they agreed. If what was done did not accord with what was agreed, that cannot affect the question of whether or not rights under the contract are a regulated investment.”
 In considering whether the contracts fall within the scope of s420(4)(b), namely whether their purpose or pretended purpose is to secure a profit or avoid a loss by reference to fluctuations in the value or price of property or an index or other factor designated in the contract, we interpret the provision in accordance with the general principle that the purpose of the contract must be ascertained objectively by construing its terms in its factual setting (per Leggatt J in London Capital Group v Financial Ombudsman  EWHC 2425).
 In so doing, we reject Mr Prosser’s submission that we should only take account of the employees’ purposes and not those of the Appellants; although the focus in the London Capital case was on customer as the case involved consumer protection, Leggatt J nevertheless expressly referred to ascertaining the purpose and intention of “the parties”..." (Jones Bros Ruthin v. HMRC  UKFTT 26 (TC), Judge Dean)
"Purpose of an arrangement" not necessarily taxpayer's purpose
" The terms of paragraph 2(4A) Schedule 7 FA 2003 refer to the purpose of the arrangements, not the purpose of the taxpayer in entering into the arrangements. Where arrangements are complex and/or have been devised by specialists other than the taxpayer, regard may therefore also be had to wider considerations such as why the arrangements took the form that they did, how those who devised them hoped that they would work, and the way that those who devised them presented them to the taxpayer(s). (Compare Seven Individuals v Revenue and Customs Commissioners  UKUT 132 (TCC) at -)." (The Tower One St George Wharf Limited v. HMRC  UKFTT 154 (TC), Judge Staker)
"Avoidance of tax" course of action designed to conflict with or defeat the evident intention of Parliament
" In general, it may be said that it is not tax avoidance to accept an offer of freedom from tax which Parliament has deliberately made, but that it is tax avoidance to adopt a course of action designed to conflict with or defeat the evident intention of Parliament by taking advantage of a fiscally attractive option afforded by the tax legislation without incurring the 11 economic consequences that Parliament intended to be suffered by any taxpayer qualifying for such reduction in tax liability (Inland Revenue Commissioners v Willoughby  1 WLR 1071 (“Willoughby”), 1079B-G, 1081B-D).
 It may also be said that where there are two ways for a taxpayer to carry out a genuine commercial transaction, it is natural for the taxpayer to choose the way that will involve paying the least amount of tax, and that the taxpayer by making that choice cannot for that reason alone be said to be acting with a main purpose of avoiding tax (Commissioners of Inland Revenue v Brebner (1967) 43 TC 705, 718H-I). However, it follows from the previous paragraph above that a taxpayer in this situation may well be acting with a main purpose of avoiding tax if the chosen way conflicts with or defeats the evident intention of Parliament. The mere fact that the taxpayer is carrying out a genuine commercial transaction does not mean that no means adopted for effecting that transaction can ever be tax avoidance." (The Tower One St George Wharf Limited v. HMRC  UKFTT 154 (TC), Judge Staker)
"take advantage" has a negative sense and requires awareness of what is being taken advantage of
" We agree with both parties that the ordinary meaning of the phrase “take advantage” where it appears in Article 12(5) has a negative sense, as the OED definition acknowledges is frequently (albeit not invariably) the case. In this case, the negative sense which the relevant provision is conveying is that entering into an assignment of a debt claim with a main purpose of benefiting from Article 12(1) by means of that assignment is an abuse of that article.
Thus, we agree with [the taxpayer] that, for this purpose, if a seller can be said to be “taking advantage” of a provision of UK domestic law or a treaty when it sells a debt for a price which reflects its purchaser’s exemption from UK withholding tax pursuant to that provision, and we will address that question in due course, the seller needs to be aware that the relevant provision is Article 12(1) specifically before Article 12(5) can be said to be engaged. Merely knowing that the purchaser is entitled to an exemption from UK withholding tax but without knowing the precise basis for that exemption is insufficient to engage Article 12(5) even if, as it transpires, the purchaser’s exemption stems from Article 12(1)." (Burlington Loan Management DAC v. HMRC  UKFTT 290 (TC), Judge Beare)
"Contributions paid" means paid in money
" At paragraph 42 in Sippchoice the Upper Tribunal found that
“… If, as we have found, ‘contributions paid’ in section 188(1) FA 2004 means paid in money then it cannot encompass settlement by transfer of non-monetary assets even if the transfer is made in satisfaction of an earlier obligation to contribute money. An agreement to accept something other than money as performance of an obligation to pay in money does not convert the transfer of shares (or other assets) into a payment in money. It is difficult to see why legislation relating to pension contributions should distinguish between and provide different tax treatments for transfers of assets in place of payments made under a contractual obligation and transfers of assets in place of payments made freely at the option of the payer.” (emphasis added).
It is clear from paragraph 46 of Sippchoice that the Upper Tribunal found that a transfer of non-cash assets made in satisfaction of pre-existing money debts are not contributions paid. The IOU is a pre-existing money debt. That is why, in order to succeed in these appeals, the appellant needs to establish that the IOU is a contribution paid."
 Whilst I accept that the IOU, once delivered to the Scheme, is an asset of the Scheme, I find that it is the same as any other creditor recorded as an asset. Those creditors have not paid anything until they actually make a payment." (Mattioli Woods Plc v. HMRC  UKFTT 179 (TC), Judge Anne Scott)
- Can include discharge of cash contribution debt in specie
" Therefore the answer to the first question posed in the second Agreed Issue is that if there is a “cash contribution debt” which is discharged by a payment in specie that can be “pension contributions paid” within section 188 FA 2004 ie where the payment is made in order to discharge a monetary obligation." (Killik & Co LLP v. HMRC  UKFTT 653 (TC), Judge Anne Scott)
"Property" of trust means net property
" In St Barbe Green, the deceased’s “personal” estate (as opposed to his interests as life tenant under certain trusts) had more liabilities than assets i.e. it was insolvent. The issue in the case was whether the excess of his liabilities over the assets in his personal estate could be used to reduce the value of the assets in the trusts (that fell to be part of his estate per s49(1)). The trustees argued that the effect of s5(3) was that the free estate was to be aggregated with the settlements, so that the balance of the free estate was available to reduce the assets in the trusts. It was held that the net liabilities were not available to reduce the estate beyond the value of the personal estate’s assets that were liable to meet them.
 At , Mann J stated that “the property” in s49(1) must mean “net property” in the sense of the value of the property net of trust liabilities; as he put it, we have in s49(1) the notion of property from which liabilities have been notionally deducted. The judge said that the same notion can be applied in s5(1) (which refers to the aggregate of all “the property” to which someone is beneficially entitled i.e. like s49(1), it refers to “the property”)." (Pride v. HMRC  UKFTT 316 (TC), Judge Citron)
"Payment" is amount net of VAT
" This suggests that the legislation is directed at payments which result in an actual economic loss to the pension fund. A payment of VAT which can be reclaimed by the pension fund does not result in an economic loss to the pension fund.
 For these reasons, we agree with the Appellants, particularly by reference to the purpose of the legislation that “payment” in this context should not include any recoverable input tax." (Morgan Lloyd Trustees Limited v. HMRC  UKFTT 355 (TC), Judge Short)
"Incurred" does not necessarily require the bearing of economic burden
" HMRC refers to the decision in Ingenious Games LLP; Inside Track Productions LLP; Ingenious Film Partners 2 LLP  STC 1851, where the UT expressed the view (obiter) that an expense will only be “incurred” where the taxpayer bears the “economic burden” of an expense. HMRC invites the Tribunal to apply the same approach in the context of this case.
 Having considered the judgment of the Supreme Court in Revenue and Customs Commissioners v NCL Investments Ltd  UKSC 9, with regard to section 54 of the Corporation Tax Act 2009 (which is analogous to section 34 ITTOIA 2005 and provides, for corporation tax purposes, that no deduction is allowed for expenses not incurred wholly and exclusively for the purposes of the trade), I reject the approach suggested by HMRC. The point is addressed by the Supreme Court, as follows:
“36. As to whether the Debits were expenses “incurred”, Mr Ghosh points out that neither section 48, nor any other provision in CTA 2009, deems the Debits to have been “incurred” by the Companies. He submits that given that the Companies suffered no cost in relation to the Debits, the Debits cannot be said to have been “incurred” by the Companies.
37. In this connection, Mr Ghosh again seeks to rely on Lowry and the majority’s approach in that case to what was required for expenses to be “laid out or expended”, the predecessor wording to “incurred” in section 54(1)(a). Reliance is also placed on an obiter passage in the Upper Tribunal’s decision in in Ingenious Games LLP v Revenue and Customs Comrs  STC 1851, in which it was stated that the term “incurred” in section 54(1)(a) CTA 2009 is “concerned with whether the taxpayer bore the economic burden of an expense” (para 434) and that that approach “makes sense given the context of the statutory test, namely the determination of profit” (para 457).
38. We reject HMRC’s case that section 54 imports a further requirement as to what constitutes an “expense”, namely that it has to be shown to be “incurred”. The requirements for what constitutes an expense are as set out in sections 46 and 48. These are part of Chapter 3 which is headed “Trade Profits: basic rules”. Those basic rules require that it is brought into account as a debit in accordance with generally accepted accounting principles (section 46). If so, it will be an expense for the purpose of the calculation of trading profits, whether or not an amount has actually been paid (section 48(1) and (2)).”
 In Mr Northwood’s case, the basic rules also require profits of the trade to be calculated in accordance with generally accepted accounting practice (under section 25(1) ITTOIA 2005). I do not consider there to be a further requirement for Mr Northwood’s contribution to be shown to be “incurred” and I do not accept, as HMRC suggest, that I should adopt a different approach because the Supreme Court decision was in the context of a case that did not concern tax avoidance." (Northwood v. HMRC  UKFTT 351 (TC), Judge Sukul)
"On, or in connection with" has a range of meanings and might be construed narrowly
" These cases show that the meaning of "on, or in connection with" is heavily dependent both on context and policy. The phrase might require what Robert Walker LJ in Coventry Waste referred to as "a strong and close nexus" or it might require "a weak and loose one". Ben-Odeco v Powlson introduces the concept of remoteness, which is another way of considering the same question.
" It follows that the words "in connection with" in s.360B(1) are to be construed relatively narrowly, as requiring a strong and close nexus with the physical works of conversion, renovation or repair that enable the building to become available and suitable for business use. Whether particular expenditure meets that requirement is to be assessed realistically, applying the principle set out in BMBF." (London Luton Hotel BPRA Property Fund LLP v. HMRC  EWCA Civ 362, Whipple, Falk, Lewison LJJJ)
Infer from context
"...In determining the meaning of the words "in connection with" as they appear in s.360B(1) there are three points which emerge from their context. First, the words "in connection with" are followed by a short list of the types of work with which the connection must exist for the expenditure to qualify. The items on that list are linked by a common thread. They are all types of physical work on the particular building. The list comprises works of conversion (s.360B(1)(a)), renovation (s.360B(1)(b)) and incidental repairs (s.360B(1)(c)). We infer that the focus of the legislation is on the physical works undertaken. The context in which the words appear in this legislation has some similarity with the context identified in Herons Court. Physical works are at the heart of this relief.
 Secondly, s.360B(1) operates when a qualifying building becomes, by a process of conversion or renovation, "qualifying business premises". The latter term is defined in s.360D(1) in terms that extend to premises which are "used, or available and suitable for letting for use", for business purposes (s.360D(1)(b)). The LLP makes much of the reference to "used". But that word is followed by the words "or available and suitable for letting for use", and the lowest common denominator is the availability of suitable converted premises, not the fact of their use. Here too, the focus is on the physical subject matter of the converted premises in a manner consistent with s.360B(1), and not on their use." (London Luton Hotel BPRA Property Fund LLP v. HMRC  EWCA Civ 362, Whipple, Falk, Lewison LJJJ)
Infer from purpose
"...The purpose was therefore to encourage the conversion or renovation of disused properties to make them available for business use. Further, the purpose was not to provide tax efficient investment opportunities for high net worth individuals. That may be the consequence of such individuals investing in works which qualify for BPRA – accepting that BPRA aimed to attract investment and the tax relief it offered would be most attractive to those paying higher rates of tax – but the cart must not be put before the horse, and the legislative aim should not be overstated or mischaracterised.
In our judgment, these contextual features point towards the words "in connection with" being construed relatively narrowly. The connection must, by inference, be with the particular works of conversion (or renovation or repair) which lead to the building being, at least, "available and suitable for letting". It is not necessary that it be used in fact; availability and suitability are sufficient. The scope of expenditure capable of qualifying for allowances cannot differ according to whether it results in premises that are actually in use, as opposed to being available and suitable for use." (London Luton Hotel BPRA Property Fund LLP v. HMRC  EWCA Civ 362, Whipple, Falk, Lewison LJJJ)
Infer from consequences of alternative meanings
" We test that conclusion by asking ourselves what the outcome would be if the opposite view were taken and a broad meaning were adopted. Two problems come into view. First, that would open the door to an obvious risk of abuse and avoidance of tax because BPRA could be claimed on expenditure of all sorts, even where the connection with the conversion (or renovation or repair) works was tenuous. Secondly, that could lead to unfairness between taxpayers, because the position could differ fundamentally between cases where the property comes into use for the purposes of the taxpayer's own trade (or, as in this case, that of a related party) and where it is let or available for letting to a third party tenant; it could also differ between cases where a structured arrangement is put in place as it was in this case and other cases where works are funded more conventionally. The desirability of construing tax legislation in a way that leads to fairness as between taxpayers was emphasised by Lord Wilberforce in Ben-Odeco v Powlson. He referred at p. 1098 B-C to "the principle of the laws of taxation … that, in the absence of clear contrary direction, taxpayers in, objectively, similar situations should receive similar tax treatment". Lord Hailsham made a similar point at p. 1100 G. We do not consider that Parliament can be taken to have intended this legislation to be construed in a way which leads to the sort of perverse outcomes we have identified." (London Luton Hotel BPRA Property Fund LLP v. HMRC  EWCA Civ 362, Whipple, Falk, Lewison LJJJ)