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N2-5: Specific words and phrases

"Adjustment required or authorised by law" generally limited to statutory adjustments

 

"[29] 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.

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[33] 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 [2022] UKSC 9)

"Adjustment required or authorised by law" generally limited to statutory adjustments

“Arrangement” - plan of action devised for a purpose

 

"[41] On the other hand, HMRC submitted, a "scheme or arrangements" are, as the Chancellor explained in Snell, respectively "a plan of action devised in order to attain some end" and "a structure or combination of things for a purpose" (see [28] above]). To identify the relevant scheme or arrangements, it is necessary to look at what was intended and why what was done was done in the way it was done. Purposes and motives are integral to the identification of the relevant scheme or arrangements. And crucially, one single exchange may form part of more than one, maybe many, schemes or arrangements. Because the exchange and the scheme are so dramatically different, HMRC submitted that it was not meaningful to suggest, as Euromoney did, that the exchange could not, on the normal use of language, "form part of" a smaller scheme. Size was irrelevant." (Delinian Limited v. HMRC [2023] EWCA Civ 1281 Vos, Snowden, Whipple LJJJ)

"[56] 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 [2022] UKFTT 154 (TC), Judge Staker)

“Arrangement” - plan of action devised for a purpose

- Must have sufficient unity

"[45] In other contexts, the courts have acknowledged that the concept of an "arrangement" must involve some degree of unity or coordination between its component parts.  This concept is described by Donovan LJ in Crossland v Hawkins [1961] Ch 537 at pages 549-550 as the relevant parts of an "arrangement" having "sufficient unity" in the context of the meaning of "arrangements" in the settlement provisions (now in chapter 5 Part 5 Income Tax (Trading and Other Income) Act 2005).  However, the courts have been reluctant to go beyond that point and impose any further restriction or gloss on the definition (see Lord Walker in Jones v Garnett [2007] UKHL 35 at [50]).  We take the same approach.  In our view, questions concerning the scope of the arrangements can only be answered by reference to the context in which the term is used and the facts and circumstances of the particular case." (Coconut Animated Island Limited v. HMRC [2024] UKUT 75 (TCC), Judges Sinfield and Greenbank)

- May require a particular purpose

 

"[46] In the context of section 257CF, the first point that we note is that the arrangements must exist or be in contemplation either at the time at which the relevant shares are issued or at the time at which the proceeds of the share issue are spent (see section 257CF(1)).

[47] As we have described above, the context also requires that the arrangements must have as a main purpose to secure (i) that a qualifying business activity is carried on by the issuer (CAIL) and (ii) that investors may obtain SEIS relief.  The arrangements therefore, in addition to having "sufficient unity", had to have a particular purpose.  For want of a better word, we will describe it as a "plan"." (Coconut Animated Island Limited v. HMRC [2024] UKUT 75 (TCC), Judges Sinfield and Greenbank)

- Entirely separate businesses may form part of same arrangement

"[13] 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.  

[14] 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.

[15] 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 [2022] UKFTT 146 (TC), Judge Malek)

- Entirely separate businesses may form part of same arrangement

- 'party to the arrangement' probably requires knowledge of the arrangement 

 

"[56] In the present case, the facts show that CHFE was heavily involved in the arrangements that we have just described.  CHFE is referred to on numerous occasions in the Information Memorandum.  It was a party to the oral agreement based on the draft PSA and later to the PSA.  The oral agreement was in place at the time the investors subscribed for the relevant shares. It formed part of the arrangements and was the means by which the proceeds of the share issues were spent.  This is not a case where an unwitting third-party becomes involved in arrangements which have a disqualifying purpose and has no knowledge of that purpose.  CHFE's involvement was designed into the arrangements from the outset.  It was a party to a step in the arrangements that was key to achieving that purpose.  There is no clear finding in the FTT Decision as to which person or persons devised the arrangements but, in our view, it was not necessary to make such a finding in this case.  In our view, given the degree of CHFE's involvement, it is appropriate to ascribe to CHFE some participation in the objectives of the arrangements as a whole and to describe it as a "party" to them." (Coconut Animated Island Limited v. HMRC [2024] UKUT 75 (TCC), Judges Sinfield and Greenbank)

- 'party to the arrangement' probably requires knowledge of the arrangement 

- 'party to the arrangement' may or may not require involvement in devising the plan, depending on context

 

"[54] [The taxpayer] submits that in order to be a party to arrangements, a person needs to be more than just involved in them.  The person needs to have had some control over the arrangements or have taken some responsibility for them.  We can understand that, in an appropriate case, a distinction might need to be made between a person who was directly involved in the making of the arrangements - that is, in formulating the plan - and a person who was more peripherally involved - such as a person who becomes involved in a transaction that is contemplated by the arrangements, but played no part in devising them.  For example, if arrangements involved the possibility that, at some stage in the future, an asset might be sold to a third party or an agreement might be reached with a third-party for the provision of services, the third-party purchaser or supplier, who is unaware of the purpose of the arrangements, might not be regarded as a party to arrangements at the time that they are planned and first implemented.  However, that is not the case here.  We do not need to decide whether a person in such circumstances would be a party or not and we do not do so.

[55] We think, however, that Ms Brown's approach is too narrow.  The question as to who should be regarded as a "party" to the arrangements has to be determined by reference to the context.  In the context of section 257CF, as we have described, the relevant arrangements must possess two features: they have to exist or to be in contemplation at the time at which the shares are issued or when the proceeds of the share issue are spent; and they have to have a particular purpose.  In our view, a person can be regarded as a "party" to arrangements that fall within section 257CF if, at the relevant time, they have sufficient involvement in the arrangements that it is appropriate to treat them as participating in that purpose.  The relevant degree of involvement depends on the circumstances, but may be wider than being directly involved in devising the arrangements." (Coconut Animated Island Limited v. HMRC [2024] UKUT 75 (TCC), Judges Sinfield and Greenbank)

- 'party to the arrangement' may or may not require involvement in devising the plan, depending on context

"Avoidance of tax" course of action designed to conflict with or defeat the evident intention of Parliament

 

"[59] 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 [1997] 1 WLR 1071 (“Willoughby”), 1079B-G, 1081B-D).

[60] 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 [2022] UKFTT 154 (TC), Judge Staker)

"Avoidance of tax" course of action designed to conflict with or defeat the evident intention of Parliament

- Using a deferral relief to then claim a full exemption is avoidance of tax

 

"[54] Lord Nolan in Willoughby was contrasting tax avoidance with the acceptance of a deliberate offer made by Parliament of freedom from tax. That was not the situation in this case. Euromoney's scheme or arrangements involved deferring tax in order later to take advantage of the substantial shareholdings exemption. That was to rely on a provision intended to defer tax to secure an outcome where no tax was paid. The meaning of tax avoidance in section 137(1) is clear without the need to refer to Willoughby. If the scheme or arrangements lead to the non-payment of tax that would otherwise have had to be paid, even if deferred, then that is tax avoidance for these purposes." (Delinian Limited v. HMRC [2023] EWCA Civ 1281 Vos, Snowden, Whipple LJJJ)

- Using a deferral relief to then claim a full exemption is avoidance of tax

Connection

Connection

- "On, or in connection with" has a range of meanings and might be construed narrowly

 

"[69] 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.

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"[76] 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 [2023] EWCA Civ 362, Whipple, Falk, Lewison LJJJ)

- "On, or in connection with" has a range of meanings and might be construed narrowly

- Infer from context

"[70]...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.

[71] 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 [2023] EWCA Civ 362, Whipple, Falk, Lewison LJJJ)

- Infer from context

- Infer from purpose

"[73]...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 [2023] EWCA Civ 362, Whipple, Falk, Lewison LJJJ)

- Infer from purpose

- Infer from consequences of alternative meanings

"[75] 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 [2023] EWCA Civ 362, Whipple, Falk, Lewison LJJJ)

- Infer from consequences of alternative meanings

- Broad meaning when used to extend already broad words

 

"[64] The FTT correctly considered that the provision is to be construed broadly and the payment does not require ‘a close and strong nexus’ to the termination.  As the Court of Appeal stated at [48] in Moorthy: The word 'otherwise' before 'in connection with' shows that the kinds of connection envisaged by the section must be wider than the specific examples given of payments and other benefits received directly or indirectly in consideration or in consequence of the termination of a person's employment (or a change in the duties of or earnings from that employment).”  

[65] The final catch-all test within section 401 is provided by “otherwise in connection with”.  The link between the payment and the termination can be broader than a standard causative link – otherwise these additional words would be otiose.  It does not require a sophisticated or legalistic analysis of causation. This is also consistent with the Upper Tribunal’s decision in Colquhoun at [12] where the Upper Tribunal stated:  “The statutory language of section 148(2) [the statutory predecessor to s401] has broadly been drawn. That can be seen from the use of words and phrases such as indirectly and otherwise in connection with. Otherwise may simply mean in any way and is consistent with the Parliamentary intention to catch a wide range of payments”." (Mathur v. HMRC [2024] UKUT 38 (TCC), Miles J and Judge Rupert Jones)

- Broad meaning when used to extend already broad words

'Entitled'

'Entitled'

- Focus is on transaction under which income arose and not connected transactions 

"[52] 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 [52]. 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 [2023] EWCA Civ 114)

- Focus is on transaction under which income arose and not connected transactions 

- Person is entitled to income if they assign the right to it and the assignee must use it for their benefit

"[62] 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 [2023] EWCA Civ 114)

- Person is entitled to income if they assign the right to it and the assignee must use it for their benefit

- "Beneficially entitled"

Back to back contractual arrangements for the receipt and payment of interest meaning that the intermediary is not beneficially entitled to it

 

"[28] 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.

[29] 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.

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[33]...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 [2023] UKUT 120 (TCC), Bacon J and Judge Raghavan)

- "Beneficially entitled"

"Exchange" refers to the whole exchange, not part of it

 

"The exchange was simply the share transactions agreed between the commercial parties. In this case, the exchange was the issue of ordinary and preference shares in Diamond in exchange for Euromoney's shares in Capital Data and Capital Net. It was neither necessary nor appropriate to consider the reasons or motives for the exchange when identifying the transaction itself. That analysis, one might note, works as well for a reconstruction or an amalgamation as it does for an exchange." (Delinian Limited v. HMRC [2023] EWCA Civ 1281 Vos, Snowden, Whipple LJJJ)

"Exchange" refers to the whole exchange, not part of it

"Exclusively" means solely

 

"[96] In our judgment, the wording in paragraph 5(1) is clear and requires that the property is acquired "exclusively" for one of the specified purposes. "Exclusively" is defined in the OED as: "So as to exclude all except some particular object, subject, etc.; solely". We therefore agree with and adopt the statement at [24] in the Tribunal decision in Consultus:

"[24] It is notable that paragraph 5(1) requires that a property is acquired "exclusively" for one of the specified purposes. It is not a main purpose test (which could be satisfied where there was more than one purpose and one of those could be said to be the main purpose). The express language requires that the only purpose of CCN is one of those specified (in this case for exploitation as a source of rents as a qualifying property rental business)."" (Investment And Securities Trust Limited v. HMRC [2024] UKFTT 230 (TC), Judge Williams)

"Exclusively" means solely

Expenditure

Expenditure

- Can include incurring an obligation

 

"Parties were agreed that on the authority of Chaney v Watkis [1986] STC 89, 58 Tax Cas 707 the incurring of an obligation which is capable of being valued in money could constitute expenditure for the purposes of s.32." (Garner v. Pounds Shipowners and Shipbreakers Limited [2003] UKHL 30, Lord Jauncey)

- Can include incurring an obligation

"Held"

"Held"

- Benefit of contractual promise not held under arrangement

 

"[72] Finally, we do not consider that pursuant to the arrangements "property is held, or may be used, under an employee benefit scheme". The only "property" suggested by Ms Murray was the contractual promise made by the Appellants. In our view such a promise is not "held" by a director to whom the promise is made "under" the employee benefit scheme (assuming for this purpose that there is such a scheme) for similar reasons to those of the Supreme Court in relation to the options in NCL SC. Rather, it is simply a term of the contractual arrangements and is not properly described as property "held...under" the arrangements.   This follows from the other reasons, described above, why we consider that section 1290 does not apply on the facts of this case." (A D Bly v. HMRC [2024] UKUT 104 (TCC), Judges Thomas Scott and Greenbank)

- Benefit of contractual promise not held under arrangement

Incidental

Incidental

- Incidental purpose or use must be linked to main purpose/use and be secondary

 

"[41] So what is it for one use of an asset to be incidental to another? Where ordinary words are used in legislation it is well recognised that seeking to provide definitions of them can be a dangerous exercise, as glossing the statutory language by using other words runs the risk of those (non-statutory) words being treated as a substitute for the statutory words when they may not have quite the same meaning. Most English words have nuances of meaning and shades of usage that are not precisely captured by substituting other words. So one should be wary of trying to lay down a definition of ordinary words; the meaning of an ordinary word is to be found not so much in a dictionary but in how it is in fact ordinarily used, and I think it is generally more helpful to tease out the meaning of ordinary words by providing illustrative examples of how they are used in everyday contexts.

[42] The risk of substituting other words is neatly illustrated by the statement of the FTT at [170] that something is incidental to another matter "if it is subordinate, or secondary, to it". It is no doubt generally true that if use A is incidental to use B, then use A will be of lesser or secondary importance to use B. But that does not mean that being subordinate or secondary is what incidental means, and by expressing it in this way there is a danger of substituting a test of whether use A is secondary or subordinate to use B for the test of whether use A is incidental to use B. As Mr Ewart submitted, the FTT seem to have decided the ultimate question by assessing whether use A (the use of the Borgsten to accommodate those working on the Dunbar) was in some way lesser than use B (the other uses of the Borgsten). But as he said that does not accurately capture what it is for use A to be incidental to use B.

[43] His submission was that use A is only incidental to use B if there is some link between them, or if use A is tied in to use B, and that this is not the case if use A is an unconnected and independent purpose in itself. He gave the example of a barrister using a laptop to write a shopping list (use A) when it is primarily used to write opinions (use B). In such a case, he said, the use of it to write a shopping list is not incidental to the use of it to write opinions. Using the laptop to write a shopping list is no doubt of minor or secondary importance compared to using it to write opinions, but there is no connection between the two (other than that they happen to be uses of the same asset).

[44] I think this submission is well-founded. It seems to me to reflect the ordinary use of language. If I can express it in my own words, one would normally say that use A is incidental to use B if it arises out of use B, something that is done because of use B, or in connection with use B, or as a by-product of use B. Using a laptop to write a shopping list does not arise out of using it to write opinions – it is an independent end in itself, unconnected with the writing of opinions, albeit no doubt very much a subordinate or secondary or lesser one." (HMRC v. Dolphin Drilling Ltd [2024] EWCA Civ 1, Nugee, Jackson, Newey LJJJ)

- Incidental purpose or use must be linked to main purpose/use and be secondary/arise out of it

- A use may be incidental even if it does not further the main use

 

"[47] Mr Ewart submitted that Pennycuick V-C's statement that as a matter of ordinary usage an activity is merely incidental if it does not serve any independent purpose but is carried out in order to further some other purpose is equally applicable in the present context: if use A serves no independent purpose of its own but is carried out to further use B, it is incidental to use B. For reasons already given I am reluctant to endorse that as a definition of what it is for use A to be incidental to use B, and indeed I think one could envisage a case where use A might be incidental to use B even though it could not really be said to further use B. Suppose for an example a boat is used to ferry supplies somewhere and some of the crew take the opportunity to fish over the side of the boat. I would accept that the use of the boat for fishing might be said to be incidental to its use to ferry supplies, even though fishing could scarcely be said to further the ferrying of supplies. This would be more a case of what I have referred to as use A being a by-product of use B." (HMRC v. Dolphin Drilling Ltd [2024] EWCA Civ 1, Nugee, Jackson, Newey LJJJ)

- A use may be incidental even if it does not further the main use

- Unlikely to be incidental if it serves an independent purpose of some significance

 

"[48] But on the other hand I agree that it is difficult to regard use A as merely incidental to use B if it serves an independent purpose of its own, unconnected with use B, at any rate if that purpose is of some significance and not trivial or casual. And, contrary to a submission by [the taxpayer], I see no difference between use A being "merely incidental to" use B and use A being "no more than incidental to" use B. These to my mind mean the same thing.

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[50] In my judgement therefore the relevant considerations in deciding whether the use of the Borgsten to accommodate those working on the Dunbar was incidental to its other uses are whether its use as such accommodation was an independent end in itself (of some significance), unconnected with its other uses, or whether it was something that arose out of its other uses.

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[62] To use an example put by Newey LJ in argument, if a car park is provided for an office block and 30 spaces are reserved for the use of the main tenant, and 20 spaces for another tenant, the use of the car park for the latter is not incidental to the use of the car park for the former even though the latter is clearly not the primary use. It is a significant independent use in itself, unconnected with the use of the car park for the main tenant. In the same way the use of the Borgsten to provide accommodation for the Total personnel working on the Dunbar does not seem to me to have been incidental to its use to provide accommodation for the Dolphin personnel working on the Borgsten.(HMRC v. Dolphin Drilling Ltd [2024] EWCA Civ 1, Nugee, Jackson, Newey LJJJ)

- Unlikely to be incidental if it serves an independent purpose of some significance

- Secondary use with independent purpose not incidental

 

"[52] The use of the Borgsten for accommodation of those working on the Dunbar was not simply something that arose out of its use as a TSV supplying TAD services to Total. It was an independent end in itself, of some significance – indeed essential if Total was to be able to have more than 60 personnel working on the Dunbar at any one time as it wished. I agree with Mr Ewart that it could not therefore be said to be no more than incidental to the other uses of the Borgsten. Put simply the Borgsten was not only used to provide TAD services to the Dunbar, it was also used as an accommodation vessel for the Dunbar. This may have been a "secondary" use, but it was a significant and independent use and not incidental to its other uses." (HMRC v. Dolphin Drilling Ltd [2024] EWCA Civ 1, Nugee, Jackson, Newey LJJJ)

- Secondary use with independent purpose not incidental

"Incurred" does not necessarily require the bearing of economic burden

 

"[103] HMRC refers to the decision in Ingenious Games LLP; Inside Track Productions LLP; Ingenious Film Partners 2 LLP [2019] 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.

[104]  Having considered the judgment of the Supreme Court in Revenue and Customs Commissioners v NCL Investments Ltd [2022] 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 [2019] 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)).”

[105] 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 [2023] UKFTT 351 (TC), Judge Sukul)

"Incurred" does not necessarily require the bearing of economic burden

Paid

Paid

- "Contributions paid" means paid in money​

 

"[62] 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." 

...

[75] 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 [2022] UKFTT 179 (TC), Judge Anne Scott)

- "Contributions paid" means paid in money​

- Can include discharge of cash contribution debt in specie

 

"[92] 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 [2023] UKFTT 653 (TC), Judge Anne Scott)

- Can include discharge of cash contribution debt in specie

- "Payment" is amount net of VAT

 

"[51] 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.

[52] 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 [2023] UKFTT 355 (TC), Judge Short)

- "Payment" is amount net of VAT

- Existence of 'payment' depends on practical, business reality, including any composite transaction

 

"I agree with the Court of Appeal that in no real sense did the vendor receive that payment at the date when a receipt for it was given. As Russell L.J. expressed it: "It was part of the scheme and agreement that the draft should be at once used for the benefit of the purchaser in the manner there set out, and that the vendor should not in fact receive payment for the shares save in the deferred manner provided by the devised machinery."

Counsel's reflection that the transaction had the features of a "pantomime" was not uncharitable." (Greenberg v. CIR 47 TC 240 at 278)

"[82]...The question whether a "payment" is made for these purposes should be answered by looking at the practical, business reality of the transaction, including any composite transaction of which the payment forms part. If the intended purpose and effect of the transactions is that money leaves the scheme and is placed at the free disposal of the member, the mere fact that the money may be subject to an equitable obligation to restore it to the scheme will not prevent it from being a "payment" in the ordinary sense of that word. To conclude otherwise would deprive the charge to tax of effect in many of the most egregious cases where it is most needed." (Clark v. HMRC [2020] EWCA Civ 204, Henderson, Bean, Nicola Davies LJJJ)

- Existence of 'payment' depends on practical, business reality, including any composite transaction

Permit

Permit

- Giving permission for something which could not otherwise be done lawfully or not taking steps to prevent

 

"[114] [The taxpayer] contended that had it been intended to subject purchasers to higher-rate SDLT and ATED simply if "a non-qualifying individual will be occupying a dwelling on the land", paragraph 5(2) would have said so. The permission element must indicate that it is being given by a party who is in a position to meaningfully give it through their real control of who may use the property. That contention is supported by established case law. We agree with Mr Sykes' submissions.

[115] In Tophams Ltd v Sefton (Earl) [1967] 1 A.C. 50 at 68, Lord Guest said:

"Apart altogether from authority I would think that outside the sphere of purely polite social language, the word "permit", used even between laymen bent on serious business or other affairs intended to have legal consequences, would be used as a word connoting on the part of the one whose permission is asked the right effectively to refuse and on the part of the applicant the necessity to ask for and obtain permission, so as lawfully to undertake his proposed course of action. This, in my view, is its legal meaning."

[116] The meaning of the "permit" was considered by Atkin LJ in Berton and Others v Alliance Economic Investment Company [1922] 1 K.B. 742.  He said at [755]:  

"Now the words 'permitting and suffering' do not bear the same meaning as 'knowing of and being privy to'; the meaning of them is that the defendant should not concur in any act over which he had a control."

[117] And at [759]:

"To my mind the word 'permit' means one of two things, either to give leave for an act which without that leave could not be legally done, or to abstain from taking reasonable steps to prevent the act where it is within a man's power to prevent it."

[118] We find that the Option did not grant IST any possession over the Property and did not give it the ability to influence or decide whether or not Ms Voice occupied the Property. The evidence on this point was clear and we accept it: it is and has always been IST's position (confirmed in correspondence and witness evidence) that Ms Voice occupied the Property as of right in her capacity as freeholder.

[119] HMRC alternatively contended in their Statement of Case at paragraph 129: "that, by voluntarily entering into an agreement which allowed, or did not prevent, the occupation, [Ms Voice] was permitted to occupy the Property". We can deal with this point in short order. We cannot find any support for such an interpretation of "permitted" in the established case law." (Investment And Securities Trust Limited v. HMRC [2024] UKFTT 230 (TC), Judge Williams)

- Giving permission for something which could not otherwise be done lawfully or not taking steps to prevent

Possession

Possession

- "Person entitled to possession" does not include a company with no real or practical ability to exercise legal right to possession

"[49] 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.

...

[51] 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 [2021] UKSC 16)

- "Person entitled to possession" does not include a company with no real or practical ability to exercise legal right to possession

Primarily

Primarily

- First and foremost rather than marginally more

 

"[62] I agree. It seems to me that it is clear that the use of "primarily" imports something more than a suitability which is marginally greater than another or any number of other suitabilities. In my judgment, therefore, the UT was wrong to conclude at [27] that "if a vehicle is of a construction marginally more suitable for the conveyance of goods than it is for any other use, its "primary suitability" is that of conveying goods". "Primarily" requires more than a percentage point advantage of one suitability over another. To put the matter another way, in my judgment, the natural and ordinary meaning of "primarily" requires the decision-maker to determine what the vehicle in question is first and foremost suitable for. Its suitability must be considered in the round and is not merely the produce of a mechanical or mathematical exercise.
[63] I also agree with Ms McCarthy, therefore, that it is possible, although not inevitable in every case, that a multi-purpose vehicle may not have a primary suitability at all. On the other hand, a vehicle may have numerous purposes, but, nevertheless, be primarily suited to one of them." (Payne v. HMRC [2020] EWCA Civ 889, Asplin, Patten, David Richards LJJJ)

- First and foremost rather than marginally more

Property

Property

- "Property" of trust means net property

 

"[35] 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.

[36] At [12], 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 [2023] UKFTT 316 (TC), Judge Citron)

- "Property" of trust means net property

Purpose

See N2-5a: Purpose tests

Purpose

Reasonable to suppose

Reasonable to suppose

- Time to assess: at the outset

 

"[60] First the statutory question is not of course whether the use of an asset to provide accommodation for offshore workers was in fact incidental to another use of the asset, but whether it is "reasonable to suppose" that its use to provide such accommodation "is unlikely to be more than incidental" to another use or other uses to which the asset "is likely to be put". One of the questions raised in argument was when this statutory question has to be addressed: at what date does it have to be reasonable to suppose that one use is unlikely to be more than incidental to another? Mr Ewart's answer was that this is to be addressed at the outset of the relevant accounting period. In the present case there were two accounting periods, one from 1 April 2014 to 31 December 2014, and the other from 1 January 2015 to 31 December 2015, so on this view the question would be posed as at 1 April 2014 and 1 January 2015. Ms Shaw's preference was for the end of the relevant accounting period(s) and so in the present case 31 December 2014 and 31 December 2015. I do not think anything actually turns on this in the present case, but I prefer Mr Ewart's answer. The wording requires an objective assessment of the likelihood of something being the case, and it seems to me more natural to read this as referring to an assessment at the outset of an accounting period of the likelihood that something would be the case in the future rather than an assessment at the end of an accounting period of the likelihood that something was the case in the past. This might make a difference in some cases, although I do not find it easy to envisage the circumstances in which it would, or to understand why the legislation is drafted that way. But here the contract was up and running, and the Borgsten had been in position alongside the Dunbar and providing services to it for over a year before the legislation applied, and there was no reason to suppose that it would not continue to carry on in accordance with the contract, which is indeed what it did. In those circumstances I do not see that there would have been any material difference between what would objectively have been thought likely to be the case in April 2014 (or January 2015), what would objectively have been thought likely to have been the case in December 2014 (or December 2015), and what actually happened." (HMRC v. Dolphin Drilling Ltd [2024] EWCA Civ 1, Nugee, Jackson, Newey LJJJ)

- Time to assess: at the outset

- T's assessment only displaced if unreasonable (according to HMRC)

 

"The individual will know their purpose and, if fairly described, can be confident that there will be enough supporting evidence (“having regard to all the circumstances”) for an officer to arrive at a sound conclusion when applying the test of whether it is ‘reasonable to assume’ that a main purpose of the winding up or the wider arrangements was the avoidance or reduction of a charge to income tax. The individual should self-assess on that basis. HMRC can only displace this self-assessment where the individual’s decision is not reasonable." (CTM36340)

- T's assessment only displaced if unreasonable (according to HMRC)

- Test of purpose is still subjective (according to HMRC)

 

"The purpose test is subjective but the purpose may be inferred from objective characteristics having regard to all the circumstances surrounding the winding-up to which the test is being applied, much as Lord Brightman was able to draw an inference in a different context. In Mallalieu v Drummond (1983) 57 TC 330 he was able to distinguish between the motive the barrister asserted of maintaining a wardrobe of a certain type and standard, and the object or purpose of the purchase of it." (CTM36340)

- Test of purpose is still subjective (according to HMRC)

"Relating to" may have wider or narrow meaning

 

"[70] The Court of Appeal [in R (Veolia ES Nottinghamshire Ltd) v Nottinghamshire County Council [2010] EWCA Civ 1214(per Rix LJ with whom Etherton and Jackson LJJ agreed) rejected Veolia's grounds for resisting disclosure which had included that the contract was not referred to in the accounts, setting out a number of reasons why the concept of "relating to" was not drawn as narrowly as Veolia suggested ([98]-[101]). Rix LJ's reasoning noted, amongst other matters, the auditing context in which that relation arose, and the way in which "relating to" was used elsewhere in the legislation: the relationship was established by the nature and function of the document rather than whether such document happened to be explicitly referred to in the accounts.

...

[75] Accordingly, in contrast to the way "related to" was used in the relevant legislation in Veolia there is no difficulty with understanding that term as meaning s220 will only apply to the chargeable periods to which the APA says it applies. That way the suspension of the statutory provisions that might otherwise apply will keep in step with what the parties have specified. The wider interpretation of the scope of "related to" that was apposite in the context of inspection rights of interested persons in Veolia does not seem appropriate for the purposes of Part 5; rather than respecting a bright line between what is covered by the agreement under Part 5 and what is not and therefore under Part 4, it would open up more scope for argument as to the reach of the APA. We acknowledge the legislation does not use the term "specified in" or "covered by" but the concept of "relating to" is capable of different degrees of breadth and we consider the context in which the words "..to which an [APA] relates" appears here is consistent with the more constrained interpretation we have suggested." (R (oao Refinitiv Limited) v. HMRC [2023] UKUT 257 (TCC), Green J and Judge Raghavan)

"Relating to" may have wider or narrow meaning

“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 [2015] UKUT 130 (TCC), §70, Warren J).

“So far as not included” does not necessarily imply Parliament had in mind circumstances in which it would be included

"take advantage" has a negative sense and requires awareness of what is being taken advantage of

"[136] 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 [2022] UKFTT 290 (TC), Judge Beare)

"take advantage" has a negative sense and requires awareness of what is being taken advantage of

Tax advantage

Tax advantage

- Every situation in which the position of T is improved vis-a-vis HMRC

"[57] While I understand Ms Wilson's points, for my part I would endorse Jonathan Parker LJ's comments on the meaning of tax advantage and apply them to s.1139 CTA 2010. I do not consider that they should be confined by reference to the facts of Sema.

...

[59] Jonathan Parker LJ responded as follows:
"108. In the first place, I reject Mr Gardiner's submissions based on the conceptual difference between exemption and relief. Such submissions seem to me to involve a degree of sophistication which runs entirely counter to the general approach to be adopted to the construction of the relevant statutory provisions, as finally laid down by the House of Lords in IRC v Joiner [1975] STC 657, [1975] 1 WLR 1701...
109. In my judgment, what the draftsman was manifestly trying to do when defining 'tax advantage' in s 709(1) was to cover every situation in which the position of the taxpayer vis-à-vis the Revenue is improved in consequence of the particular transaction or transactions. As I read s 709(1) the distinction between 'relief' and 'repayment' is not based on any conceptual difference between the two; the true interpretation of s 709(1) is in my judgment much simpler than that. In my judgment, 'relief' in s 709(1) is intended to cover situations where the taxpayer's liability is reduced, leaving a smaller sum to be paid, and 'repayment' is intended to cover situations in which a payment is due from the Revenue. In the same way, the references to 'increased relief' and 'increased repayment' are directed at situations in which the taxpayer is otherwise entitled to a relief or repayment, with which the 'relief' or 'repayment' referred to in s 709(1) must be aggregated.
110. It follows that I respectfully agree with the observation of Aldous J in Sheppard and anor (Trustees of the Woodland Trust) v IRC (No 2) [1993] STC 240 that the words 'tax advantage' in the relevant statutory provision (Aldous J was concerned with s 466(1) of the 1970 Act: the forerunner of s 709(1)) presuppose that a better position has been achieved. However, I respectfully differ from him when he goes on to answer the question 'An advantage over whom or what?' by saying: 'Advantage over persons of a similar class' (see [1993] STC 240 at 253). In my judgment, the simple answer to that question is that a better position has been achieved vis-à-vis the Revenue.
111. On this issue, therefore, I would uphold the conclusions of the Special Commissioners and of the judge, holding that in consequence of the buy-backs the trustees obtained a 'tax advantage' within the meaning of the definition of that expression in s 709(1)." (Kwik-Fit Group Limited v. HMRC [2024] EWCA Civ 434, Falk LJ)

- Every situation in which the position of T is improved vis-a-vis HMRC

- Unreal to distinguish between using up losses and obtaining deduction for interest paid to use them up

 

"[76] It is right that much of the evidence, and cross-examination, in the FTT focuses on using Speedy 1's brought forward losses. But as already discussed that was clearly with a view to the savings that would be available from the use of the deductions arising in the Appellants. It follows that, with respect, the distinction drawn by Mr Ghosh between a purpose of using Speedy 1's losses and knowledge that a tax deduction would be available is an unreal one on the facts of this case. In effect, referring to using Speedy 1's losses was a convenient, and understood, shorthand for a description of arrangements which had the effect of creating a real tax saving for the group." (Kwik-Fit Group Limited v. HMRC [2024] EWCA Civ 434, Falk LJ)

- Unreal to distinguish between using up losses and obtaining deduction for interest paid to use them up

- Use of losses in unobjectionable way may not be tax advantage for that company

 

"[73] I see significant force in Mr Ghosh's submission that, on the facts of this case, the reorganisation did not create a tax advantage for Speedy 1. Speedy 1 had existing losses which arose in an unobjectionable way. HMRC say that it is the setting of those losses against income which is the relevant tax advantage, because that avoids or reduces a charge (or possible charge) to tax within s.1139(2)(c) or (d) CTA 2010. But without the reorganisation Speedy 1 would not have a charge to tax that could be reduced, because it would not have the relevant income. In order to identify a tax advantage it is necessary to postulate the existence of income, the tax charge on which is then sought to be sheltered. Echoing Jonathan Parker LJ's comments in Sema it is only in that sense that Speedy 1 is better off as against the Revenue."  (Kwik-Fit Group Limited v. HMRC [2024] EWCA Civ 434, Falk LJ)

- Use of losses in unobjectionable way may not be tax advantage for that company

“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 [2015] UKUT 130 (TCC), §68, Warren J).

“Treated as” implies a result that would not otherwise be the case
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