Aproline Ltd v Littlejohn
| Jurisdiction | England & Wales |
| Judgment Date | 25 May 1995 |
| Date | 25 May 1995 |
| Court | Special Commissioners (UK) |
special commissioners decision
Mr DA Shirley.
Mr Richard Citron of BDO Stoy Hayward for the company.
The inspector appeared in person.
Corporation tax - Surplus advance corporation tax - Claim to set off surplus against earlier periods - Whether company had an accounting period 31 March 1991 to 31 March 1992 during which dividend paid - Company had ceased trading when its only customer went out of business in March 1991 - Company had no source of income and no accounting period at relevant time - Appeal dismissed - Income and Corporation Taxes Act 1988 section 12 section 239 subsec-or-para (3)Income and Corporation Taxes Act 1988, ss. 12, 239(3).
1. Aproline Ltd (the Appellant) appeals against the rejection of its claim under section 239(3) Income and Corporation Taxes Act 1988 ("the Act") that surplus ACT of £17,166.66 (being the amount of ACT, duly paid by it, in respect of a dividend of £51,500 paid by it to its parent company Freight International Ltd on 30 January 1992) be treated as if it were ACT in respect of distributions made in accounting periods ending on 31 March 1991 (12 months) 31 March 1991 (12 months) 31 March 1990 (1 month) and 28 February 1990 (12 months).
2. The sole issue is whether the Appellant had an accounting period on 30 January 1992 when it paid the dividend. If it had, its appeal succeeds since it is accepted that all the provisions contained in section 239(3) will then be fulfilled.
3. There were put in evidence a statement of agreed facts, the Appellant's accounts for 13 months ending on 31 March 1990, the year ending on 31 March 1991 and the year ending on 31 March 1992, a number of letters from Stoy Hayward to the Inland Revenue, a letter dated 10 April 1991 from Freight International Ltd to the joint administrators of Air Europe Ltd and a letter dated 23 October 1991 from Freight International Ltd to the sales and marketing director of Dan-Air together with a draft agreement expressed to be made between Dan-Air Services Ltd and Dan-Air Cargo Ltd.
No witness was called to give oral testimony.
4. It will be convenient to set out the material provisions of the Act before going to the facts. They are sub-sections (2) and (3) of section 12 which provide as follows:-
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12.-(2) An accounting period of a company shall begin for the purposes of corporation tax whenever-
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(a) the company, not then being within the charge to corporation tax, comes within it, whether by the company becoming resident in the United Kingdom or acquiring a source of income, or otherwise; or
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(b) an accounting period of the company ends without the company then ceasing to be within the charge to corporation tax.
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(3) An accounting period of a company shall end for purposes of corporation tax on the first occurrence of any of the following-
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(a) the expiration of 12 months from the beginning of the accounting period;
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(b) an accounting date of the company or, if there is a period for which the company does not make up accounts, the end of that period;
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(c) the company beginning or ceasing to trade or to be, in respect of the trade or (if more than one) of all the trades carried on by it, within the charge to corporation tax;
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(d) the company beginning or ceasing to be resident in the United Kingdom;
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(e) the company ceasing to be within the charge to corporation tax.
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(2) The Appellant was incorporated on 8 February 1989. It was a wholly owned subsidiary company of Freight International Ltd until March 1992 when it became a wholly owned subsidiary of Comat International Group Ltd which in its turn is a wholly owned subsidiary of Freight International Group Ltd.
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(3) The Appellant commenced trading on 1 March 1989 as forwarding and general freight agents. The Appellant had and has had only one customer, Air Europe Ltd, for whom it sold cargo space on aeroplanes until that company was put into administration in March 1991.
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(4) The Appellant's accounts for the period of 13 months to 31 March 1990 were submitted to the Inspector of Taxes on 25 November 1991 and profits were agreed on 11 March 1992 at £51,869 for the 12 months to 28 February 1990 and £4,475 for the one month to 31 March 1990. Assessments to corporation tax followed in April 1992.
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(5) The accounts for the year ending on 31 March 1991 were submitted to the Inspector on 24 April 1992 and profits of £34,102 were agreed on 29 June 1992.
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(6) The Appellant paid a dividend of £51,500 to its parent company on 30 January 1992. ACT of £17,166.66 in respect of that dividend was paid to the Collector of Taxes on 12 April 1992.
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(i) The Appellant's accounts for the period ending on 31 March 1990 were signed by the directors on 18 June 1991. The turnover is recorded as £418,903 derived from "Management Fees". The cost of sales amounts to £362,100 leaving a pre-tax profit of £56,803.
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(ii) In their report the directors state:
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the principal activity of the company is forwarding and general freight agents. The company has traded satisfactorily during the period. In March 1991 its only customer went into receivership. The directors are actively seeking new customers and optimistic that the company will be trading again shortly.
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(i) The Appellant's accounts for the year ending on 31 March 1991 were signed by the directors on 10 March 1992. The turnover, from the same source as before, amounted to £562,061 and the cost of sales was £391,906. An exceptional item of £136,512 appears in the profit and loss account attributed to writing off a debt due from the company's sole customer then in administration. A final proposed dividend of £51,500 appears, which results in a loss of £22,048, leaving a retained profit of £345 to be carried forward.
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(ii) The directors report that:
the principal activity of the company is forwarding and general freight agents, but the company ceased trading in March 1991 when its sole customer, Air Europe plc was placed in administration.
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(i) The Appellant's accounts for the year ending on 31 March 1992 are recorded as being approved by the Board on 15 January 1993. The turnover is a mere £3,852 and the note thereto reads:
the company has not traded during the year. Turnover represents income charged to group companies on balances due to Aproline Limited.
(ii) The only expense was the auditor's fee of £250. Apart from corporation tax, the only debtors recorded are "amounts owed by group undertakings £42,366". The creditors are the Revenue (for corporation tax), the accountants (for their fee of £250) and "amounts...
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