Bielckus and Others
| Jurisdiction | UK Non-devolved |
| Judgment Date | 07 April 2016 |
| Neutral Citation | [2016] UKFTT 271 (TC) |
| Date | 07 April 2016 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge Anne Redston, Mrs Claire Howell
Mr Colin Bielckus in person and as the representative, appeared for the Appellants
Mr Simon Bates of HM Revenue and Customs' Appeals and Reviews Unit, appeared for the Respondents
Income tax – Share loss relief – Whether shares were ordinary shares – No – Appeals dismissed.
[1] Mr Bielckus, Mr Arnell and Mr Taylor (the Appellants) claimed share loss relief in their 2010–11 self-assessment (SA) tax returns in relation to shares they had held in a company called Davis World Travel Limited (DWTL).
[2] HM Revenue and Customs (HMRC) amended the Appellants' returns by removing the claimed loss in relation to certain of those shares (the Shares) on the basis that they were not ordinary shares within the meaning of the relevant legislation. The Appellants appealed.
[3] Having considered the evidence and the parties' submissions, the Tribunal found that the Shares were not ordinary shares. It follows that HMRC's amendments were rightly made and the Appellants' appeals are dismissed.
[4] Mr Bielckus is one of the Appellants, but he is also a chartered accountant with his own accountancy practice, Avenue Business Services. In that capacity, he filed the 2010–11 SA returns for Mr Arnell and Mr Taylor, and was instructed to represent them in relation to the Tribunal proceedings.
[5] On 14 July 2015, the Tribunal directed that the three appeals were to proceed together and be heard together by the same Tribunal.
[6] The parties agreed that the facts and issues of all three appeals were the same, other than that:
1) Mr Bielckus held more Shares than the other Appellants (see paragraphs 13–14); and
2) each Appellant claimed a different amount of share loss relief in relation to the Shares (see paragraph 20).
[7] HMRC provided a helpful bundle of documents which included:
1) the correspondence between the parties and between the parties and the Tribunal;
2) certain correspondence between DWTL and the Association of British Travel Agents (ABTA);
3) extracts from the Appellants' 2010–11 SA tax returns;
4) the statutory accounts (the Accounts) of DWTL for the three years ended 31 October 2007, 2008 and 2009, prepared by Mr Bielckus' firm; and
5) certain documents from Companies House, being DWTL's return of allotments of shares dated 19 May 2008; its annual return of share capital dated 6 December 2009 (filed on 17 February 2010) and a summary of the information held by Companies House dated 10 November 2011.
[8] Mr Bielckus gave oral evidence, was cross-examined by Mr Bates and answered questions from the Tribunal. We found him to be a generally honest and straightforward person, although his evidence on the key point in this appeal, namely the rights attaching to the Shares, was neither consistent nor reliable, as we explain below.
[9] From the evidence provided, we find the following facts, none of which is in dispute.
[10] In the period before 1 November 2006, Mr Arnell and Mr Taylor worked in a travel agency called Davis World Travel (DWT). The senior partner of DWT decided to retire, but Mr Arnell, Mr Taylor and a third individual, Mr Dewey, wanted to continue in business. They decided to form a company together with Mr Bielckus, who had been DWT's accountant.
[11] On 1 November 2006 Mr Bielckus acquired DWTL's two initial subscriber shares. DWT's business was subsequently transferred into DWTL and the company began trading.
[12] On 17 November 2006, Mr Bielckus was allotted 12,498 ordinary £1 shares in DWTL at par; the other Appellants and Mr Dewey were each allotted 12,500 ordinary £1 shares at par. The equity was therefore split equally between the shareholders.
[13] On 28 June 2007, each shareholder was allotted 55,000 shares at a par value of £1, making a total of 220,000 shares. These are the Shares at issue in these proceedings. They are described in each set of Accounts as cumulative redeemable preference shares of £1 each.
[14] On 19 May 2008, Mr Bielckus was allotted a further 85,048 Shares in exchange for cash consideration of £85,048. Their terms of issue were that they ranked pari passu with the existing Shares, and they are included with those Shares in the 2008 and 2009 Accounts.
[15] For the purposes of this decision we have used the term Shares to include both the original allotments of 55,000 on 28 June 2007 and the further allotment of 85,048 on 19 May 2008. We make further findings of fact about the Shares later in our decision.
[16] DWTL's turnover in the year ended 31 October 2007 was £703,202, being commissions receivable on sales of around £8–9m. After other operating income, interest payable and administrative expenses, DWTL made a loss of £29,038 in that year.
[17] In 2008 DWTL's turnover was similar, at around £665,471, and it made a loss of £48,029. The Tribunal was not provided with a turnover figure for 2009, as the Accounts for that year were abbreviated form, but we infer from DWTL's balance sheet that the company made a loss of £153,521.
[18] In April 2010, the travel industry was seriously affected by the Icelandic volcano. That disruption caused further stress to DWTL's financial position, and it became insolvent. On 5 January 2011 a liquidator was appointed and on 8 June 2012 DWTL was struck off.
[19] The Appellants and Mr Dewey submitted SA returns for the 2010–11 tax year. They each claimed share loss relief on both the ordinary shares and the Shares, and made claims to carry back part of the loss on the Shares to the previous tax year.
[20] On 4 January 2013 Mrs Pagano of HMRC opened enquiries into the Appellants' returns. She subsequently issued closure notices and amended the returns to remove the share loss relief claims relating to the Shares. As a result of those amendments, the further tax due from the Appellants was as follows:
Shareholder |
2009/10 |
2010/11 |
Mr Bielckus |
£10,366.15 |
£1,602.50 |
Mr Arnell |
£4,326.50 |
£2,012.80 |
Mr Taylor |
£5,210.30 |
£4,765.40 |
[21] The Appellants and Mr Dewey asked for a statutory review, but the HMRC Review Officer upheld Mrs Pagano's decisions. The Appellants (but...
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Warshaw
...this is the same condition as that attaching to the preference shares in the present case. [11] Ms Choudhury also refers to Bielckus [2016] TC 05044 in which the Tribunal (Judge Redston and Mrs Howell) accepted that shares in which respect of a dividend was payable cumulatively at 7.5% per ......