Burton v Mellham Ltd
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE BUXTON,MR JUSTICE MORLAND,LORD JUSTICE BROOKE |
| Judgment Date | 17 January 2003 |
| Neutral Citation | [2003] EWCA Civ 173 |
| Docket Number | A3/02/0983 |
| Court | Court of Appeal (Civil Division) |
| Date | 17 January 2003 |
[2003] EWCA Civ 173
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE MERCANTILE COURT BIRMINGHAM
(Her Honour Judge Alton)
Royal Courts of Justice
Strand
London, WC2
Lord Justice Brooke
Lord Justice Buxton
Mr Justice Morland
A3/02/0983
MISS S DUNN (instructed by Messrs Actons, Nottingham) appeared on behalf of the Appellant.
MISS I HITCHING (instructed by the Solicitor's Office, Inland Revenue) appeared on behalf of the Respondent.
This appeal from a decision of Her Honour Judge Alton sitting in the Mercantile Court in Birmingham concerns a dispute between the Inland Revenue on the one hand and a company called Mellham Limited on the other. The facts are comparatively straightforward once one has put them in the context of the statutory provisions engaged, which relate to the payment of advance corporation tax in respect of distributions that have a foreign element, and the impact thereon of the obligation to make interest payments when those sums owed in respect of advance corporation tax are not in fact paid.
For simplicity I have rounded all the figures to a convenient number. The figures that I give are not those that are in detail the actual ones in the case. Mellham made a relevant distribution for the purposes of the Income and Corporation Taxes Act to its foreign overseas parent of £1.4m on 7th October 1997. Therefore, by section 14 of The Income and Corporation Taxes Act 1988 (" ICTA") Mellham became liable on 14th January 1998 to pay a sum equivalent to 25 per cent of that amount, that is to say, £350,000, as advance corporation tax under the provisions of paragraph 3 of Schedule 13 to ICTA. No such payment was made. No explanation has been given of why that was so.
Under section 87 of the Taxes Management Act 1970 interest on the £350,000 debt or obligation started to run from the date upon which the obligation accrued, namely 14th January 1998. That advance corporation tax was due on 14th January 1998 because the distribution had taken place in the last quarter of 1997. Corporation tax itself is computed not on a quarterly but on an annual basis. Taking into account double taxation relief, the corporation tax liability of Mellham for the year 1997 was £100,000, payable on 1st October 1998. Advance corporation tax is not normally repayable in cash, though it may be set against future obligations. There are, however, special provisions for repayment of advance corporation tax where the eventual bill for corporation tax itself is reduced or likely to be reduced because of double taxation relief. In appropriate circumstances, a company that pays a dividend such as the distribution in the present case can elect under section 246 of ICTA to treat that distribution as a "foreign income dividend". That foreign income dividend can then be set off against foreign profits that are eligible for double taxation relief. That process produces a computation for "notional foreign source advance corporation tax" which is then used, by a balancing exercise against the advance corporation tax actually paid, to restore the overall tax position to what it would have been if direct taxation relief had been taken into account throughout. The account that I have just given is, I trust, broadly accurate. It is accurate enough to illuminate the issues in this appeal.
The process for the balancing exercise is to be found in section 246N(2) of ICTA, which reads as follows:
"In a case where —
(a) the company pays an amount of advance corporation tax in respect of qualifying distributions actually made by it in the relevant period,
(b) the amount, or part of it, is available to be dealt with under this section, and
(c) there is as regards the company an amount of notional foreign source advance corporation tax for the relevant period,
an amount of the advance corporation tax paid shall be repaid to the company, or set off, or partly repaid and partly set off, in accordance with this section and section 246Q."
The distribution of the surplus or overpaid corporation tax is dealt with in two ways: firstly, as a set-off against the payer's actual corporation tax, which is provided for by section 239(1) of ICTA; and, secondly, as to any further surplus, by repayment under section 246Q(2) of ICTA, a section it is not necessary to set out. It is agreed in this case that, if it had actually been paid, the whole of the £350,000 would have been eligible for distribution under section 246N(2). The appellant contends that the £100,000, which was the actual corporation tax obligation of the company, should therefore be set off against his corporation tax bill, and the remainder of the advance corporation tax, £250,000, should be repaid to him.
In the events that occurred, none of the £350,000 advance corporation tax was ever paid by the appellant; nor was any payment made in respect of the outstanding sum of corporation tax of £100,000. In July 2001 the Revenue obtained judgment for that outstanding sum and Mellham met that judgment. £100,000, or something very close to it, was thereafter agreed by the Revenue to be the amount of corporation tax owing after calculation of double taxation relief, but ignoring credits that were available from adjusted ACT.
The Inland Revenue's position is that no such credits are available in respect of the advance corporation tax liability because no advance corporation tax has been paid. However, because the £100,000 has in fact been paid in respect of corporation tax, the Revenue has expressed itself content to regard the unpaid corporation tax as limited to £250,000, that is to say, the unpaid sum of £350,000, less the £100,000 paid on the judgment; and further to make no claim for the principal of that balance, because, if paid, it would have to be immediately repaid under section 246Q(2). The issue in this appeal is not about the figures, as I have already said, nor is it about the principal sum, but it is about the continuing interest on the unpaid advance corporation tax. The logic of the Revenue's case is that interest continues to be due on the whole of that sum, but as a concession it limits its claim to interest due before 4th December 2001, one week after the final payment of the appellant's obligation under the judgment in respect of corporation tax, and it advances its claim to interest only on the sum of £250,000. The appellant contends that, once the provisions of section 246N(2) are applied to this case, far from the appellant owing the Revenue £250,000, the Revenue owes that sum to the appellant under section 246Q(2) and is liable to pay interest on that debt under section 826(1)of the Taxes Management Act. The principal question, as formulated before us, was said to be whether and to what extent section 87 of the Taxes Management Act applies in this case at all; that is to say, can it be said that "payment" under section 246N(2) occurred at some date in October or December 1998?
We therefore have to address the proper construction of section 246N(2), because these provisions only come into operation, and the assistance that the Act gives to a company in the position of Mellham only applies, "in a case where the company pays an amount of advance corporation tax". No payment has been made here, but it is argued that the obligation created upon the Revenue to repay the surplus of advance corporation tax, once that payment is made, creates a set-off in favour of the taxpayer by reason of the fact that, had the money been paid once the corporation tax obligation had accrued, it would indeed have had to have been immediately paid back by the Revenue.
The issue therefore is one of simple statutory construction. Can the expression "payment" when used in section 87 of the Taxes Management Act 1970, or "pays" when used both in section 246N(2) of the ICTA and section 239 of the ICTA, encompass a set-off of the sort that the appellant asserts? In order to succeed, the appellant has to establish, both that those statutory references to payment or paying can potentially include a situation of set-off; and also that in this case "set-off" was in fact available to the appellant. In my judgement, the appellant fails on both of those scores.
Before going into that matter in more detail it is, I think, necessary to say something about the general nature of the concept of set-off. What follows is not in fact necessary for the decision of this appeal because the appeal turns, as I have indicated, on the issue of statutory construction to which I will come. However, because of the way in which set-off has been spoken about in this case, and hopefully to clear the ground, I need to say something in general terms about it.
There are in my estimation three aspects of the concept of set-off that are or are potentially relevant in this case. The first is what I...
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