Carr (Hmit) (Respondent) ARMPLEDGE Ltd (APPELLANT) Carr (Hmit) (Respondent) Fielden & Ashworth Ltd (Appellant)
| Jurisdiction | England & Wales |
| Judge | Lord Justice Peter Gibson,LORD JUSTICE BROOKE,LORD JUSTICE ROBERT WALKER |
| Judgment Date | 16 May 2000 |
| Judgment citation (vLex) | [2000] EWCA Civ J0516-3 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: CHRVF/1998/1137/A3 |
| Date | 16 May 2000 |
[2000] EWCA Civ J0516-3
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
CHANCERY DIVISION
Mr. Justice Ferris
Royal Courts of Justice
Strand,
London, WC2A 2LL
lord Justice Peter Gibson
Lord Justice Brooke and
Lord Justice Robert Walker
Case No: CHRVF/1998/1137/A3
CHRVF/1998/1138/A3
Mr. Christopher McCall Q.C. (instructed by The Solicitor of Inland Revenue of London for the Respondent)
Lord Goldsmith Q.C. and Mr. David Goy Q.C. (instructed by Messrs Freshfields of London for the Appellants)
There are two appeals before us, each raising the same question relating to advance corporation tax ("ACT"): is a company, which has made a claim to carry back surplus ACT derived from one accounting period and has subsequently made a further claim to carry back surplus ACT derived from the immediately preceding accounting period, entitled to effect being given to those claims in that order? The appeals are brought by Armpledge Ltd. ("Armpledge") and Fielden & Ashworth Ltd. ("Fielden") respectively from the order made by Ferris J. on 31 July 1998. Thereby the judge allowed the appeals of the Inspector of Taxes from the decision in principle on 25 March 1998 of the Special Commissioners who had answered that question in the affirmative. The judge answered that question in the negative. The decisions of the Special Commissioners and of the judge are reported together at [1998] STC 999.
The facts
The Special Commissioners, having stated that Armpledge and Fielden were members of the same group of companies the ultimate parent of which is BICC plc and that the issue was the same in both cases, confined their recitation of the agreed facts to those relating to Armpledge. Only a brief summary is appropriate. Armpledge's accounting periods at all material times were calendar years. It made profits in each of the years 1987 to 1993 and a loss in 1994. It paid corporation tax on those profits. In 1993 and 1994 it paid dividends and accounted for ACT thereon, that ACT (£676,333 in 1993 and nearly £1.2 million in 1994) being the surplus ACT for the 1993 and 1994 accounting periods. By letter dated 11 May 1995 it claimed under s. 239 (3) of the Income and Corporation Taxes Act 1988 ("the Taxes Act") to have the surplus ACT for the 1994 accounting period treated as if it was ACT paid in respect of distributions made by it in specified amounts in four earlier accounting periods (1991, 1990, 1989 and 1988). One day later on 12 May 1995 it made a similar claim to have the surplus ACT for the 1993 accounting period treated as if it was ACT paid in respect of distributions made by it in specified amounts in the 1988 and 1987 accounting periods. It required that effect be given to the latter claim after the earlier claim.
On 20 August 1997 the Revenue sent Armpledge two notices of a decision on a claim. On the claim in respect of surplus ACT for the 1994 accounting period, it allowed relief in respect of specified sums for the 1989 and 1988 accounting periods, those sums totalling some 30% less than the total claimed by Armpledge. On the claim in respect of surplus ACT for the 1993 accounting period, it allowed relief in respect of specified sums for the 1991, 1990 and 1989 accounting periods in a total sum equal to the surplus ACT the subject of that claim but for different accounting periods. The Revenue thereby was refusing Armpledge's request that effect be given to the claims in the order in which they were made but was insisting that effect be given to the claim for the 1994 accounting period after effect was given to the claim for the 1993 accounting period. In practical terms the difference between the parties is that had effect been given to Armpledge's claims in the order in which they were made, Armpledge would be able to reclaim corporation tax in the sum of £361,603 paid for the 1987 accounting period, whereas if effect is given to the claim for the 1993 accounting period before that for the 1994 period, that tax could not be recovered.
The statutory provisions
The statutory scheme which operated at the material times (it has since been altered by the Finance Act 1998) was this. Every company is liable to corporation tax on its profits for each accounting period, that liability being commonly known as that for mainstream corporation tax ("MCT"). Accounting periods are usually of 12 months' duration, but may, if the company chooses, be shorter. A company making a qualifying distribution of profits, such as by way of dividend, in any accounting period is required to make a payment of ACT in respect of that distribution (s. 14 of the Taxes Act). Under s. 239 (1) of the Taxes Act that ACT (subject to a limit specified in s. 239 (2)) was set against its MCT liability on its profits for that accounting period. MCT liability against which ACT can be set is known as "capacity". When the ACT exceeded the MCT for the relevant accounting period a surplus (known as surplus ACT) arose. By s. 239 (4):
"Where in the case of any accounting period of a company there is an amount of surplus advance corporation tax which has not been dealt with under subsection (3) above, that amount shall be treated for the purposes of this section (including any further application of this subsection) as if it were advance corporation tax paid in respect of distributions made by the company in the next accounting period."
By s. 239 (3) (so far as is material):
"Where in the case of any accounting period of a company there is an amount of surplus advance corporation tax, the company may within two years after the end of that period, claim to have the whole or any part of that amount treated for the purposes of this section (but not of any further application of this subsection) as if it were advance corporation tax paid in respect of distributions made by the company in any of its accounting periods beginning in the six years preceding that period (but so that the amount which is the subject of the claim is set, so far as possible, against the company's liability for a more recent accounting period before a more remote one) and corporation tax shall, so far as may be required, be repaid accordingly."
Thus the claim which the company may, but is not obliged to, make is subject to three express limitations:
(i) the claim has to be made within two years after the end of the accounting period producing the surplus ACT;
(ii) the carry-back has, so far as possible, to be set against MCT liability for a more recent accounting period before remoter periods;
(iii) the carry-back is only permitted as regards accounting periods beginning in the six years preceding the accounting period in question.
The judge helpfully gave illustrations of the effect of s. 239 (3) and (4). He posited a company with 10 successive accounting periods, each of a year, AP1 (the earliest) to AP10 (the latest). If the company made a distribution in AP8, the ACT payable on that distribution will be set against MCT for AP8 and any surplus remaining after that set-off will be carried forward and treated as ACT paid in respect of distributions in AP9, unless the company makes a claim under subs. (3). If it does make such claim, the surplus will first be treated as if it were ACT paid in respect of distributions in AP7 and set against MCT paid or payable in respect of profits for AP7. If there is still a surplus after that set-off, it will be carried back to AP6, and the process repeated, if a surplus remains, for each of AP5 to AP2. However any surplus cannot be carried back to AP1 because that year is more than 6 years before AP8, but would automatically be carried forward to AP9 under s. 239 (4).
The judge then gave some illustrative figures. If (i) Armpledge had surplus for AP9 of 100 and surplus for AP8 of 650, (ii) it had capacity for AP1 to AP7 of 100 in each year (save for 250 in AP3), and (iii) the surplus for AP8 is dealt with before that for AP9, the 650 surplus will be set off against the AP7 capacity of 100, then against the AP6 capacity and so on, and will be finally exhausted when the remaining surplus is set off against the surplus for AP3. If the surplus for AP9 is then dealt with, there is no capacity left for AP8 to AP3. Whilst there is capacity for AP2 and AP1, no set-off is possible because those years are more than 6 years before AP9. The AP9 surplus would therefore have to be carried forward to AP10 under s. 239 (4).
If however the 100 surplus for AP9 is dealt with before that for AP8, the result will be different. The surplus for AP9 will be set against the capacity for AP7, the most recent year for which there is capacity, and will be exhausted. If the 650 surplus for AP8 is then dealt with, it will be set first against the capacity for AP6 and then, going backwards, it will finally be exhausted when set against the capacity for AP2. Thus, giving effect to the surplus for AP9 before that for AP8, as the judge put it at p. 1008, "harnesses the ability of the surplus of AP8 to reach [MCT] capacity for AP2." That is an ability which the surplus for AP9 would not itself have.
The decisions below
The Special Commissioners gave only brief reasons for their conclusion. Having set out the rival contentions (including the contention of the Crown that the first parenthesis in s. 239 (3) required that effect be given to claims in chronological order), they said that they did not find the appeal easy to decide, but expressed the opinion that since the taxpayers infringed no express provisions of...
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