Carr (Inspector of Taxes) v Armpledge Ltd ; Same v Fielden and Ashworth Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 31 July 1998 |
| Date | 31 July 1998 |
| Court | Chancery Division |
Chancery Division
Ferris J.
Christopher McCall (instructed by the Solicitor of Inland Revenue) for the Crown.
David Goy QC and Nicola Shaw (instructed by Freshfields) for the taxpayers.
The following cases were referred to in the judgment:
Collard (HMIT) v Mining & Industrial Holdings Ltd TAXTAX[1989] BTC 167; 62 TC 448
Elliss (HMIT) v BP Oil Northern Ireland Refinery Ltd TAXTAX[1985] BTC 555; 59 TC 474
Farmer (HMIT) v Bankers Trust International Ltd TAX[1990] BTC 410
Corporation tax - Advance corporation tax (ACT) - Surplus ACT - Carry back - Claim for 1994 made before claim for 1993 - Whether taxpayer could require claims to be satisfied in the order they were made or whether claims had to be worked out in reverse chronological order of accounting periods - Income and Corporation Taxes Act 1988 article 239Income and Corporation Taxes Act 1988, s. 239(3).
This was an appeal by the Revenue against a decision of the special commissioners that two subsidiaries of BICC plc ("the taxpayers") could require the inspector to work out a claim to carry back surplus ACT under the Income and Corporation Taxes Act 1988 article 293Income and Corporation Taxes Act 1988, s. 293(3) made for a later accounting period before working out a claim made after the first claim in respect of surplus ACT arising in an earlier period.
By a letter dated 11 May 1995 a claim was made under the Income and Corporation Taxes Act 1988 article 239Income and Corporation Taxes Act 1988, s. 239(3) to carry back surplus ACT arising in an accounting period to 31 December 1994. By a letter dated 12 May 1995 a similar claim was made to carry back ACT arising in the accounting period to 31 December 1993.
By doing the calculation in the order in which the claims were made, there would be mainstream corporation tax capacity for the years 1987 and 1988 against which ACT could be set, which would not otherwise be available because of the six-year time limit for making claims. (If the set-off had to be made in reverse chronological order, the unused surplus would be carried forward under Income and Corporation Taxes Act 1988 article 239s. 239(4)).
The special commissioners allowed an appeal against the inspector's refusal to work out the claims in the order in which they were made. Their reason for allowing the appeal was that the taxpayers had not infringed any express provision of Income and Corporation Taxes Act 1988 article 239s. 239(3).
Held, allowing the Revenue's appeal.
1. The question was whether the taxpayers were entitled to require the inspector to give effect to the claims in the order in which they were made, not whether they had infringed a provision of Income and Corporation Taxes Act 1988 article 239s. 239(3). The words in brackets in Income and Corporation Taxes Act 1988 article 239s. 239(3), "(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)" imposed a strict reverse chronological approach to the provision.
2. Adopting a general approach, ACT could not be carried back more than six years on a single claim and it was not to be expected that what could not be done directly by a single claim could be done indirectly by making separate claims. Nothing in the subsection gave the company any express right to require that to be done and the Revenue's arguments based on the mechanics of the subsection, while not conclusive, pointed in the same direction.
By originating motion pursuant to the Taxes Management Act 1970 section 56ATaxes Management Act 1970, s. 56A (as substituted by SI 1994/1813 with effect from 1 September 1994), the Revenue appealed to the High Court against the following decision (Sp C 151) of the special commissioners (Mr DA Shirley and Mr THK Everett) released on 25 March 1988.
1. We have before us appeals by Armpledge Ltd and Fielden and Ashworth Ltd. Both appellants are members of the same group of companies whose ultimate parent company is BICC plc. Their appeals were heard together. They concern claims by the appellants to carry back advance corporation tax (ACT) pursuant to the provisions of Income and Corporation Taxes Act 1988 section 239 subsec-or-para (3)s. 239(3) of theIncome and Corporation Taxes Act 1988 ("the Taxes Act"). The issue is the same in both cases. It will be more readily understood when we have set out the facts all of which are agreed.
2. We will confine ourselves to the facts in the case of Armpledge Ltd. The facts in the case of Fielden & Ashworth Ltd are similar. There is no need to rehearse them.
3. Armpledge was incorporated in the UK in 1981. It carried on the trade of designing and manufacturing office seating. The company was purchased on 29 May 1992 by BICC plc, the well-known cable manufacturer. Following that acquisition, Armpledge purchased from BICC plc its subsidiary company, Telegraph Construction and Maintenance Co Ltd (TCMC). Armpledge became an investment holding company.
4. In the years ended 31 December 1992, 1993 and 1994 TCMC paid dividends of £6,485,000 to Armpledge under a group income election made pursuant to the provisions of Income and Corporation Taxes Act 1988 section 247s. 247 of the Taxes Act.
5. The profits of Armpledge in its relevant accounting periods were as follows:
Corporation tax was paid on these profits
6. In its accounting period ended 31 December 1993 Armpledge paid a dividend of £2,029,000 to BICC, all of which was paid outside a group income election. In consequence Armpledge accounted for £676,333.33 in ACT pursuant to the provisions of Income and Corporation Taxes Act 1988 section 14s. 14 of the Taxes Act. It had surplus advance corporation tax ("surplus ACT"), as that term is defined inIncome and Corporation Taxes Act 1988 section 239 subsec-or-para (3)s. 239(3) of the Taxes Act, in that period also amounting to £676,333.
7. In its accounting period ended 31 December 1994 Armpledge paid a dividend of £4,480,000 to BICC, all of which was paid outside a group income election. In consequence Armpledge accounted for £1,192,580.65 of ACT in that period and the surplus ACT for that period was also £1,192,580.65.
8. By a letter dated 11 May 1995, Armpledge made a claim underIncome and Corporation Taxes Act 1988 section 239 subsec-or-para (3)s. 239(3) of the Taxes Act to have £1,192,581 of ACT arising in the accounting period 31 December 1994 treated as if it was ACT paid in respect of distributions made by the company in earlier accounting periods, as follows:
9. By a letter dated 12 May l995 Armpledge made a claim underIncome and Corporation Taxes Act 1988 section 239 subsec-or-para (3)s. 239(3) of the Taxes Act to have £637,185 of ACT arising in the accounting period ended 31 December 1993 treated as if it was ACT paid in respect of distributions made by the company in earlier accounting periods, as follows:
Armpledge required that this claim be given effect to after the claim contained in the letter dated 11 May 1995 in respect of the accounting period ended 3l December 1994.
10. On 20 August 1997 the Revenue sent Armpledge a "Notice of a Decision on a Claim". The material part reads as follows:
Your claim to carry back surplus ACT for the accounting period ended 31 December 1994 under Income and Corporation Taxes Act 1988 section 239 subsec-or-para (3)Section 239(3) ICTA 1988 dated 11 May 1995 has been duly considered and I hereby give notice of my decision as follows:
Relief amounting to £828,945 is available as shown below:
11. Also on 20 August 1997 the Revenue sent Armpledge a second notice of a decision on a claim, reading, materially, as follows:
Your claim to carry back surplus ACT for the accounting period ended 31 December 1993 under Income and Corporation Taxes Act 1988 section 239 subsec-or-para (3)Section 239(3) ICTA 1988 dated 12 May 1995 has been duly considered and I hereby give notice of my decision as follows:
Relief amounting to £676,333 is available as shown below:
12. The Revenue contends that the claims of Armpledge cannot be taken in the order requested by Armpledge. In a letter dated 19 August 1996, the inspector, having confirmed that he has no quarrel with any of Armpledge's figures, writes that:
The company has requested that its claim under Income and Corporation Taxes Act 1988 section 239 subsec-or-para (3)section 239(3) ICTA 1988 for the accounting period ended 31 December 1994 be given effect to before the claim for the preceding accounting period. This enables the company to make a claim in respect of all of the company's ACT capacity for its accounting period ended 31 December 1987. Were the claims to be given effect to in the opposite order, the £361,603 corporation tax paid for the year ended 31 December 1987 could not be reclaimed.
Therein lies the dispute between the parties.
13.Income and Corporation Taxes Act 1988 section 239 subsec-or-para (1)Section 239(1) to (4) with minor omissions reads as follows:
(1) Subject to … subsection (2) below, advance corporation tax paid by a company (and not repaid) in respect of any distribution made by it in an accounting period shall be set against its liability to corporation tax on any profits charged to corporation tax for that accounting period and shall accordingly discharge a corresponding amount of that liability.
(2) The amount of advance corporation tax to be set against a company's liability for any accounting period under subsection (1) above shall not exceed the amount of advance corporation tax that would have been payable (apart from section 241) in respect of a distribution made at the end of that period of an amount which, together with the advance corporation tax so payable in respect of it, is equal to the company's profits charged to corporation tax for that period.
(3) Where in the case of any accounting period of a company there is an amount of...
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