Dyer and another v Revenue and Customs Comrs
| Jurisdiction | UK Non-devolved |
| Judgment Date | 02 September 2016 |
| Neutral Citation | [2016] UKUT 381 (TCC) |
| Date | 02 September 2016 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
Judge Colin Bishopp, Judge Swami Raghavan
Mr Roger Dyer, assisted by Mr Gordon Lowthian, appeared for both appellants
Miss Hui Ling McCarthy, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Income tax and capital gains tax – Negligible value claim – Taxation of Chargeable Gains Act 1992 (‘TCGA 1992’), s. 24(2) – Whether shares were already of negligible value at acquisition – Whether First-tier Tribunal's affirmative conclusion undermined by its overlooking paragraph of statement of agreed facts – No – Finding of negligible value on acquisition fully justified – Appeal dismissed.
The Upper Tribunal (UT) upheld the FTT's decision that shares that were of negligible value when acquired had not ‘become’ of negligible value as required by condition A of TCGA 1992, s. 24.
The FTT (Dyer TAX[2013] TC 03073) had found that a negligible value claim made by Mr Roger Dyer and his wife in respect of an investment made in a company established by their daughter (Miss Dyer) did not succeed because the company, Jenny Dyer Designs Ltd (JDDL) was of negligible value when the investment was made. Although the FTT accepted that the trademarks used by the company had become valuable, they had remained vested in Miss Dyer's name alone, whereas the company itself had an unsuccessful trading history and substantial indebtedness.
Although leave to appeal to the UT was originally granted on the basis of the FTT's alleged failure to consider one matter contained in the statement of agreed facts, the UT came to the conclusion that they should deal with all of the arguments put before them. They considered that the further arguments advanced resolved into two key issues: first, whether there was any contract between JDDL and Miss Dyer relating to her services or assigning or licensing her intellectual property rights to JDDL; and second, the manner in which the share valuation should have been approached.
Concerning the first argument, the UT accepted that an oral contract is a valid one and that there are no requirements of form to be satisfied but considered that the three essential contracts of a contact under English law (intention to enter into a legally binding relationship, mutuality of obligation and certainty) were not met. Evidence provided to the FTT of discussions between Miss Dyer and her parents after they became shareholders indicated that they had not considered it necessary to formalise arrangements within the family, which suggested there had no intention of forming a legally binding relationship. The certainty requirement was not satisfied because it was impossible to determine from the evidence the precise terms of either a service agreement or an assignment or licence of intellectual property. Finally, even if it were assumed that identifiable obligations were imposed on Miss Dyer (e.g. in relation to provision of services), there were no corresponding obligations imposed on JDDL – there was no provision for remuneration for services or commissioning arrangement for supply of intellectual property – hence there was no mutuality of obligations. Thus JDDL was not party to any contract binding Miss Dyer to the company and no assignment or licensing of rights to the company had taken place.
In relation to the valuation of the shares, the appellants' argument relied on the fact that Miss Dyer would have been prepared to enter into a service agreement and arrangement for supply of intellectual property to meet the demands of an intending investor. However, the UT found that the shares had to be valued as they were when the investment was made by her parents and not as they might have been if certain steps had been taken.
The appeal was therefore dismissed.
The UT agreed with the FTT that no contract between Miss Dyer and JDDL in relation to her services or the intellectual property held in her name could be implied and therefore JDDL was already of negligible value when Mr and Mrs Dyer made their investment and no claim could be made under TCGA 1992, s. 24.
[1] This is an appeal against a decision of the First-tier Tribunal (‘the F-tT’) (Judge Malachy Cornwell-Kelly and Mr Mark Buffery FCA AIIT) released on 22 November 2013, with neutral citation Dyer TAX[2013] TC 03073. The F-tT dismissed an appeal by the appellants, Mr Roger Dyer and his wife Mrs Jean Dyer, against the rejection by the respondents, H M Revenue and Customs (‘HMRC’), of their claims that shares held by them in JD Designs Limited (‘JDDL’) had become of negligible value so as to engage the provisions of s 24 of the Taxation of Chargeable Gains Act 1992 (‘TCGA’). It is common ground that, had that section been engaged, Mr and Mrs Dyer would have been entitled to set their capital losses against their net income for the tax years 2007–08 and 2008–09, or to carry them forward, in accordance with ss 131 and 132 of the Income Tax Act 2007.
[2] HMRC did not dispute the appellants' contention that the shares were of negligible value at the date of the claim, 26 January 2009. Their position was that the shares had no value when they were acquired on 31 October 2007, and that accordingly they had not ‘become’ of negligible value, with the consequence that s 24 was not engaged. They accordingly issued closure notices, in respect of enquiries into the appellants' relevant self-assessment returns, by which they refused their respective claims for relief. Thus the primary question before the F-tT in the appellants' appeals against the closure notices was whether, as they argued, the shares did in fact have some value on 31 October 2007. The F-tT decided that HMRC were right, and dismissed the appeals. They did not go on to consider, hypothetically, what might have been the value of the shares had the appellants succeeded on the first issue.
[3] Permission to appeal was refused by the F-tT and again, on the appellants' written application, by Judge Sinfield in this tribunal. The application was renewed orally, and Judge Sinfield gave permission, in terms to which we come later. He took the view at the time that it would not be possible for this tribunal to determine the appeal without further evidence and that the better course would be to allow the appeal by setting aside the F-tT's decision, and to remit the matter to a differently-constituted panel for re-hearing. With the consent of the parties he made a direction to that effect. However, the parties later agreed that it would after all be possible for this tribunal to determine the matter and that a re-hearing would therefore be unnecessary. Judge Sinfield was asked to, and did, rescind his direction remitting the appeal to the F-tT, and as will become apparent we have found it possible to determine the appeal without hearing further evidence.
[4] As before the F-tT, Mr Dyer represented himself and his wife, with assistance from his accountant, Mr Gordon Lowthian. HMRC were represented by Miss Hui Ling McCarthy, who did not appear below.
[5] The relevant law gives rise to no controversy and can be shortly stated. Section 24 of TCGA, as it applied as at the date of the claim on 26 January 2009 and so far as relevant to this appeal, was as follows:
(2) Where the owner of an asset which has become of negligible value makes a claim to that effect:
a) this Act shall apply as if the claimant had sold, and immediately reacquired, the asset at the time of the claim … for a consideration of an amount equal to the value specified in the claim.
[6] Section 251(3) of TCGA deals with the acquisition of property in satisfaction of a debt. So far as material in this case it is as follows:
Where property is acquired by a creditor in satisfaction of his debt or part of it, then … the property shall not be treated as disposed of by the debtor or acquired by the creditor for a consideration greater than its market value at the time of the creditor's acquisition of it …
[7] It was for that reason that the question before the F-tT was essentially simple: did the market value of the shares on 31 October 2007 exceed nil? Although ‘market value’ is a commonly understood concept we need to mention two statutory provisions which bear on the question for the purposes of TCGA. The first is s 272(1):
In this Act ‘market value’ in relation to any assets means the price which those assets might reasonably be expected to fetch on a sale in the open market.
[8] Section 273 deals with the determination of the value of unquoted shares and securities, as the JDDL shares were. Subsection (3) provides that:
For the purposes of [such] a determination … it shall be assumed that, in the open market which is postulated for the purposes of that determination, there is available to any prospective purchaser of the asset in question all the information which a prudent prospective purchaser of the asset might reasonably require if he were proposing to purchase it from a willing vendor by private treaty and at arm's length.
[9] The relevant events are also uncontroversial, and what follows summarises the FtT's findings. JDDL, then called Beautiful Designs Limited, was incorporated on 24 September 2004. By 14 December 2004 it had changed its name and had allotted 100 £1 ordinary shares, fully paid up; all were held by the appellants' daughter, Jenny Dyer (‘Miss Dyer’), who was also the company's only director. She did not have a formal employment or service contract with JDDL. JDDL began trading on or about 1 April 2005, using the name ‘Jenny Dyer London’, but ceased trading in late 2008 or early 2009. It was thereafter wound up and ultimately struck off the register of companies on 31 August 2010.
[10] At [5] the F-tT described JDDL's trading activities as ‘boutique fashion design and manufacturing...
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