Earlspring Properties Ltd v Guest (Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judgment Date | 08 March 1995 |
| Date | 08 March 1995 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal (Civil Division).
Balcombe, Evans and Waite L JJ.
David Ewart and Julie Anderson (instructed by Stafford Young Jones) for the company.
Launcelot Henderson (instructed by the Solicitor of Inland Revenue) for the Crown.
The following case was referred to in the judgment:
Joint (HMIT) v Bracken Developments Ltd TAX[1994] BTC 107
Corporation tax - Close company - Loans to participators - Details of loans to associate of participator not notified to inspector - Whether neglect - Whether liability for default interest - Income and Corporation Taxes Act 1970 section 286 subsec-or-para (1)Income and Corporation Taxes Act 1970, s. 286(1) (Income and Corporation Taxes Act 1988 section 419 subsec-or-para (1)s. 419(1) of the 1988 Act); Taxes Management Act 1970 section 10 subsec-or-para (1) section 88 subsec-or-para (1) section 109 subsec-or-para (1)Taxes Management Act 1970, ss. 10(1), 88(1), 109(1).
This was an appeal by a close company ("the company") against part of a judgment of Vinelott J ([1993] BTC 253) refusing to quash determinations to default interest under the Taxes Management Act 1970 section 88Taxes Management Act 1970, s. 88 for the two years ending 31 March 1984 and 1985.
The company carried on the business of property consultancy and property investment. Mrs B was the sole director and held all the issued share capital of the company. Mrs B's husband carried on the business of estate agency and property consultancy ("the firm").
The work relating to the company's business was carried out by the firm on its behalf. The fees charged were invoiced and received by the firm and paid into a deposit account. Transfers were made from the deposit account to the company at irregular intervals and any balance at the end of each accounting period (ending on 31 March in each year) was shown in the company's accounts as a debt to the company. The interest was retained by the firm as remuneration for services.
The company was assessed to corporation tax under the Income and Corporation Taxes Act 1970 section 286Income and Corporation Taxes Act 1970, s. 286 on the basis that the balances on the deposit account were loans by the company to Mr B who, as the husband of Mrs B, was an associate of a participator in the company.
The company accepted that it was liable to tax under Income and Corporation Taxes Act 1970 section 286s. 286. The question before the Court of Appeal was whether the company was required, by theTaxes Management Act 1970 section 10Taxes Management Act 1970, s. 10, as applied by Taxes Management Act 1970 section 109s. 109, to give notice to the inspector that it was chargeable to tax under Income and Corporation Taxes Act 1970 section 286s. 286, and if failure to do so amounted to neglect within the meaning of the Taxes Management Act 1970 section 118Taxes Management Act 1970, s. 118. If so a liability to interest under the Taxes Management Act 1970 section 88Taxes Management Act 1970, s. 88 would arise.
The company contended that the provisions of Taxes Management Act 1970 section 10s. 10 were not applied by Taxes Management Act 1970 section 109s. 109 to tax chargeable underIncome and Corporation Taxes Act 1970 section 286s. 286. The amount due under Income and Corporation Taxes Act 1970 section 286s. 286 should only be regarded "as if it were an amount of corporation tax" for the purposes of assessment and collection. Therefore the Taxes Management Act 1970 section 109Taxes Management Act 1970, s. 109 should be read as incorporating only provisions relating to recovery, but not notification, which was a procedure separate from, and preceding, an assessment and was not mentioned in Income and Corporation Taxes Act 1970 section 286s. 286. That construction was supported by the specific list in Taxes Management Act 1970 section 109 subsec-or-para (1)s. 109(1) referring to "assessing, collecting and receiving of corporation tax".
Further, if the Taxes Management Act 1970 section 10Taxes Management Act 1970, s. 10 was applicable, the company's only obligation was to give notice of the fact that it was a close company. But that was the extent of its obligation to give notice. It was not obliged to notify details of any loans which it had made.
Held, dismissing the company's appeal:
1. There was no justification for limiting the general words inTaxes Management Act 1970 section 109 subsec-or-para (1)s. 109(1). The particular words "relating to the assessing, collecting and receiving of corporation tax" were prefaced by the word "including", and while that word might extend the words "all enactments applying generally to corporation tax" which preceded it, it could not restrict or confine them. Accordingly, by virtue of Taxes Management Act 1970 section 109 subsec-or-para (1)s. 109(1), notice of loans to participators in a close company was required to be given to the inspector underTaxes Management Act 1970 section 10 subsec-or-para (1)s. 10(1) of the Taxes Management Act 1970.
2. Per Evans LJ: While a close company was required by theTaxes Management Act 1970 section 10Taxes Management Act 1970, s. 10, to give notice to the Revenue that it was chargeable to tax under the Income and Corporation Taxes Act 1970 section 286Income and Corporation Taxes Act 1970, s. 286, it was not necessary to give details of the relevant transactions. A notice in general terms that there had been one or more loans, or even that the company was chargeable under Income and Corporation Taxes Act 1970 section 286s. 286 would suffice.
The company appealed against an order of Vinelott J made on 10 May 1993. The grounds of the appeal were that the judge had erred in law in concluding that the company had been guilty of neglect and in failing to accept that it had complied with the Taxes Management Act 1970 section 10Taxes Management Act 1970, s. 10 by notifying the inspector that it was a company chargeable to tax under the Income and Corporation Taxes Act 1970 section 286Income and Corporation Taxes Act 1970, s. 286.
Balcombe LJ: This appeal by the taxpayer, Earlspring Properties Ltd ("Earlspring") is from so much of the order of Vinelott J dated 10 May 1993 ([1993] BTC 253) as refused to quash interest determinations under Taxes Management Act 1970 section 88s. 88 of theTaxes Management Act 1970 in the sum of £5,376.28 for the year ended 31 March 1984 and in the sum of £3,455.35 for the year ended 31 March 1985. A cross-appeal by the Revenue relating to another aspect of the judge's order was not pursued before us.
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Joint (Inspector of Taxes) v Bracken Developments Ltd
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