HM Revenue and Customs v Valentine Martketing Holdings Ltd

JurisdictionEngland & Wales
JudgeTHE HONOURABLE MR JUSTICE PUMFREY,Mr Justice Pumfrey
Judgment Date13 November 2006
Neutral Citation[2006] EWHC 2820 (Ch)
Docket NumberCase No: CH/2006/APP/0196
CourtChancery Division
Date13 November 2006

[2006] EWHC 2820 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

REVENUE

Before:

THE HONOURABLE MR JUSTICE PUMFREY

Case No: CH/2006/APP/0196

Between
The Commisioners For Her Majesty's Revenue And Customs
Appellant
and
Valentine Marketing Holdings Limited
Respondent

Nicola Shaw (instructed by The Acting Solicitor, HMRC) for the Appellant Elizabeth Wilson (instructed by Martin Westall) for the Respondent

THE HONOURABLE MR JUSTICE PUMFREY Mr Justice Pumfrey

Mr Justice Pumfrey :

Introduction

1

This is an appeal by way of case stated from the General Commissioners for the City of London Division. The question arising for decision is whether the decision to withdraw tax relief in respect of shares issued on 4 February 2000 in the company Valentine Marketing Holdings Limited ("VMHL") was correct. The relief is said by the company to have been available under the Enterprise Investment Scheme ("EIS") and the answer turns upon a difficult question of construction of sections 289(1A) and 293 ICTA 1988 in the form they had in 2000.

2

The facts as found by the General Commissioners are as follows.

(a) Just Greetings. com Limited was incorporated on 14 October 1999; the initial finance was provided by shareholders from an issue of shares on 4 February 2000 which raised approximately £600,000, £400,000 of which was then subject to claims by the shareholders for tax relief under the EIS.

(b) On 31 July 2000 it began a trade of selling greetings cards online. The trade was unsuccessful and in January 2001 Just Greetings. com Limited acquired the shares of another greetings card company, Valentine Marketing Limited ("VML").

(c) A form EIS1 dated 5 February 2001 was submitted to the Inland Revenue ("IR") in respect of the shares which had been issued on 4 February 2000. By a form EIS2 dated 13 February 2001, the IR authorised Just Greetings. com Limited to issue EIS certificates to the subscribers of that share issue.

(d) In mid-2001, Just Greetings. com Limited ceased trading and was thereafter a non-trading parent company. It changed its name to VMHL in October 2002.

(e) On 12 August 2003, the IR issued a notice to VMHL notifying it that the tax relief to the shareholders would be withdrawn because the company was in breach of section 289(1A) and section 293(2)(a) of the ICTA.

(f) VMHL has also appealed in connection with a subsequent share issue on 24 October 2001, but the IR had conceded the question in the company's favour on the grounds that the share issue was to raise funds for the trade of the subsidiary company.

The statutory provisions

3

As of 2000, the relevant provisions of the ICTA were as follows:

' 289 Eligibility for relief

(1) For the purposes of this Chapter, an individual is eligible for relief, subject to the following provisions of this Chapter, if

(a) eligible shares in a qualifying company for which he has subscribed wholly in cash are issued to him and, under section 291, he qualifies for relief in respect of those shares,

(b) the shares and all other shares in the same issue are issued in order to raise money for the purpose of a qualifying business activity,

(ba) the requirements of subsection (1A) below are satisfied in relation to the company, and

(c) The money raised by the issue is employed not later than the time mentioned in subsection (3) below wholly for the purpose of the activity mentioned in paragraph (b) above.

(1A) The requirements of this subsection are satisfied in relation to a qualifying company if throughout the relevant period the active company—

(a) is a company which—

(i) is such a company as is mentioned in section 293(2)(a), and

(ii) if it is a subsidiary of the qualifying company, is a 90 per cent subsidiary of that company, or

(b) would be a company falling within paragraph (a) above if its purposes were disregarded to the extent that they consist in the carrying on of activities such as are mentioned in section 293(3D)(a) and (b) and (3E)(a), or

(c) is a 90 percent subsidiary of the qualifying company and falls within subsection (1B) below.

(1B) …

(1C) In subsection (1A) above 'the active company' means the qualifying company or, where the qualifying business activity mentioned in subsection (1) above consists in a subsidiary of that company carrying on or preparing to carry on a qualifying trade, research and development or oil exploration, that subsidiary.

(1D) …

(2) In this Chapter "qualifying business activity", in relation to a company, means—

(a) the company or any subsidiary—

(i) carrying on a qualifying trade which, on the date the shares are issued, it is carrying on, or

(ii) preparing to carry on a qualifying trade which, on that date, it intends to carry on wholly or mainly in the United Kingdom and which it begins to carry on within two years after that date,

but only if, at any time in the relevant period when the qualifying trade is carried on, it is carried on wholly or mainly in the United Kingdom.'

4

In section 293 of the ICTA the definition of "qualifying company":

'(1) Subject to section 294, a company is a qualifying company (whether it is resident in the United Kingdom or elsewhere) if it complies with the requirements of this section.

(2) The company must, throughout the relevant period, be an unquoted company and be—

(a) a company which exists wholly for the purpose of carrying on one or more qualifying trades or which so exists apart from purposes capable of having no significant effect (other than in relation to incidental matters) on the extent of the company's activities, or

(aa) the parent company of a trading group.

…'

5

Qualifying trades are listed in section 297. There is no doubt that the wholesale and retail sale of greetings cards are qualifying trades within section 297. Finally, I should set out the definition of 'relevant period' from section 312:

'(1A) In any provision of this Chapter "relevant period", in relation to relief in respect of any eligible shares issued by a company, means whichever of the following periods is applied for the purposes of that provision—

(a) the period...

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3 cases
  • Talentcore Ltd (t/a Team Spirits) v HM Revenue and Customs
    • United Kingdom
    • Upper Tribunal (Tax and Chancery Chamber)
    • 14 October 2011
    ...of Pensions and National Insurance TAXELR[2010] BTC 49; [1968] 2 QB 497 R & C Commrs v Valentine Marketing Holdings Ltd UNKTAX[2006] EWHC 2820 (Ch); [2009] BTC 106 Income tax - National Insurance contributions - Agency workers - Whether obliged to provide personal services - Right of substi......
  • HMRC v Talentcore – Team Spirit
    • United Kingdom
    • Upper Tribunal (Tax and Chancery Chamber)
    • 14 October 2011
    ...an earlier statute, at least when its provisions are ambiguous: Revenue and Customs Commissioners v Valentine Marketing Holdings Ltd [2006] EWHC 2820 (Ch), [2007] STC 1631, at [15]; and see Kirkness v John Hudson & Co Ltd [1955] AC 696 (to which Pumfrey J refers), per Viscount Simonds at 71......
  • The Commissioners for HM Revenue and Customs v Talentcore Limited (t/a Team Spirits)
    • United Kingdom
    • Upper Tribunal (Tax and Chancery Chamber)
    • 14 October 2011
    ...an earlier statute, at least when its provisions are ambiguous: Revenue and Customs Commissioners v Valentine Marketing Holdings Ltd [2006] EWHC 2820 (Ch), [2007] STC 1631, at [15]; and see Kirkness v John Hudson & Co Ltd [1955] AC 696 (to which Pumfrey J refers), per Viscount Simonds at 71......

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