Joint (Inspector of Taxes) v Bracken Developments Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 17 January 1994 |
| Date | 17 January 1994 |
| Court | Chancery Division |
Chancery Division.
Vinelott J.
Launcelot Henderson (instructed by the Solicitor of Inland Revenue) for the Crown.
Jonathan Peacock (instructed by Morris Scott & Co, Christchurch) for the company.
The following cases were referred to in the judgment:
Black-Clawson International Ltd v Papierwerke Waldhof-Aschaffenburg AG ELR[1975] 1 AC 591
Earlspring Properties Ltd v Guest (HMIT) TAX[1993] BTC 253
Pepper (HMIT) v Hart and related appeals ELRTAX[1993] AC 593; [1992] BTC 591
R v IR Commrs, ex parte Woolwich Equitable Building SocietyTAX[1989] BTC 211
Corporation tax - Close company - Loans to participators - Default interest - Notice of loans not given to inspector - Whether obligation to notify inspector of liability - Whether liability for default interest - Taxes Management Act 1970 section 10 subsec-or-para (1) section 88 subsec-or-para (1)Taxes Management Act 1970, ss. 10(1), 88(1) (amended by Finance Act 1989 section 159FA 1989, s. 159 effective in relation to failures from 27 July 1989), Taxes Management Act 1970 section 109 subsec-or-para (1)109(1); 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)Income and Corporation Taxes Act 1988, s. 419(1).
This was an appeal by the Revenue against a decision of the general commissioners for New Forest West that a close company was not obliged to give notice to the inspector that it had made loans to participators.
The company, Bracken Developments Ltd, was a property development and building company. It was a close company, all the shares being held by a husband and wife who were directors of the company. The company's accounts were made up to 31 October in each year.
The directors had a joint current account with the company, overdrawn to the extent of £594,358 on 31 October 1987 and £1,733,852 on 31 October 1988, which was effectively money lent by the company to the directors.
The inspector first learned of the loan when the company submitted its accounts to the Revenue for the year ending 31 October 1987 on 7 June 1989, and for the year ending 31 October 1988 on 12 March 1990. Assessments for the year ended 31 October 1987 were made on the company under the Income and Corporation Taxes Act 1970 section 286 subsec-or-para (1)Income and Corporation Taxes Act 1970, s. 286(1) and for the year ended 31 October 1988 under theIncome and Corporation Taxes Act 1988 section 419 subsec-or-para (1)Income and Corporation Taxes Act 1988, s. 419(1). The tax assessed fell to be discharged, the amount owing to the company by the directors having been repaid. However, the Revenue determined that there remained a liability for interest under theTaxes Management Act 1970 section 88Taxes Management Act 1970, s. 88 for the period during which the loan was outstanding as a result of the application of Taxes Management Act 1970 section 10s. 10 to the charge on loans to participators byTaxes Management Act 1970 section 109s. 109.
The company accepted that if there was a requirement to notify the loans to the inspector, failure to do so gave rise to a liability to default interest under Taxes Management Act 1970 section 88s. 88.
The general commissioners allowed the appeal, accepting the company's submission that the provisions of the Taxes Management Act 1970 section 109Taxes Management Act 1970, s. 109 did not apply toTaxes Management Act 1970 section 10s. 10.Taxes Management Act 1970 section 109Section 109 was to apply to "enactments relating generally to corporation tax" with any necessary modifications. The commissioners held that the modifications necessary to apply Taxes Management Act 1970 section 10s. 10 would involve radical rewriting of the provision, extending beyond mere modification.
The commissioners also accepted the company's alternative submission that a liability under Income and Corporation Taxes Act 1970 section 286s. 286 or Income and Corporation Taxes Act 1988 section 419s. 419 was not a liability to "tax". The charge created by Income and Corporation Taxes Act 1970 section 286s. 286 or Income and Corporation Taxes Act 1970 section 419s. 419 was chargeable "as if" it were corporation tax, but it was not "tax". Since Taxes Management Act 1970 section 88s. 88 only applied where the relevant assessments had been made to make good a loss of "tax" to the Crown, no liability arose.
The company relied on the fact that no specific provision had been enacted as a result of a recommendation by the Keith Committee on the Enforcement Powers of the Revenue Departments (Cmnd 8822 of 1983) that close companies should be obliged to give notice of loans to participators.
Held, allowing the Revenue's appeal:
1. The Taxes Management Act 1970 section 10Taxes Management Act 1970, s. 10 was one of the "enactments relating generally to corporation tax", which under Taxes Management Act 1970 section 109s. 109 was to be applied to Income and Corporation Taxes Act 1970 section 286s. 286 (andIncome and Corporation Taxes Act 1988 section 419s. 419) with necessary modifications. The necessary modifications did not extend to rewriting the statute. The only modifications necessary were the substitution of "tax under Income and Corporation Taxes Act 1970 section 286s. 286 (or Income and Corporation Taxes Act 1988 section 419s. 419) of the principal Act" for "corporation tax" and "loans or advances to a participator or the associate of a participator in a close company" for the word "profit".Earlspring Properties Ltd v Guest (HMIT) TAX[1993] BTC 253 at p. 264E-F followed.
2. The charge under Income and Corporation Taxes Act 1970 section 286s. 286 or Income and Corporation Taxes Act 1988 section 419s. 419 was referred to as "tax" in the legislation, and was "tax" for the purpose of Taxes Management Act 1970 section 88s. 88.
3. A recommendation of the Keith Committee could not be relied on as evidence of the intention of Parliament in enacting Taxes Management Act 1970 section 109s. 109, and would not in any event have advanced the company's case. Pepper (HMIT) v Hart and related appeals TAX[1992] BTC 591 not applied.
1. At a meeting of the Commissioners for the General Purposes of the Income Tax for the Division of New Forest West in the counties of Hampshire and Dorset held on 29 and 30 April 1991, 7 May 1991 and 15 July 1991 Bracken Developments Ltd ("the company") appealed against the following determinations made by the inspector of taxes of tax carrying interest under Taxes Management Act 1970 section 88s. 88 of the Taxes Management Act 1970.
Date of |
Chargeable |
Tax |
Tax |
Amount of |
Determination |
Period Year |
Involved |
charged by |
tax which |
Ended |
assessment |
carries interest |
||
under s. 88 |
||||
£ |
£ |
|||
14/03/1990 |
31/10/1987 |
s. 286 |
221,917.80 |
219,831.04 |
09/04/1990 |
31/10/1988 |
s. 419 |
379,831.33 |
379,831.33 |
ICTA 1988 |
2. The questions for our determination were:
(2) whether Taxes Management Act 1970 section 109s. 109 of the Taxes Management Act 1970 modifiedTaxes Management Act 1970 section 10s. 10 to impose an obligation on the company to give notice of chargeability to tax underIncome and Corporation Taxes Act 1970 section 286s. 286 of the Income and Corporation Taxes Act 1970 and underIncome and Corporation Taxes Act 1988 section 419s. 419 of the Income and Corporation Taxes Act 1988 in respect of loans to participators; and
(3) since the company had not so given notice, whether the tax charged by the assessments carried interest under Taxes Management Act 1970 section 88s. 88 of the Taxes Management Act 1970.
3. The inspector was represented by Mr Mathew Verghis, Inland Revenue Solicitor's Office, and the company was represented by Mr Jonathan Peacock, counsel. The inspector gave evidence before us.
[Paragraphs 4, 5 and 6 listed the documents before the commissioners, cases cited and the statutes mentioned.]
7. The following facts were admitted or proved before us:
(2) The assessment to tax on loans or advances for the year ended 31 October 1987 was made under Income and Corporation Taxes Act 1970 section 286s. 286 of the Income and Corporation Taxes Act1970, whilst that for the year ended 31 October 1988 was made underIncome and Corporation Taxes Act 1988 section 419s. 419 of the Income and Corporation Taxes Act 1988. The parties were agreed firstly that the company could be liable to interest under Taxes Management Act 1970 section 88s. 88 of theTaxes Management Act 1970 if there was an obligation on the company to give notice under Taxes Management Act 1970 section 10s. 10 of the Taxes Management Act of the loans or advances, and secondly that if an obligation was imposed under Taxes Management Act 1970 section 10s. 10 of the Taxes Management Act 1970, the liability of the company under Taxes Management Act 1970 section 88s. 88 of the Taxes Management Act 1970 required a finding of neglect in respect of the tax charged by the assessment under Income and Corporation Taxes Act 1970 section 286s. 286. Liability under Taxes Management Act 1970 section 88s. 88 in respect of the tax charged by the assessment under Income and Corporation Taxes Act 1988 section 419s. 419 was established by there being a failure to give notice, if Taxes Management Act 1970 section 10s. 10 imposed an obligation.
(3) Although this appeal was concerned with two accounting periods, one of which was covered by the provisions of the Income and Corporation Taxes Act 1970, reference was made to the Income and Corporation Taxes Act 1988 which consolidated the earlier legislation without changing it.
(4) The company is a private company incorporated in the UK on 7 September 1979 for and on behalf of Mr Rodney Taylor and his wife, Mrs Dorothy Anne Taylor. The issued share capital is 100 £1 ordinary shares which are, and have always been, owned by Mr and Mrs Taylor equally. The...
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