JS Torkington v HM Revenue and Customs

JurisdictionUK Non-devolved
Judgment Date17 September 2010
Neutral Citation[2010] UKFTT 441 (TC)
Date17 September 2010
CourtFirst Tier Tribunal (Tax Chamber)

[2010] UKFTT 441 (TC)

Ms J Blewitt (Chairman), Mr A Holden (Member)

Torkington

Mr A Gotch for the Appellant

Mr D Weissand, HM Inspector of Taxes for HM Revenue and Customs, for the Respondents

Appeal against amended self-assessment - whether payments of interest eligible for relief under Income and Corporation Taxes Act 1988, Income and Corporation Taxes Act 1988 section 353s. 353 - whether a loan was used wholly and exclusively for the purposes of business under Income and Corporation Taxes Act 1988, Income and Corporation Taxes Act 1988 section 360 subsec-or-para 1s. 360(1)(b)

DECISION

1. The Appellant appeals against an HMRC amendment dated 16 March 2009 of the Appellant's self-assessment for the year ended 5 April 2005. The Appellant's self-assessment included a claim for repayment of income tax in the sum of £24,032.96. The HMRC amendment to the assessment resulted in income tax payable in the sum of £33,855.78.

2. The facts can be summarised as follows; the Appellant was at the relevant time a Director and Chairman of a company called Weatherwise (UK) Ltd incorporated in the United Kingdom and a wholly owned subsidiary of Openshield Ltd ("Openshield"), a company also incorporated in the United Kingdom. The Appellant owned 50% of Openshield. The remaining 50% was owned by Mr Maclean. The Appellant obtained a personal loan in the sum of 3 million Canadian Dollars (C$) from Arbitrage Research and Trading Ltd ("Arbitrage") repayable with interest at a rate of 12% per annum. On 25 November 2003 the Appellant which loaned Weatherwise (UK) Ltd C$ 3 million on identical terms with an identical rate of interest. The loan agreements between Arbitrage and the Appellant, and the Appellant and Weatherwise (UK) Ltd recite that the purpose of the loan was to finance the development of hangar and maintenance facilities at the Lake Simcoe Regional Airport, Ontario, Canada through a Canadian company called Weatherwise Aviation Inc. Weatherwise Aviation Inc is a company registered in Canada and is wholly owned by UKcan Investments Inc ("UKcan") which is also registered in Canada and which in turn is a wholly owned subsidiary of Weatherwise Guarantee Company in which the Appellant owns 50% of the shares and Mr Maclean owns the remaining 50%. On 26 November 2003 Weatherwise (UK) Ltd loaned C$ 3 million to Weatherwise Aviation Inc repayable at an annual rate of interest of 15%.

3. In arriving at the amount of his self-assessment for the year ended 5 April 2005, the Appellant claimed relief for interest of £143,163.79 (sterling equivalent) paid to Arbitrage. On 14 June 2006 HMRC gave notice of its intention to enquire into the Appellant's self-assessment tax return for the year ended 5 April 2005. On 16 March 2009 HMRC concluded its enquiries and issued a closure notice under Taxes Management Act 1970 section 28Asection 28A TMA 1970. This was accompanied by a self-assessment amendment disallowing the loan interest relief claimed. On 8 April 2009 the Appellant's representatives, Duncan Boxwell and Company, appealed on behalf of the Appellant against the closure notice and amendment.

4. The issue for this Tribunal to determine is whether the interest paid by the Appellant to Arbitrage in the year ended 5 April 2005 is eligible for relief under Income and Corporation Taxes Act 1988 section 353section 353 of Income and Corporation Taxes Act 1988 ("ICTA") by virtue of Income and Corporation Taxes Act 1988 section 360 subsec-or-para 1section 360(1)(b) ICTA 1988.

5. Relief for interest paid is only available under section 353 ICTA 1988 if it is interest eligible for relief under Income and Corporation Taxes Act 1988 section 359section 359 to section 365 ICTA 1988. It was agreed by both parties that only section 360(1)(b) could possibly grant relief to the Appellant.

6. Section 360(1)(b) ICTA 1988 provides that loan interest is eligible for relief under section 353 ICTA 1988 if it is interest on a loan to an individual to defray money applied:

In lending money to such a close company which is used wholly and exclusively for the purposes of the business of the company or of any associated company of it which is a close company satisfying any of those conditions.

7. HMRC accepted during the hearing that Weatherwise (UK) Ltd was a close company given that it was a company that was under the control of five or fewer participants as required by Income and Corporation Taxes Act 1988 section 414 subsec-or-para 1section 414(1) ICTA 1988.

8. The issue for the Tribunal is whether the remainder of the criteria of section 360(1)(b) are satisfied and the Tribunal will deal with these in turn.

… used wholly and exclusively for the purposes of the business of the company …

9. HMRC submit that in order to establish whether or not this requirement was satisfied, the Tribunal must first consider how the word "business" is to be interpreted or applied. HMRC indicated that the dictionary definition was "habitual occupation, profession, trade." Although HMRC accept that there are no case authorities on the application or definition of the word "business" similar to the specific context of this case, the Tribunal was helpfully referred to the following cases in which guidance was given as to the interpretation to be applied; Town...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT