JurisdictionUK Non-devolved
Judgment Date05 January 2021
Neutral Citation[2021] UKFTT 3 (TC)
Date05 January 2021
CourtFirst Tier Tribunal (Tax Chamber)

[2021] UKFTT 3 (TC)

Judge Jonathan Cannan, Mr Michael Bell


Capital gains tax – Erepreneurs' relief – TCGA 1992, s. 169I – Whether Condition A satisfied – Whether throughout the period of one year ending with the disposals the appellant was an employee of the company – Existence of an employment – Whether the employment was terminated prior to disposal – Appeal dismissed.


[1] This appeal concerns the appellant's entitlement to entrepreneurs' relief for capital gains tax. The appellant is Mr Peter Kennedy (“Mr Kennedy”) who was until August 2013 a director of an AIM listed company called Bglobal plc (“Bglobal”). In 2014–15 he made a disposal of shares in Bglobal realising a taxable gain of £2,555,589. In 2015–16 he made a second disposal of shares in Bglobal realising a taxable gain of £449,397. Mr Kennedy claimed entrepreneurs' relief in relation to both disposals in his tax returns for the relevant years. HMRC opened enquiries into those returns in January 2017 and on 24 July 2018 closure notices were issued denying the relief claimed by Mr Kennedy.

[2] Relief has been refused by HMRC on the basis that Mr Kennedy was not an officer or employee of Bglobal throughout the periods of one year ending with the date of each disposal. Mr Kennedy contends that he was an employee of Bglobal throughout the periods. That is the broad issue on the appeal. It is for Mr Kennedy to satisfy us in relation to each disposal that he was an employee of Bglobal throughout the period of one year ending with the date of disposal.

[3] Mr Ripley, who appeared for Mr Kennedy, relied on three propositions in order to establish entitlement to the relief:

  • Mr Kennedy was employed by Bglobal pursuant to a written service agreement.
  • The service agreement was never properly terminated.
  • As a matter of fact and law, Mr Kennedy's employment by Bglobal subsisted at the date of each disposal.

[4] Mr Kennedy gave evidence in support of his appeal. He made a witness statement dated 2 September 2019 and gave oral evidence. He was cross-examined on his evidence by Mr Hall who appeared on behalf of HMRC. Based on Mr Kennedy's evidence and the documentary evidence before us we make the findings of fact set out below. We firstly set out some background facts which are not in dispute and then make our findings of fact relevant to the issues concerning Mr Kennedy's employment status with Bglobal and the termination of his employment.

[5] In the light of our primary findings of fact we consider the question of whether, as a matter of fact and law Mr Kennedy's employment with Bglobal was terminated prior to the two disposals of shares.

Relevant statutory provisions

[6] We can set out the relevant statutory provisions quite briefly. Provision for entrepreneurs' relief (now known as “business asset disposal relief”) is contained in section 169H Taxation of Chargeable Gains Act 1992 (“TCGA 1992”) which provided at all material times as follows:

(1) This Chapter provides for a lower rate of capital gains tax in respect of qualifying business disposals (to be known as “entrepreneurs' relief”).

(2) The following are qualifying business disposals –

  • a material disposal of business assets: see section 169I,

[7] A material disposal of business assets is defined by section 169I(1) to include a disposal of shares in a company, subject to certain conditions set out in section 169I(6)–(7B). For present purposes Condition A is relevant which provides as follows:

(6) Condition A is that, throughout the period of 1 year ending with the date of the disposal –

  • the company is the individual's personal company and is either a trading company or the holding company of a trading group, and
  • the individual is an officer or employee of the company or (if the company is a member of a trading group) of one or more companies which are members of the trading group.

[8] There is no issue in this appeal that Bglobal fell to be treated as Mr Kennedy's personal company and was a trading company. The issue is whether Mr Kennedy was an employee of Bglobal for the period of one year ending with the date of each disposal such that section 169(I)(6)(b) was satisfied.

Background facts

[9] Mr Kennedy has considerable experience in various technology businesses. In 1997 he co-founded a small software company, later called Utilisoft Limited and part of Utiligroup Limited. It took advantage of electricity market deregulation in the UK and Australia, providing a range of business services including energy retail software solutions, energy trading infrastructure products and early stage smart metering services. The business grew to employ 230 people.

[10] In 2004 Mr Kennedy set up Bglobal Metering Limited (“BML”) with a view to creating a dedicated smart metering business. BML's smart metering product collected information about customers' energy usage which was sent wirelessly to BML and then passed to the energy suppliers, ensuring that the customer received accurate bills. Customers at this stage were commercial businesses, local authorities and other public bodies and the technology enabled customers to reduce energy usage and lower bills.

[11] In March 2007, Bglobal was created as a corporate vehicle through which BML would be listed on the Alternative Investment Market (“AIM”) in April 2007. It was intended that the listing would provide capital to roll out BML's smart metering technology across residential markets. When Bglobal listed on AIM it had a market capitalisation of £30 million. At this stage Mr Kennedy was a director and chief executive of BML and Bglobal. He was also the largest single shareholder with some 23.66% of the shares. Bglobal strengthened its management team at the time of the listing and appointed new executive directors.

[12] Mr Kennedy remained as chief executive of Bglobal until 1 May 2009 at which point he became non-executive chairman, providing support in an advisory capacity and with responsibility for strategic development. He subsequently became executive chairman.

[13] In May 2010, Bglobal acquired Utiligroup Limited thereby diversifying the range of energy services accessible to customers.

[14] We shall deal with Mr Kennedy's status as a director and employee of BLM and Bglobal in the next section of this decision. For present purposes, it is common ground that Mr Kennedy ceased to be a director of Bglobal following a resolution of shareholders on 15 August 2013. Mr Kennedy's son, Nicholas Kennedy was the finance director at that time and he ceased to be a director in October 2013.

[15] Mr Kennedy made the following disposals of his shares in Bglobal:

  • On 12 September 2014 Mr Kennedy disposed of shares for £2,766,589 realising a chargeable gain of £2,566,589. After deducting the annual exempt amount, he had a taxable gain for 2014–15 of £2,555,589.
  • On 16 September 2015 Mr Kennedy disposed of shares for £460,497 realising a chargeable gain in the same amount because he had no base cost. After deducting the annual exempt amount, he had a taxable gain for 2015–16 of £449,397.

[16] Both these disposals arose in the context of distributions of capital by Bglobal following sales of various parts of its business. In September 2014 Bglobal de-listed from AIM following the sale of two business units and made a capital distribution to shareholders. Bglobal then entered members' voluntary liquidation on 17 August 2015. The disposal of shares on 16 September 2015 arose on the final distribution to members. Bglobal was then dissolved on 17 January 2018.

[17] Mr Kennedy made claims to entrepreneurs' relief in respect of each disposal of shares in his tax returns for 2014–15 and 2015–16. On 23 January 2017 HMRC opened enquiries into those returns. Closure notices were issued on 24 July 2018 in which HMRC disallowed Mr Kennedy's claims for relief on the basis that he was not an officer or employee of Bglobal throughout the period of one year ending with each disposal.

[18] Mr Kennedy lodged notices of appeal against the closure notices on 21 August 2018. The conclusions in the closure notices were confirmed in HMRC's review letter dated 14 November 2018 and the appeals were notified to this Tribunal on 10 December 2018.

Evidence and findings of fact

[19] In this section we describe the evidence and some or our findings of fact relevant to contentious matters. In particular, the contractual arrangements which Mr Kennedy had with Bglobal and the circumstances in which Mr Kennedy ceased to be a director of Bglobal in August 2013. Our findings of fact in relation to the principal issues, which to a large extent depend on the inferences we draw from findings of primary fact, are contained in the discussion section which follows.

[20] It is common ground that Mr Kennedy had the following roles with Bglobal and with BLM prior to the incorporation of Bglobal in the period 2004 to 2013:

Period to April 2007

Director and chief executive

April 2007 – May 2009

Managing director

May 2009 – Nov 2010

Non-executive chairman

Nov 2010 – August 2013

Executive chairman

[21] Mr Kennedy was described as chief executive for certain periods and as managing director for certain periods. Those terms were effectively used inter-changeably and did not signify any different role being undertaken.

[22] The evidence did not include any contractual documentation for the period prior to March 2007 and it is not clear whether Mr Kennedy had a written contract of employment before that date. The first evidence of a written contract was an unsigned service agreement between Mr Kennedy and Bglobal dated 22 March 2007 (“the 2007 Agreement”). The date was inserted in handwriting. Pursuant to the 2007 Agreement Mr Kennedy was to be employed and to serve as managing director of Bglobal. He was required to devote the whole of his time and attention to the affairs of the company. His salary was expressed to be £150,000 pa which...

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