Moody v Tyler

JurisdictionEngland & Wales
Judgment Date15 March 2000
Date15 March 2000
CourtChancery Division

Chancery Division.

Lightman J.

Moody
and
Tyler (HM Inspector of Taxes)

The taxpayer appeared in person.

Timothy Brennan (instructed by the Solicitor of Inland Revenue) for the Crown.

Income tax - company distribution - Purchase by unquoted trading company of shares from director - Consideration for shares set off against loan by company to director - Whether a "distribution" - Whether purchase by company of own shares for the benefit of its trade - Whether capital payment - Income and Corporation Taxes Act 1988, Income and Corporation Taxes Act 1988 section 209 subsec-or-para (2) section 219 subsec-or-para (1)ss. 209(2)(b), 219(1)(a).

This was an appeal by the taxpayer by way of case stated against a determination by the general commissioners for New Forest East that the taxpayer was liable to tax under Sch. F.

When the taxpayer resigned in 1989 the company made a loan of £50,000 to him. In 1995 the company bought from him 2747 of its own shares for £50,000. That sum was not paid to the taxpayer but used to discharge the loan of £50,000 by way of set off. The capital originally subscribed for the shares was £2,747.

The general commissioners upheld an assessment for 1995-96 on a distribution by the company amounting to £63,216, calculated on the basis of £50,000 plus a tax, less the £2,747 subscribed for the shares, a credit of £11,113, plus dividend income received by the taxpayer in the year 1995-96. The commissioners found as a fact that there was a distribution within Income and Corporation Taxes Act 1988 section 209s. 209, which was not within the exception in subs. (2)(b).

The taxpayer contended that the payment made by the company in purchasing the 2747 shares should be treated as a capital payment and not giving rise to a distribution under Income and Corporation Taxes Act 1988 section 209 subsec-or-para (2)s. 209(2)(b)because the purchase had been made wholly or mainly for the purpose of benefiting the trade carried on by the company, hence Income and Corporation Taxes Act 1988 section 219 subsec-or-para (1)s. 219(1)(a) applied. The question was whether the purchase by the company of its shares was for the benefit of its trade.

The taxpayer also contended that it would be unfair to treat the payment for the shares as a distribution. Neither his own solicitor nor the company's solicitor had advised him that the payment would be treated otherwise than as capital.

Held, dismissing the taxpayer's appeal:

1. The general commissioners' decision that the exception inIncome and Corporation Taxes Act 1988 section 209 subsec-or-para (2)s. 209(2)(b) did not apply was one of pure fact. There was no evidence that the main purpose, or one of the main purposes, of the company in purchasing the shares was to benefit its trade. It followed that the £50,000 was not a repayment of capital within the exception in Income and Corporation Taxes Act 1988 section 209 subsec-or-para (2)s. 209(2)(b) except as to £2,747 subscribed for the shares.

2. The advice that the taxpayer received was not a matter to be taken into account. It was irrelevant to the appeal.

CASE STATED

1. At a meeting of the commissioners for the general purposes of the income tax for the division of New Forest East held on the 14 November 1997 Christopher Eric Moody ("the appellant") appealed against an assessment to income tax under the provisions of Sch. F (inIncome and Corporation Taxes Act 1988 section 20s. 20of the Income and Corporation Taxes Act 1988) in the sum of £63,216 for the year 1995-96.

2. The question for our consideration was whether the payment made by AH Moody and Son Ltd ("the company") for the purchase of its own shares from the appellant was to be treated as capital under the Taxes Acts or was to be treated as giving rise to an income tax charge under Sch. F (as applied by Income and Corporation Taxes Act 1988 section 20s. 20 of the Income and Corporation Taxes Act 1988).

3. The appellant appeared in person and gave evidence before the commissioners and the respondent was represented by Kathleen Mary O'Neill, one of HM inspectors of taxes from Southampton 5th District.

4. This paragraph set out the documents proved or admitted before the commissioners.

5. The following facts were proved or admitted before the commissioners:

  1. (2) The appellant was a director of the company at all material times until March 1989, when he resigned.

  2. (3) In 1989 the appellant received, in accordance with an agreement reached with the company on the termination of his...

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