R v Commissioners of Inland Revenue, ex parte Newfields Developments Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 17 February 1999 |
| Date | 17 February 1999 |
| Court | Queen's Bench Division |
Queen's Bench Division (Crown Office List).
Moses J.
Kevin Prosser QC and Elizabeth Wilson (instructed by Allen & Overy) for the taxpayers.
Timothy Brennan instructed by the Solicitor of Inland Revenue) for the Crown.
The following cases were referred to in the judgment:
R v IR Commrs, ex parte Lansing Bagnall Ltd TAXTAX[1986] BTC 353; 61 TC 112
Wicks v Firth (HMIT) TAXELR[1982] BTC 402; [1983] 2 AC 214
Corporation tax - Small companies' relief - Relief reduced if company associated with another company - Company associated with another company if under the control of the same person - Construction of definition of "control" - Income and Corporation Taxes Act 1988 section 13 subsec-or-para (4) section 416 subsec-or-para (6)Income and Corporation Taxes Act 1988, ss. 13(4), 416(6).
This was an application for judicial review by a company ("Newfields") of a decision by the Revenue attributing the rights and powers of an "associate" to a person deemed by Income and Corporation Taxes Act 1988 section 416s. 416 of the Income and Corporation Taxes Act 1988 to have control of a company for the purpose of determining the level of small companies' relief under Income and Corporation Taxes Act 1988 section 13s. 13 of the 1988 Act.
The applicant company was controlled by the trustees of the late Mr Walker's will trust under which his widow, Mrs Walker, had a life interest. The trustees of a discretionary trust, of which Mr Walker was the settlor, controlled another company ("Lawrek"). It was agreed that the position was that the trustees of both trusts were associated with Mrs Walker within the Income and Corporation Taxes Act 1988 section 417 subsec-or-para (3) section 417 subsec-or-para (3)Income and Corporation Taxes Act 1988, s. 417(3)(b) and (c) because her late husband was a settlor of the discretionary trust and she had an interest under the will trust.
The issue was whether the Revenue were bound by Income and Corporation Taxes Act 1988 section 416 subsec-or-para (6)s. 416(6) of the 1988 Act to attribute to Mrs Walker the rights and powers of her associates, the trustees, for the purposes of calculating small companies' relief under Income and Corporation Taxes Act 1988 section 13s. 13, so that she was deemed to control both companies.
If a company would otherwise qualify for full relief underIncome and Corporation Taxes Act 1988 section 13 subsec-or-para (1)s. 13(1), relief was reduced by half if the company was associated with another company. If one company had control of another or if both companies were under the control of the same person the companies were associated. The definition of "control" inIncome and Corporation Taxes Act 1988 section 416 subsec-or-para (2)s. 416(2)-(6) was imported intoIncome and Corporation Taxes Act 1988 section 13s. 13by subs. (4). By that definition control of a company by a person's associates "may" be attributed to him.
Newfields applied for judicial review of the Revenue's decision that, having once concluded that Mrs Walker was associated with both Newfields and Lawrek, they were bound to attribute common control of the companies to her even though she had no interest in Lawrek.
Newfields contended that the word "may" in Income and Corporation Taxes Act 1988 section 416 subsec-or-para (6)s. 416(6) conferred a discretion whether to make such attribution which had to be exercised in each case on its merits having regard to the language of the statute, and its policy in relation to small companies relief. That policy was to prevent the fragmentation of activities in order to claim the maximum relief and there was no such intention in the present case.
Held, dismissing the application:
1. The result did not turn on the use of the word "may" as opposed to "shall" in Income and Corporation Taxes Act 1988 section 416 subsec-or-para (6)s. 416(6), but on the purpose of the provision. Parliament adopted the mechanism of Income and Corporation Taxes Act 1988 section 416s. 416 to determine whether a company was associated for the purpose of small companies' relief. In doing so it imported a wide definition of "control" which was not confined to actual control (see the words "shall be taken to have control" in Income and Corporation Taxes Act 1988 section 416 subsec-or-para (4)s. 416(4)). In the context of Income and Corporation Taxes Act 1988 section 13s. 13 the purpose was to identify whether two companies were under the control of the same person (Income and Corporation Taxes Act 1988 section 13 subsec-or-para (4)s. 13(4)). If it were possible to answer that question in the affirmative by exercising the power of attribution, then the power had to be exercised (Income and Corporation Taxes Act 1988 section 416 subsec-or-para (6)s. 416(6)).
2. In the circumstances of this case, it was possible to regard Newfields and Lawrek as being under the common control of Mrs Walker. Accordingly the Revenue had no discretion but were bound to exercise the power under Income and Corporation Taxes Act 1988 section 416 subsec-or-para (6)s. 416(6) of the 1988 Act.
Moses J: The applicant, Newfields Developments Ltd ("Newfields"), claims entitlement to small companies' relief given by s. 13(2) of theIncome and Corporation Taxes Act 1988 ("the 1988 Act") in accounting periods ending from 30 June 1989 to 30 June 1993. The amount of relief, if any, to which it is entitled turns on whether Newfields is an associated company of Lawrek Properties Ltd ("Lawrek"). That question itself depends upon whether Newfields and Lawrek are under the control of a Mrs Walker within the meaning of Income and Corporation Taxes Act 1988 section 13 subsec-or-para (4)s. 13(4). UnderIncome and Corporation Taxes Act 1988 section 13 subsec-or-para (4)s. 13(4) control is to be construed in accordance withIncome and Corporation Taxes Act 1988 section 416s. 416 of the 1988 Act. The proper construction of Income and Corporation Taxes Act 1988 section 416s. 416 in the context ofIncome and Corporation Taxes Act 1988 section 13s. 13lies at the heart of this issue.
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13. Small companies' relief
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(1) Where in any accounting period the profits of a company which-
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(a) is resident in the United Kingdom, and
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(b) is not a close investment-holding company (as defined in section 13A) at the end of that period,
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do not exceed the lower relevant maximum amount, the company may claim that the corporation tax charged on its basic profits for that period shall be calculated as if the rate of corporation tax (instead of being the rate fixed for companies generally) were such lower rate (to be known as the "small companies' rate") as Parliament may from time to time determine.
(2) Where in any accounting period the profits of any such company exceed the lower relevant maximum amount but do not exceed the upper relevant maximum amount, the company may claim that the corporation tax charged on its basic profits for that period shall be reduced by a sum equal to such fraction as Parliament may from time to time determine of the following amount-
| (M - P) × | I | |||
| P |
| Where - | ||
| M | is the upper relevant maximum amount; | |
| P | is the amount of the profits; and | |
| I | is the amount of the basic profits. |
(3) The lower and upper relevant maximum amounts mentioned above shall be determined as follows-
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(a) where the company has no associated company in the accounting period, those amounts are [£150,000] and [£750,000] respectively;
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(b) where the company has one or more associated companies in the accounting period, the lower relevant maximum amount is [£150,000] divided by one plus the number of those associated companies, and the upper relevant maximum amount is [£750,000] divided by one plus the number of those associated companies.
Thus relief may be reduced or eliminated according to the number of companies associated with the taxpayer company claiming relief. The relevant part of Income and Corporation Taxes Act 1988 section 13 subsec-or-para (4)s. 13(4) reads:
…for the purposes of this section a company is to be treated as an "associated company" of another at a given time if at that time one of the two has control of the other or both are under the control of the same person or persons.
In this subsection "control" shall be construed in...
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