Simpson v R & C Commissioners
| Jurisdiction | England & Wales |
| Judgment Date | 19 January 2009 |
| Date | 19 January 2009 |
| Court | Special Commissioners (UK) |
special commissioners decision
Howard M Nowlan
Mr Peter Simpson, solicitor, in person on behalf of himself and the other trustees
Mr Akash Newbatt, counsel, for the Respondents
Income tax - donations to charity - assessment made to recover income tax initially refunded, the recovery based on the claim that donations to an alleged charity had not ranked as qualifying donations under Finance Act 1990 section 25s. 25 Finance Act 1990 - whether the alleged donations took the form of "a payment of a sum of money" - whether the recipient of the donations was a charity - appeal dismissed
A special commissioner concluded that all the assessments made on the trustees of a purported recreational charity for recovery of tax repaid pursuant to gift aid declarations were correct.
The appellants were supporters of their local football club and the directors of a company limited by guarantee which operated the club and held the lease of its ground. The club, having no shareholders, reinvested any profits in its business. Any surplus on a winding up was to be distributed to other similar clubs, institutions or charities as selected by the guarantor members or the Football Association.
When the club fell into financial difficulties, the appellants provided loans and in 2003 formed EBSF as a recreational charity with the appellants as trustees. HMRC conceded that, viewing the wording of the trust deed in isolation, and ignoring the way in which it was contended that the trust was actually intended to operate, the trusts objects were exclusively charitable, and thus that it rightly ranked as a charity.
The basic aim of the creation of EBSF appeared to have been to enable the appellants to donate funds to the charitable trust in amounts equal to their loan balances with the club; whereupon EBSF would resolve to distribute equivalent amounts to the club and the club would repay equivalent amounts of the directors' loans. The directors would then claim relief on the basis that they had made qualifying donations to charity, which should enable the charity to reclaim the basic rate of income tax that the donors would have declared that they had suffered on the income donated, and EBSF would then donate the tax recovered to the club to cover the cost of further works.
Bank statements for both the club and EBSF indicated that in November 2003, cheques were swapped for £50,000 in each direction. The EBSF account indicated that the balance before and after these transactions was £0. The club's account was overdrawn in the amount of £2,973 before and after the transactions.
In November 2003, the three appellants made gift aid declarations in respect of donations to EBSF in the aggregate amount of the loans identified in various letters, repayment of which had been directed to EBSF, and not just in the amount of £50,000. The basic rate of income tax was refunded to EBSF. Following the two gift aid claims, both of which were initially accepted and amounts paid to EBSF, in August 2004 HMRC contacted EBSF and indicated that the claims were to be reviewed. Amongst the points made by HMRC, they wanted to see evidence not only of the receipt and banking of the gifts, but also evidence of the receipt and banking of the repayment of tax.
In March 2007, the trustees resolved to wind up the EBSF. At that point it was said to have no creditors or debtors and to have just £289 in hand that was about to be transferred to a charity or other body with similar objects. HMRC remained of the view that tax had wrongly been refunded to EBSF, and assessments were made in 2005 and 2008 to recover the tax that had been repaid. The appellants appealed raising questions inter alia as to whether the requirements of FA 1990, Finance Act 1990 section 25s. 25 (dealing with qualifying donations to charity) had been satisfied.
Whether the alleged donations took the form of "a payment of a sum of money" for purposes of FA 1990, Finance Act 1990 section 25s. 25; whether the directors, in procuring the payment of the £50,000, failed to satisfy Finance Act 1990 section 25 subsec-or-para 2s. 25(2); and whether EBSF was a charity.
The special commissioner (Howard M Nowlan) (dismissing the appeal) said that when the word "payment" was directly coupled with the words "of a sum of money", payment required money to be paid in cash, by satisfied cheque, or by electronic transfer or other similar means. Where a debt was assigned, say to EBSF, and many months or years later the assigned debt was paid off, it was impossible to say that the donation took the form of a payment of money. The donation took the form of the assignment of a debt, and the later remote payment was not the gift at all. In the present case, nothing beyond the £50,000 was ever actually paid by anyone as a sum of money. Moreover, there was no trace of the tax refunds that were initially granted to EBSF. They were neither shown in its accounts, nor reflected in any way as additions to income in its income and expenditure accounts, nor reflected as further distributions.
The position was different as regards the £50,000. HMRC had conceded that if a gift took the form of a direction by a creditor to his debtor to repay a debt and to pay the money to EBSF, that would constitute a payment of a sum of money. The facts as regards the £50,000 were much closer to the position that the directors called for immediate repayment to be made, and to be made to EBSF. As regards the £50,000 element, that was then paid immediately by cheque, and so there was a "payment of a sum of money". For the purposes of Finance Act 1990 section 25s. 25, it was not fatal that the money payment was not actually made by the donor himself, but rather procured by him.
There were countless situations of money flowing in two directions being settled by swapped cheques, and it was usually accepted that there had then been payments in both directions. Thus, as regards the £50,000, the directors did, to that extent, achieve their object of making a donation that would take the form of a payment of money (it being irrelevant that the payment was not actually made by the directors themselves) (Albert Lee v IR CommrsTAX(1943) 25 TC 485 considered).
The next question was whether the directors, in procuring the payment of the £50,000, failed to satisfy the condition in Finance Act 1990 section 25 subsec-or-para 2s. 25(2) that they should not receive any benefit in consequence of the making of the donation. If the club had been unable to repay the directors' loans, but for the distribution by the charity, then the directors would have been at risk of failing that test. On balance, however, and partly because the point was not central to the decision, it was accepted that the directors could have secured repayment of their loans, absent the distributions from EBSF (albeit that that might have involved the winding up of the club, and the sale of its land for other purposes).
The donations made in this case, and in particular the £50,000, which was the only payment of a sum of money that potentially qualified as a charitable donation, was made to EBSF and not to the club which led to the question whether EBSF itself was a charity. The fact that the club was not, and could not have been, a charity was not necessarily fatal to the appellants' case. It would be legitimate for a charity designed to promote recreation to make distributions to an entity such as the club in this case. However, to satisfy the charitable requirements, the trustees would have had to give particular attention to whether the items for which they were making contributions fostered public benefit in the requisite manner.
As regards the charitable status of EBSF, the fundamental point was that, whatever the objects of the charity were stated to be in its trust deed, the real and clear object was to filter the totality of donations that it received to the club in order to meet all the costs that had been met out of the directors' loans, and thus enable those loans to be repaid. If that object had been made clear to the Charity Commission in advance, it was not likely that the Commission would have accepted that EBSF was a charity at all. It was not a charity.
1. This was a very difficult case. It was difficult in the sense that it raised a number of difficult factual and legal questions. It left me agonising over how to arrive at the correct answer, and somewhat mindful that I would have welcomed more guidance in relation to charity law to assist me in arriving at that decision. The numerous difficult legal questions also left me bewildered at the battle that the Appellant had had to wage in order to persuade the Respondents to consent to the case being heard by a Special Commissioner rather than by the General Commissioners. The case was also difficult in the other sense. In other words, having very reluctantly decided that I must dismiss this appeal, I have to say that I cannot help but applaud the public-spirited generosity of the Appellants who have between them donated over £123,000 to save and improve their local amateur football club, for no personal benefit whatsoever, and in a way which, at the very least, bordered on having been effected by way of the payment of a charitable donation.
2. Peter Simpson, a solicitor and partner in the firm of Lovegroves LLP, presented the case personally and on behalf of the other former trustees of the East Berkshire Sports Foundation ("the EBSF"), namely Kevin Stott and Abbas Shams. He alone gave evidence, and no witnesses were called by the Respondents.
3. The three Appellants were strong supporters of their local East Berkshire football club, namely Windsor & Eton Football Club. This club was formed in 1892, and has occupied its present ground since...
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Champions Fun Learning Centre (a charity)
...Mr Brown seems to accept this. We are not so sure. The case from which HMRC derive their views on this is clearly Simpson v R & C Commrs (2009) Sp C 732 (Special Commissioner Howard M Nowlan) at [34] to [39]. [203] The crucial point to us is that the appellant is liable to pay the expenses ......