Spring Capital Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 18 November 2019 |
| Neutral Citation | [2019] UKFTT 699 (TC) |
| Date | 18 November 2019 |
| Court | First Tier Tribunal (Tax Chamber) |
[2019] UKFTT 699 (TC)
Judge Guy Brannan
Michael Upton and Tim Haddow, Advocates, instructed by Russel & Aitken appeared for the appellant
Sadiya Choudhury, Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Corporation tax – Carry forward of losses under ICTA 1988, s. 343 – Company reconstruction – Quantum of losses available to be carried forward – Relevant assets and liabilities test in ICTA 1988, s. 343(4) and 344(5) and (6) – Identifying the relevant assets and liabilities – Appeal dismissed.
The First-tier Tribunal (FTT) rejected the taxpayer's appeal, finding that the relevant liabilities restriction in ICTA 1988, s. 343 applied to prevent the carry forward of trading losses.
This case involved the transfer of a trade (of supplying seafood) from Spring Salmon & Seafood Limited (SSE) to the appellant, Spring Capital Ltd (SCL). It was common ground that:
- SCL had begun to carry on the same trade as SSS and did so within a two year period;
- the trade of SSS had migrated to SCL on a piecemeal basis over a period of time;
- the common ownership test for the purposes of ICTA 1988, s. 343 was satisfied;
- accordingly, that s. 343 applied to the trade transfer such that the unrelieved trading losses of SSS immediately before the trade transfer were available for relief in SCL subject to any restriction imposed by the relevant assets and relevant liabilities test in s. 343(4); and
- that the relevant liabilities test must be applied immediately before the predecessor company (SSS) ceased to carry on the seafood trade.
This appeal concerned the application of the “relevant assets” and “relevant liabilities” test which required that relief under s. 343 was given only to the extent that the available unrelieved trading losses exceeded the amount by which relevant liabilities exceeded relevant assets. On the basis of SSS's accounts for the period ended 31 January 2005, relevant assets exceeded relevant liabilities by £1,579,574 (after eliminating a corporation tax recoverable asset which should not have been recognised). This excess was greater than the available unrelieved losses of £424,544, therefore none of the losses were available to SCL.
Because SSS's trade migrated to SCL in a piecemeal fashion, it was not clear when SSS ceased trading and hence when the relevant liabilities test should be applied. Had the trade ceased on or around 22 September, as the appellant argued, “relevant assets” would need to be increased in relation to an interim dividend of £1m paid on 1 November 2004.
The FTT held that SSS ceased trading on 11 November 2004 being the date on which the last invoice was issued by SSS to its customers. When a company ceases to deliver goods and issue invoices, its stream of income ceases, albeit that payment in respect of those invoices may be made at a later date. Accordingly, the cessation of those activities – particularly the issuing of invoices – marked the date on which SSS ceased to trade.
The FTT also ruled as inadmissible certain other accounting adjustments proposed by the appellant which would have had an impact on the “relevant liabilities” calculation. These adjustments are largely unique to the particular circumstances of this case and related litigation.
Although this case is, prima facie, about the operation of the “relevant liabilities” test in the “transfers of trade without change of ownership” rules in former ICTA 1988, s. 343 (now in CTA 2010, Part 22, Ch. 1), it adds little to our knowledge of these rules other than confirming that the test must be applied immediately before the time at which the predecessor company ceases trading. The decision is likely to be of more lasting relevance to the determination of the date of cessation of a trade in circumstances where the trade migrates from one company to another in a piecemeal fashion over a period of time.
[1] On 10 February 2015 I released a decision of this Tribunal in respect of this appeal (“the First Decision”). The First Decision was concerned mainly with the question whether Spring Capital Limited (“the appellant”) was entitled to deductions under Schedule 29 to the Finance Act 2002 in respect of the purchase of goodwill. I dismissed the appellant's appeal in relation to this issue (“the amortisation issue”) but directed that the appeal be adjourned on one outstanding issue. I granted permission to appeal the First Decision on limited grounds and the appellant's appeal was dismissed by the Upper Tribunal in Spring Capital Ltd v R & C Commrs [2016] BTC 509 (Judges Sinfield and Greenbank).
[2] The outstanding adjourned issue (“the section 343 issue”) concerned the question whether the appellant was entitled to carry forward losses under section 343 Income and Corporation Taxes Act 1988 (“ICTA”). The question of what losses were available to be carried forward by the appellant depended on the outcome of another appeal by a company called Spring Salmon & Seafood Limited (“SSS”) under reference TC/2011/06273 and, in the First Decision, I adjourned the section 343 issue pending the outcome of that appeal. SSS was the “predecessor” company of the appellant for the purposes of section 343 ICTA, having previously carried on the trade which subsequently came to be carried on by the appellant. The Upper Tribunal, in Spring Salmon & Seafood Ltd v R & C Commrs [2017] BTC 522 (Lord Bannatyne), ultimately determined that appeal in favour of HMRC by upholding closure notices issued by HMRC to SSS which were held to have refused claims made by SSS to carry losses in the 12 months to 31 January 2005 back to earlier accounting periods.
[3] Once the Upper Tribunal had dismissed the SSS's appeal, it was necessary for this Tribunal to determine the adjourned section 343 issue. That it has taken some time to do so is, in large part, due to the fact that the appellant, having had its appeal to the Upper Tribunal in respect of the amortisation issue dismissed, made a further application for permission to appeal the First Decision, which I refused in a decision released on 21 September 2016. The appellants objected to certain reasons which I gave in refusing that second application for permission to appeal and applied that I should recuse myself from hearing the adjourned section 343 issue. In a decision released on 1 May 2018 I refused that recusal application and refused a subsequent application for permission to appeal that decision. The refusal of that application for permission to appeal the recusal decision was upheld by the Upper Tribunal.
[4] At the same time as making the recusal application, the appellant applied for a stay of this appeal in relation to the section 343 issue for reasons which need not detain us. A hearing to consider that application for a stay was arranged for 11 June 2019. At the hearing, the appellant withdrew its application and to avoid further delay I arranged with the parties that a hearing of the outstanding section 343 issue should be held in the week commencing 16 September 2019. That hearing took place on 18 and 19 September 2019 in Edinburgh.
[5] In a nutshell, the section 343 issue concerns the quantum of losses which the appellant can carry forward under section 343 from SSS – a question which involves a consideration of the “relevant assets” and “relevant liabilities” restriction contained in sections 343(4) and 344(5) and (6) ICTA 1988. The appellant claims to be able to carry forward losses under section 343 in respect of the accounting periods ended 9 March 2005 and 30 April 2005–2009.
[6] For ease of reference, I shall refer to the relevant parties using the same abbreviations as I used in the First Decision. At the hearing in 2014 on the amortisation issue leading to the First Decision (“the London hearing”), the appellant was represented by Mr Roderick Thomas. Mr Roderick Thomas was a shareholder and (from 12 February 2007) the company secretary of the appellant. He became a director of the appellant in 2010. He conducted the appellant's correspondence with HMRC. Mr Roderick Thomas was also the director of SSS at all material times. His brother, Mr Stuart Thomas, was a director of the appellant from its incorporation and in all periods material to these appeals. Mr Stuart Thomas was also the company secretary of SSS from 23 May 2004 onwards. I refer in this decision to Mr Roderick Thomas as “Mr Thomas” and to his brother as “Mr Stuart Thomas”. Where I refer to Mr Thomas and Mr Stuart Thomas jointly I do so as “Messrs Thomas.”
[7] At the hearing on 18 and 19 September 2019 in relation to the section 343 issue (“the Edinburgh hearing”), the appellant was represented by Mr Michael Upton and Mr Tim Haddow, Advocates, and HMRC were represented by Ms Sadiya Choudhury, of Counsel.
[8] At the beginning of the Edinburgh hearing, HMRC applied to exclude the accounting evidence of a Mr Fieldhouse, an expert witness put forward by the appellant. HMRC objected to the admission of Mr Fieldhouse's evidence on the basis of relevance and because Mr Fieldhouse was not an independent expert (because he had prepared the accounts of SSS for the year ended 31 January 2003).
[9] The parties agreed that Mr Fieldhouse's evidence should be withdrawn and accordingly it was not admitted into evidence.
[10] In addition, it was agreed between the parties that the Memorandum and Articles of Association of SSS and its bank statements relating to 1 November 2004 should be admitted.
[11] As I have mentioned, the First Decision was primarily concerned with the amortisation issue. In particular, the appellant claimed to have purchased goodwill in what I termed a “tripartite” transaction. It is not necessary to go into detail but, essentially, the tripartite transaction was said to have involved Messrs Thomas acquiring the trade of SSS and then transferring it...
To continue reading
Request your trial
-
Spring Capital Ltd
...[2015] TC 04273 [2017] TC 05928 [2014] BVC 529 [2018] BTC 531 [2018] UKUT 398 (TCC) (Case C-621/18) [2019] BTC 2 Spring Capital Ltd [2019] TC 07471 at paragraph [2018] BTC 17 [2019] BTC 11 [2013] BTC 837 [2018] TC 06500 ...
-
Spring Capital Ltd
...117 Page 22, Answer 6, final sentence [2010] CSOH 82 Paragraph 8 Paragraphs 16 and 17 [2010] CSOH 117 [2015] TC 04273 [2016] BTC 509 [2019] TC 07471 [2014] TC 04002 [2016] BTC 511 [2005] EWCA Civ 990 Paragraph 7.2 Barring Application dated 24 May 201 Paragraph 75 Skeleton Argument (1861) 11......
-
Spring Capital Ltd
...117 Page 22, Answer 6, final sentence [2010] CSOH 82 Paragraph 8 Paragraphs 16 and 17 [2010] CSOH 117 [2015] TC 04273 [2016] BTC 509 [2019] TC 07471 [2014] TC 04002 [2016] BTC 511 [2005] EWCA Civ 990 Paragraph 7.2 Barring Application dated 24 May 2019 Paragraph 75 Skeleton Argument (1861) 1......