Tower MCashback LLP 1 v R & C Commissioners
| Jurisdiction | England & Wales |
| Judgment Date | 02 February 2010 |
| Date | 02 February 2010 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal (Civil Division).
Arden, Scott Baker and Moses L JJ.
Kevin Prosser QC (instructed by the Solicitor for HM Revenue and Customs) for the taxpayer.
Giles Goodfellow QC and Richard Vallat (instructed by Ashton Rowe) for the Crown.
The following cases were referred to in the judgment:
Astall v R & C CommrsUNKTAX [2009] EWCA Civ 1010; [2009] BTC 631
Barclays Mercantile Business Finance Ltd v Mawson (HMIT)UNKTAXELRUNKTAX [2004] UKHL 51; [2004] BTC 414; [2005] 1 AC 684 (HL); [2002] EWCA Civ 1853; [2003] BTC 81 (CA)
Carreras Group Ltd v Stamp CommissionerTAX [2004] BTC 8,077
D'Arcy v R & C CommrsSCD (2006) Sp C 549
Ensign Tankers (Leasing) Ltd v Stokes (HMIT)TAXELRTAX [1992] BTC 110; [1992] 1 AC 655; 64 TC 617
Glaxo Group Ltd v IR CommrsTAXTAX [1996] BTC 59 (CA); [1995] BTC 429
Langham (HMIT) v VeltemaTAXTAX [2003] BTC 15; 76 TC 259
MacNiven (HMIT) v Westmoreland Investments LtdUNKTAXELR [2001] UKHL 6; [2001] BTC 44; [2003] 1 AC 311
Peterson v IR CommrsUNKTAX [2005] UKPC 5; [2010] BTC 129
R v Income Tax Special Commissioners, ex parte ElmhirstELR [1936] 1 KB 487
WT Ramsay Ltd v IR CommrsTAXELR (1981) 54 TC 101; [1982] AC 300
Corporation tax - Capital allowances - Plant and machinery - Capital expenditure on software - ICT expenditure incurred by small enterprises - Enquiry - Closure notices - Subject-matter of appeal - "Soft finance" - Uncommercial loans - Availability of capital allowances in respect of software purchase funded by non-recourse loans indirectly made available by software vendor - Whether expenditure qualifying for full first-year allowance - Whether Special Commissioner had jurisdiction to permit Revenue to raise and rely on additional grounds to support closure notices - Capital Allowances Act 2001, Capital Allowances Act 2001 section 45s. 45 - Taxes Management Act 1970, Taxes Management Act 1970 section 31 subsec-or-para 1 section 28A section 28Bss. 31(1)(b), 28A, 28B.
This was an appeal by HMRC against the decision ([2008] EWHC 2387 (Ch); [2008] BTC 805) that in the circumstances a tax appeal was confined to the question whether the Capital Allowances Act 2001, s. 45(4) applied.
The taxpayers were limited liability partnerships (LLP 1 and LLP 2) which claimed first-year capital allowances in respect of ICT expenditure as small enterprises pursuant to s. 45 of the Capital Allowances Act 2001. They claimed first-year allowances in respect of the full amount of first-year qualifying expenditure on completion of software licence agreements entered into with the vendor of the software (M). The Revenue opened enquiries into the partnership tax returns and self-assessments submitted by LLP 1 for the tax year 2003-04 and by LLP 2 for the tax year 2004-05. Following investigation and correspondence, the Revenue rejected the claim on the grounds that the expenditure had been incurred with a view to granting another person the right to use or otherwise deal with the software in question and thus LLP 1 and 2 were not entitled to the allowance by virtue of s. 45(4).
HMRC abandoned that contention before the Special Commissioner and contended instead that the LLPs had not incurred expenditure in buying the software licences because their members had borrowed 75 per cent of the funds against security provided by the vendor, M, on uncommercial terms. The consideration payable under LLP 2's agreement with M was £27.5 million. Pursuant to that agreement, LLP 2 acquired a right to receive 2.5 per cent of gross revenues from the software. Of the £27.5 million, only £5 million was funded by the investor members of the partnership from their own resources. The balance of £22.5 million was funded by non-recourse loans made to those members by a finance company. The source of that £22.5 million was a series of circular transactions whereby £22.5 million of the consideration paid to M was funded by M out of the consideration itself. It was accepted that LLP 2 incurred capital expenditure to the extent of 25 per cent of the consideration paid for the software licensing agreements.
The Special Commissioner concluded that he had jurisdiction to consider grounds other than the ground on which the inspector had relied in refusing the first-ear allowance. He concluded that LLP 2 was limited to a first-ear allowance in respect of 25 per cent of the first-ear qualifying expenditure it had incurred ((2007) Sp C 619).
Henderson J took a contrary view ([2008] EWHC 2387 (Ch); [2008] BTC 805). He concluded that the scope of any appeal was confined to the question whether s. 45(4) applied and thus restricted to the factual issue as to whether the LLPs had incurred expenditure with a view to granting another person a right to use or to deal with it. Accordingly, he concluded that the Special Commissioner was not entitled to refuse the FYA on any other basis than that for which s. 45(4) provided. In the event that it became relevant, Henderson J concluded that LLP 2 had incurred expenditure in the full amount it claimed. HMRC appealed.
The issues on appeal were whether the Special Commissioner should have limited the appeal to the ground upon which the inspector refused the FYA and should have declined to permit HMRC to advance further grounds for refusing the allowance (the closure notice issue); and, if the Special Commissioner had rightly allowed HMRC to advance the argument as to the extent of expenditure incurred, whether Henderson J was wrong to conclude that LLP 2 had incurred expenditure in the full amount of the consideration it paid for the software licensing agreements, in light of the uncommercial terms on which it had borrowed 75 per cent of the funds.
Held, allowing the appeal on the closure notice issue (Arden LJ dissenting) and dismissing the appeal in respect of LLP 2's expenditure claim:
1. The jurisdiction of the Special Commissioners and the First-tier Tribunal which superseded them was exercised according to the procedure identified in TMA 1970, s. 50. However it was clear from TMA 1970, s. 31(1)(b) that an appeal against any conclusion or amendment in a closure notice pursuant to s. 28A or s. 28B could not stray beyond the subject matter of the conclusions and amendments (if any) stated in the closure notice. Parliament had not chosen to identify any legal principle defining the limitations on the scope and subject-matter of an enquiry and consequently an appeal. It was to the Special Commissioner and tribunal that the statute looked to identify what s. 28ZA described as the subject-matter of the enquiry. The closure notice completed that enquiry and stated the inspector's conclusions as to the subject-matter of that enquiry. The appeal against the conclusions was confined to the subject-matter of the enquiry and of the conclusions. But the jurisdiction of the Special Commissioners or tribunal was not limited to the issue whether the reason for the conclusion was correct. Any evidence or any legal argument relevant to the subject-matter could be entertained by the tribunal subject only to the obligation to ensure a fair hearing. (D'Arcy v R & C Commrs (2006) Sp C 549 considered.)
2. It was a matter for the Special Commissioners or tribunal to identify the subject-matter of the appeal and the Special Commissioner in this case had correctly identified the stated conclusion as being to deny the allowances under s. 45 and the income losses. He then considered whether there was any unfairness in allowing HMRC to challenge the claim to the FYA on other grounds. The fact that the taxpayers had pressed the tax inspector to issue the closure notice had no relevance to the identification of the subject-matter of the appeal. It was open to the inspector to delay until he had considered, for example, the business plan but he had chosen not to do so. The fact that the inspector had indicated that there might have been other issues which arose, was relevant to the exercise of the Special Commissioner's case management powers. The taxpayer was not deprived of an opportunity fairly to marshal evidence as to the other grounds subsequently advanced by HMRC on the appeal.
3. Furthermore, the closure notice itself did not allow so restricted a view of the subject-matter of the appeal. Whilst it did refer to previous correspondence which clearly focused on s. 45(4), the closure notice itself was, in plain terms, a refusal of the claim for relief under CAA 2001, s. 45. That was the conclusion stated pursuant to TMA 1970, s. 28B(1). There was neither statutory warrant nor any need to look further. The issue which arose under s. 45(4) was not the subject-matter of the enquiry, nor the conclusion stated in the closure notice and, accordingly, the closure notice did not limit the appeal to that single issue. Had the inspector declined to issue the closure notice, an appeal might have been delayed for many years whilst he examined the other issues which were raised on appeal to the Special Commissioner. Since those other items required further investigation, it was unlikely that the commissioner would have ordered the closure notice to be served. The taxpayer's claim was a claim for FYA under s. 45. In all the circumstances, the Special Commissioner was entitled to conclude that the subject-matter of the conclusion stated in the closure notice was the claim to a FYA and that he was entitled to consider other issues relevant to entitlement to that allowance under s. 45.
4. Borrowing arrangements might be irrelevant so long as the purchaser actually incurred expenditure on acquiring the plant for the purposes of his trade, e.g. where the borrowing was on regular, commercial terms. However the terms of the borrowing might be relevant in order to cast light on whether the purchaser really incurred the expenditure, the fundamental question being whether the taxpayer had suffered the economic burden of paying the full amount. (Barclays Mercantile...
To continue reading
Request your trial
-
Anderson v Revenue and Customs Commissioners
...s. 64 and 72 – ITA 2007, s. 66 and 74 – ITA 2007, s. 74B – Sanderson v R & C Commrs [2014] BTC 502 – Tower MCashback LLP 1 v R & C Commrs [2010] BTC 154 – R & C Commrs v Charlton [2013] BTC 1,634 – R v Kensington Income Tax Commissioners (ex parte Aramayo) (1913) 6 TC 279 – R v Bloomsbury I......
-
GDF Suez Teesside Ltd v The Commissioners for HM Revenue and Customs
...for the taxpayers relied upon the judgment of Moses LJ in the Court of Appeal in DCC Holdings (UK) Ltd v R & C Commrs [2009] BTC 724, [2010] BTC 154, where he said at [63]: Section 84(1) is the machinery by which all interest under DCC's loan relationships is brought into account. The secti......
-
Redmount Trust Company Ltd
...a reasonable time scale. [153] Moses LJ in giving the judgment of Tower MCashback LLP 1 & Anor v Revenue and Customs Commissioners. [2010] BTC 154Tower MCashback LLP 1 & Anor v Revenue and Customs Commissioners. [2010] BTC 154 at the Court of Appeal said: As I have already observed, apart f......
-
Daarasp LLP; Betex LLP
...and not all, of the capital allowances claimed. Both the appellants and HMRC relied upon Tower MCashback v R & C Commrs [2011] BTC 294; [2010] BTC 154; [2008] BTC 805 in support of their views. The FTT accepted that the “knock-out” points were under appeal and open to the Tribunal to consid......