Andrew Chappell v The Commissioners for HM Revenue and Customs
| Jurisdiction | UK Non-devolved |
| Judge | Mr Justice Simon,Judge Sinfield |
| Neutral Citation | [2014] UKUT 0344 (TCC) |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
| Date | 28 July 2014 |
| Subject Matter | Tax,28 July 2014 |
| Published date | 01 December 2016 |
[2014] UKUT 0344 (TCC)
Appeal number FTC/48/2013
INCOME TAX – tax avoidance scheme – whether there was transfer of overseas
securities and payment of manufactured overseas dividend when relevant statutory
provisions construed purposively and transactions viewed realistically - no –
whether annual payment not payable under deduction and retention of income tax
was deductible for purposes of income tax - no – if payment deductible as payment
of manufactured overseas dividends treated as annual payments within section
349(1) ICTA 1988 whether Section 3 ICTA 1988 restricts tax relief to higher rate –
yes – appeal by Appellant dismissed and appeal by Respondents allowed
UPPER TRIBUNAL
TAX AND CHANCERY CHAMBER
ANDREW CHAPPELL Appellant
- and –
THE COMMISSIONERS FOR
HER MAJESTY’S REVENUE AND CUSTOMS Respondents
Tribunal:
Mr Justice Simon
Judge Greg Sinfield
Sitting in public in London on 7 and 8 July 2014
David Ewart QC and Edward Waldegrave, counsel, instructed by NT Advisers
LLP, for the Appellant
David Goy QC and Aparna Nathan, counsel, instructed by the General Counsel
and Solicitor to HM Revenue and Customs, for the Respondents
© CROWN COPYRIGHT 2014
2
DECISION
Introduction
1. In his self-assessment tax return for the tax year 2005-06, the Appellant (‘Mr
Chappell’) claimed a deduction from his total income of £303,123 in respect of two
payments. He claimed that he was entitled to deduct the payments in computing his 5 income for tax purposes because they were manufactured overseas dividends
(‘MODs’), as defined by paragraph 4(1) of Schedule 23A to the Income and
Corporation Taxes Act 1988 (‘ICTA’), and thus were ‘annual payments’ within
section 349(1) of ICTA and regulation 2B(3) of the Income Tax (Manufactured
Overseas Dividend) Regulations 1993 (the ‘Regulations’). 10
2. The payments had been made as part of a marketed tax avoidance scheme which
was designed to enable Mr Chappell to avoid tax on part of his income that would
otherwise be subject to income tax. The transactions that he entered into left him in
exactly the same position when they completed as he was before they began save for
the payment of fees. The scheme did not have any commercial or other purpose apart 15 from the avoidance of tax.
3. In a closure notice dated 1 November 2010, the Respondents (‘HMRC’)
amended Mr Chappell’s self-assessment to disallow the deduction and bring the
£303,123 into the charge to tax. Mr Chappell appealed to HMRC against the closure
notice and notified the appeal to the First-tier Tribunal (‘the FTT’). 20
4. Mr Chappell contended that the payments were MODs as defined by paragraph
4(1) of Schedule 23A to ICTA, that the MODs were paid in circumstances prescribed
by regulation 2B(2) of the Regulations and that, by virtue of regulation 2B(3) of the
Regulations, the amounts paid were treated as if they were annual payments within
section 349(1) of ICTA and reduced his income. HMRC’s principal argument was 25 that, applying ‘the Ramsay principle’ derived from the decision of the House of Lords
in W. T. Ramsay Ltd v Inland Revenue Commissioners [1982] AC 300, [1981] STC
174 (‘Ramsay’) and the line of cases that followed it, the payments did not fall within
section 349(1). HMRC also put forward two alternative arguments. First, even if the
payments were annual payments under regulation 2B(3), Mr Chappell was not entitled 30 to deduct the payments from his income because the Regulations did not provide for
tax to be deducted at source from such payments. Secondly, even if the payments
were annual payments and could be deducted from income, the effect of section 3 of
ICTA was that Mr Chappell was liable to tax at the basic rate on the income out of
which he made the payments and was therefore only entitled to tax relief at the higher 35 rate.
5. In a decision released on 21 December 2012, [2013] UKFTT 098 (TC), (‘the
Decision’), the FTT (Judge John Walters QC and Tym Marsh) accepted HMRC’s
Ramsay argument and dismissed Mr Chappell’s appeal. That conclusion disposed of
the appeal but, in case they were wrong and since they had heard full argument on 40 them, the FTT also considered HMRC’s alternative arguments. The FTT accepted
HMRC’s contention that Mr Chappell was not entitled to deduct the payments from
his income because regulation 2B(3) of the Regulations did not provide that the
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