The Commissioners for HM Revenue and Customs v English Holdings (BVI) Ltd
| Jurisdiction | UK Non-devolved |
| Judge | Mrs Justice Rose,Judge Herrington |
| Neutral Citation | [2017] UKUT 0842 (TCC) |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
| Subject Matter | Tax,14 December 2017 |
| Date | 14 December 2017 |
| Published date | 14 December 2017 |
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[2017] UKUT 0842 (TCC)
Appeal number: UT/2016/0196
INCOME TAX – whether loss arising in trade any profits of which would
have been subject to corporation tax could be set against profits subject to
income tax – appeal dismissed
UPPER TRIBUNAL
TAX AND CHANCERY CHAMBER
THE COMMISSIONERS FOR HER MAJESTY’S
REVENUE AND CUSTOMS
Appellants
- and -
ENGLISH HOLDINGS (BVI) LIMITED Respondent
TRIBUNAL:
MRS JUSTICE ROSE, CHAMBER PRESIDENT
JUDGE TIM HERRINGTON
Sitting in public at The Rolls Building, Fetter Lane, London EC4A 1NL on 17
and 18 October 2017
David Yates, instructed by the General Counsel and Solicitor to HM Revenue
and Customs, for the Appellants
Michael Firth instructed by Brian White Limited for the Respondent
© CROWN COPYRIGHT 2017
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DECISION
1. This is an appeal brought by the Appellants, HMRC, against the decision of the
First-tier Tribunal (Judge Mosedale) dated 20 June 2016 ([2016] UKFTT 0436 (TC)). 5 In that decision Judge Mosedale allowed the appeal of the Respondent (‘English
Holdings’) against a closure notice that had refused English Holdings’ claim for loss
relief under section 64 of the Income Tax Act 2007. The appeal raises an issue about
the interrelation of corporation tax and income tax in respect of a non-UK resident
company where part of the company’s business falls within the corporation tax regime 10 and part of its business falls within the income tax regime. Judge Mosedale gave
permission to appeal in a decision dated 6 September 2016.
2. The facts are as set out in the FTT’s judgment and were not in dispute.
(1) English Holdings is a company registered in the British Virgin Islands
and is not resident in the UK. 15
(2) At the relevant time, it had a permanent establishment (‘PE’) in the UK
through which it carried on the activity of trading in land situated in the
United Kingdom (‘the PE trade’). If it had made profits on the PE trade,
English Holdings would have been chargeable to corporation tax on those
profits. In the year to 31 March 2011, the PE trade made a loss of over £2 20 million.
(3) In addition to that trade, English Holdings owned a number of
investment properties in the UK on which it earned rental income (‘the
letting business’). This letting business was not carried out through a PE
and so any profits were chargeable to income tax. In the tax year ended 5 25 April 2010 the letting business made profits of over £1 million which
HMRC consider resulted in an income tax liability of just over £200,000.
3. The issue in this appeal is the apparently straightforward one of whether English
Holdings is able to set off the loss incurred in the PE trade against the profits arising
from the letting business with the effect of cancelling the income tax that would 30 otherwise be charged on the letting business profits. English Holdings say that there
is no reason why they should not be able to do so and Judge Mosedale agreed.
HMRC argue that it is clear from the relevant legislation that the corporation tax and
income tax regimes are intended to be separate so that losses incurred under one
regime cannot be used to offset profits subject to the other. 35
The relevant statutory provisions
4. The provisions governing the imposition of the charge to corporation tax and the
charge to income tax are spread over a number of different statutes. For income tax,
the main statute is the Income Tax Act 2007 (‘ITA 2007’). Section 1 ITA 2007
helpfully sets out an overview of the Income Tax Acts. For our purposes, these are the 40 Income Tax (Earnings and Pensions) Act 2003 (‘ITEPA’) which deals with, amongst
other things, the taxation of employment income; the Income Tax (Trading and Other
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Income) Act 2005 (‘ITTOIA’) which deals with the taxation of trading income and
property income; and the ITA 2007 itself which deals largely with the mechanics of
the imposition of the charge.
5. For corporation tax, there are two main statutes, the Corporation Tax Act 2009
(‘CTA 2009’) and the Corporation Tax Act 2010 (‘CTA 2010’). The CTA 2009 5 contains basic provisions including the imposition of the charge to corporation tax on
the income and chargeable gains of companies, referred to collectively as “profits”.
The CTA 2010 deals with the calculation of the corporation tax charge chargeable on
a company’s profits, in particular the rates at which corporation tax is charged and
how to ascertain the amount of profits to which the rates of tax are applied. It also 10 makes provision for relief for trade losses and for losses from property businesses.
6. As a matter of general principle the corporation tax and income tax regimes are
separate. The separation is effected by section 3 CTA 2009. Section 3 is heralded by
section 1(1)(b) CTA 2009 which provides that sections 3 and 4 CTA 2009 deal with
“the exclusion of income and chargeable gains subject to corporation tax from income 15 tax and capital gains tax”. Section 3 CTA 2009 itself provides:
“3 Exclusion of charge to income tax
(1) The provisions of the Income Tax Acts relating to the charge
to income tax do not apply to income of a company if –
20 (a) The company is UK resident; or
(b) The company is not UK resident and the income is within its
chargeable profits as defined by section 19.”
25 7. Section 4 CTA 2009 makes similar provision in respect of capital gains tax.
8. The treatment of non-UK resident companies so far as corporation tax is
concerned is dealt with further in section 5 CTA 2009 which specifies the territorial
scope of the charge. This provides:
“5 Territorial Scope of charge 30 (1) A UK resident company is chargeable to corporation tax on all
its profits wherever arising.
(2) A non-UK resident company is within the charge to
corporation tax only if it carries on a trade in the UK through a 35 permanent establishment in the UK.
(3) A non-UK resident company which carries on a trade in the
UK through a permanent establishment in the UK is chargeable to
corporation tax on all its profits wherever arising that are 40 chargeable profits as defined in section 19 (profits attributable to
its permanent establishment in the UK)
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