Stirling Jewellers (Dudley) Ltd and The Commissioners for HM Revenue and Customs
| Jurisdiction | UK Non-devolved |
| Judge | Judge Herrington,Judge Richards |
| Neutral Citation | [2020] UKUT 0245 (TCC) |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
| Subject Matter | Tax,13 August 2020 |
| Date | 13 August 2020 |
| Published date | 14 August 2020 |
[2020] UKUT 0245 (TCC)
Appeal number: UT/2019/0163 (V)
INCOME TAX – profits of a jewellery and bullion trader – appeals by taxpayer and
by HMRC – presumption of continuity – taxpayer’s appeal allowed and HMRC’s
appeal dismissed
UPPER TRIBUNAL
(TAX AND CHANCERY CHAMBER)
STIRLING JEWELLERS (DUDLEY) LIMITED
Appellant/Respondent
-and-
THE COMMISSIONERS FOR HER MAJESTY’S
REVENUE & CUSTOMS
Respondents/Appellants
Sitting in public by way of remote video hearing treated as taking place at The Royal
Courts of Justice, Strand, London on 15 and 16 July 2020
Thomas Chacko, instructed by CWP Accountants, for Stirling Jewellers (Dudley)
Limited
Sadiya Choudhury, instructed by the General Counsel and Solicitor for Her Majesty’s
Revenue & Customs, for the Commissioners
© CROWN COPYRIGHT 2020
TRIBUNAL:
JUDGE TIM HERRINGTON
JUDGE JONATHAN RICHARDS
2
DECISION
Introduction
These are appeals by both Stirling Jewellers (Dudley) Limited (“Stirling”) and
HMRC against a decision (the “Decision”) of the First-tier Tribunal (Tax Chamber)
(the “FTT”) released on 22 January 2019.
At material times, Stirling carried on a trade as a jeweller and bullion dealer. It
appealed to the FTT against discovery assessments and closure notices that HMRC
made in respect of its accounting periods ended 31 January 2007 to, and including, its
accounting period ended 31 January 2014.
Between 2007 and 2012, the price of gold rose substantially. This resulted in a
transformation in Stirling’s business. In its 2006 accounting period, it had a turnover of
around £3m and focused on selling jewellery to the public and to other shops. However,
by APE 2011
1
, it had a turnover of over £140 million and its business consisted almost
entirely of purchasing scrap gold for smelting. Stirling accepts that its record-keeping
processes did not cope well with the increase in the scale of its business, although the
extent of its failures in this respect is the subject of some dispute. HMRC issued their
assessments and closure notices because they did not consider that Stirling had provided
sufficient evidence of expenditure that Stirling claimed to have incurred on the purchase
of gold. To give an indication of the scale of the issue, in APE 2011, there was a
difference of £9,078,689 between the amount that Stirling claimed to have spent on
purchases of gold and the amount that HMRC considered could be established by
reference to Stirling’s business records.
HMRC’s assessments and closure notices relied on two distinct, but related
propositions. First, HMRC increased Stirling’s profits chargeable to corporation tax on
the basis that they did not consider that Stirling could prove it had spent as much on
purchases of gold as it claimed to have spent. Second, HMRC assumed that the
additional profits so generated were the subject of loans to a participator in Stirling
(which was a “close company” for tax purposes) so as to result in charges to tax under
s419 of the Income and Corporation Taxes Act 1988 (“ICTA”) and s455 of the
Corporation Tax Act 2010 (“CTA 2010”).
Thus, at the heart of all of HMRC’s assessments and closure notices was the
proposition that a proportion of Stirling’s expenses should be “added back” in its
corporation tax calculation so as to result in both (i) additional taxable profit and (ii)
charges to tax under s419 of ICTA/s455 of CTA 2010. HMRC performed a detailed
calculation of the amount of the expenses that they considered should be added back in
relation to Stirling’s APE 2011. They then applied the “presumption of continuity” to
justify a similar proportion of add-back in other relevant accounting periods, although
they followed a slightly different methodology in respect of APE 2009.
1
i.e. Stirling’s accounting period ended 31 January 2011. We will adopt a similar format when
describing other accounting periods.
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