GB - Vocalspruce Ltd v The Commissioners for HMRC

Judgment

Lord Justice Gross:

INTRODUCTION

The “loan relationship” code found in Chapter II of the Finance Act 1996 (“FA 1996”) deals with the taxation of corporate debt. Profits, gains and losses of a company in respect of its loan relationships are brought into account for the purposes of corporation tax in accordance with this Chapter. The question in the present case goes to the scope of s.84(2)(a) of the FA 1996 which excludes from the profits, gains and losses thus taken into account, “… any amounts required to be transferred to the company’s share premium account”.

Vocalspruce Limited (“the Appellant”) appeals against the decision of the Upper Tribunal (“the UT Decision” and the “UT” respectively) released on the 19 th June, 2013, upholding the decision of the First-Tier Tribunal (“the FTT Decision” and the “FTT” respectively) released on the 21 st December, 2011, in favour of The Commissioners for Her Majesty’s Revenue and Customs (“HMRC”).

The dispute arises out of a marketed tax scheme; if successful, the scheme would remove the accrued profit on loan notes from a charge to corporation tax pursuant to the provisions of s.84(2)(a).

Both the FTT and the UT held that the scheme was not successful, as a matter of the true construction of that sub-section (“Issue (I)”). This conclusion was sufficient to dispose of the matter. However, had it failed on Issue (I), HMRC had a second string to its bow: namely, that the “related transaction” provisions contained in para. 12 of Schedule 9 to the FA 1996 excluded the profits in question from the scope of s.84(2)(a) (“Issue (II)”). That contention failed; both the FTT and the UT held that, had HMRC not succeeded on Issue (I), it would not have been assisted by the related transaction provisions.

The Appellant appeals on Issue (I). If the Appellant succeeds on Issue (I), HMRC contends, by way of Respondent’s Notice, that it is entitled to succeed on its alternative case under Issue (II).

The case was described to us as a “lead case”, in the sense that a number of other corporate groups are said to be in a similar position to the Appellant. Any such importance is, however, historical only; the relevant legislation has since been radically amended.

Although, as foreshadowed, this case concerned a tax scheme, HMRC advanced no contention that it involved tax avoidance. Issues (I) and (II) thus turned on statutory construction.

There was no dispute before us as to:

The facts;

The accountancy position;