TC09518 - [2025] UKFTT 00528 (TC)

HMRC contend that the present situation is indistinguishable from Collins. They refer to the clear and unambiguous terms clause 3.1(a) of the Novation Deed which irrevocably and unconditionally released the Appellant from his obligations to Thermoline.

It was submitted that section 415 ITTOIA applies at a point in time and specifically to the loan relationship between Thermoline and the Appellant without reference to any continuing obligations owed to PHSW. In that regard it is said that the Appellant was released with PHSW, in substance, stepping into the Appellant’s shoes as debtor; the indebtedness of the Appellant on the director’s loan account simply being replaced by PHSW’s indebtedness on the inter-company loan account. Thermoline had not received any money or equivalent which satisfied the Appellant’s debt.

Applying the words of Millett J HMRC contend that whilst the agreement by PHSW to take all the rights and obligations by way of novation of the debt in return for the promise to pay may well represent valuable consideration in a contractual sense it does not satisfy the Appellant’s indebtedness in a relevant sense merely representing a substituted debt. It was argued that the purpose of section 415 ITTOIA as an anti-avoidance provision is to prevent the extraction of value from a close company by a participator without the payment of income tax. Only where “there is no outstanding obligation on any party in respect of the debt or any similar sum” will the debt have been repaid/satisfied. Otherwise there has simply been a release of the participator. As Nourse LJ put it unless, through the terms and effect of the Novation Deed the close company has been “effectively enabl[ed] to recover its money” there has been no satisfaction of the debt and the section 415 ITTOIA charge applies.

HMRC placed reliance on the terms of Hazelwoods LLP’s letter of 10 February 2022 as supporting the only real interpretation of the terms of the Novation Deed i.e. that it was a release of the Appellant.

As with Mr Redpath the Tribunal was interested to explore the detail of HMRC’s case. We asked Miss Marsden what HMRC’s position would have been if, rather than establishing the inter-company loan account, PHSW had paid £512,713.89 in cash. She seemed to accept that had the cash been physically received from PHSW HMRC would not have imposed a section 415 ITTOIA charge, we assume on the basis that in such a situation it could viably be said that Thermoline had then recovered its money (in the sense identified by Nourse LJ). We also asked whether the answer would be different if rather than pay immediately an agreed but limited period of credit had been set but that question was not answered.