UT (Tax & Chancery) UT/2023/000062 - [2024] UKUT 00273 (TCC)

The commencement provisions for s52 were as follows:

“(5)

The amendments made by this section have effect in relation to accounting periods beginning on or after 25 November 2015.

(6)

For the purposes of subsection (5), an accounting period beginning before and ending on or after 25 November 2015 is to be treated as if so much of the accounting period as falls before that date, and so much of the accounting period as falls on or after that date, were separate accounting periods.

(7)

An apportionment for the purposes of subsection (6) must be made—

(a)

in accordance with section 1172 of CTA 2010 (time basis), or

(b)

if that method produces a result that is unjust or unreasonable, on a just and reasonable basis.”

The first disputed issue concerns the scope of the wider FA 2016 definition of “related party” and whether it could apply, as HMRC argued, to assets acquired prior to the effective date of the amendments (25 November 2015). In the appellants’ submission it was the previous narrower definition of “related party” which applied as at the date of acquisition on 1 July 2013 because that preceded the taking effect of the change in law.

The FTT ultimately agreed with HMRC’s view on scope on the basis that CT is an annual tax and that therefore the conditions for a debit to qualify needed to be tested in the accounting period in which the debit arises. In considering whether the disponor was a “related party” at the time of acquisition it was necessary to apply the law as it stood in the later accounting period not the law as it stood at the time of “acquisition” ([142]). The FTT also found the commencement provisions in s52(5) to (7) supported that construction. Those split an accounting period which straddled the effective date, and the FTT agreed with HMRC that the only reason for that split was so that debits accruing on or after the effective date were intended to be affected by the new provisions. The FTT was however less persuaded by HMRC’s reliance on the explanatory notes for the clauses which became s52, which stated (at [10]) that “[the] rules apply to debits and credits irrespective of when the relevant transfers of intangible fixed assets took place”.

Mr Trevett did not dispute that CT was an annual tax and that the question of whether a debit qualifies for relief is to be tested in respect of the accounting period in which the debit arises. However he submitted that this did not support a conclusion that the “related party” test, which only has effect for accounting periods which postdate the date of the acquisition, is to be applied.

In our view, the FTT reached the correct interpretation in holding as it did and for broadly the right reasons. The point that CT is an annual tax correctly retained focus on application of the law as amended. The FTT correctly identified that s52 was concerned with the conditions for eligibility of debits sought to be made in a given period. The question of acquisitions only arose once a debit in respect of which relief was sought was in contention. It did not make sense for the effective date to be the date of acquisition when acquisitions only became relevant when a debit was sought in the relevant accounting period. When the relief came to be applied, there would be no justification for applying the related party definition which applied at the time of acquisition, because CT was interested in the date of the debit sought to be given effect in order to determine the applicable law; it was not interested in the date of acquisition. In short, the framework of rules applicable to the relevant debits sought in any given year is to be assessed by reference to the law applicable in that year.

In our view, this analysis is correct and would be a sufficient basis to justify the interpretation adopted by the FTT. While both parties took us to the drafting of the commencements of other sections in support of their respective cases we are not persuaded these assist.

In conclusion, were it necessary to decide this point, we would agree with the FTT that the new provisions did apply in the relevant accounting periods and were not inapplicable because the date of the transfer preceded 25 November 2015.