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

The appellants also take issue with three further points the FTT made (at [119] to [123]), after it had concluded that the appellants’ interpretation was incorrect. The FTT billed these points as “final observations”. In our view none of these disclose any error of law.

First, the appellants say the FTT was wrong at [119] to say that it was “impossible fully to carry out the notional company computation…as s 1259 directs without taking into account both the identities of the disponors to the notional company and the ownership characteristics of the notional company”. The appellants submitted that this was wrong because it is clearly possible to apply the rules - they would simply give the result the related party exception was not satisfied as it was not possible for the notional company to have related parties. We do not think that the FTT was discounting the possibility that it is possible to apply the computation, even if, on the appellants’ interpretation, the related party exception would never be satisfied. It was just saying that in those circumstances the exercise would not amount to “fully” carrying out the computation in the sense it was intended to be used, i.e. by looking to the reality of the circumstances to see if a relationship of control existed. On the basis of the conclusion it had reached, this was a legitimate observation to make.

Second, the appellants submit that the FTT was wrong (at [120]) to suggest there was an inconsistency in the appellants’ position in relation to s803(b) CTA 2009, which provides foran exclusion where the assets were held for the purpose of activities in respect of which “the company is not within the charge to corporation tax”. According to the FTT, on the one hand the appellants were implicitly saying that the statutory direction in s1259 applied to prevent s803(b) CTA 2009 from taking the relevant assets out of the scope of Part 8, yet on the other the appellants were saying s1259 did not apply in relation to the “related party” definition in s835.

That inconsistency appears to us to relate only to what we have earlier called the more basic argument that the FTT considered was before it, but which the appellants do not pursue: that the “related party” provisions could not apply because the notional company was not a company. The FTT’s point was that there was an inconsistency on the one hand to say there was a company within the charge to CT (relying on s1259) to escape s803, but then to argue that no company existed for the purpose of the related party exception in s882(1)(b). We agree with HMRC there was no error in that observation, but in any event, the point has fallen away in light of the appellants’ arguments on this appeal.

Third, the appellants argue that the FTT erred when (at [122] to [123]) it observed that subsequent legislative provisions (s882(5B) and s882(5C) CTA 2009 introduced by s52 of Finance Act 2016 (“FA 2016”)) suggested that “the proponents of the changes had no doubt that the related party requirements applied to notional companies as well as actual companies” ([122]). These changes are relevant to the alternative case which we address below. While the appellants argue that the FTT’s reliance on FA 2016 was misplaced, we do not think that the FTT was relying on what the proponents of FA 2016 thought that the law in fact was. It was simply noting the consistency which at best was merely by way of comfort for the conclusion on interpretation it had already reached.

In conclusion, we consider that the FTT was correct to reject the statutory interpretation advanced by the appellants. We are also not persuaded that the appellants have identified any errors of law in the FTT’s reasoning as to why HMRC’s interpretation of the scope of s1259 was to be preferred. That is sufficient to dispose of this appeal and it is not therefore necessary for us to deal with the arguments HMRC made in the alternative. However, in recognition of the detailed submissions we received on this point we will address the arguments but do so as briefly as possible.