UT (Tax & Chancery) UT-2024-000044 - [2025] UKUT 00094 (TCC)

Mr Firth submitted that the FTT’s errors were:

He contended that the hypothetical contract is not a question of simply transposing the terms of the actual contracts into a direct contract. Relevant circumstances include but are not limited to those terms (Atholl House UT at [8]). Matters which may not affect the terms of the actual contract may well influence the terms of the hypothetical contract (Atholl House UT, [54] – [55]).

Ultimately, the FTT needed to decide what agreement the Appellant and Sky would have reached if they had negotiated and concluded a contract directly (Atholl House UT, [56]). In conducting that exercise, regard should be had to how the parties would have reacted to hypothetical flashpoint scenarios ([56(3)]).

Although the terms of the actual contracts may be highly material, the enquiry will take into account matters such as the subjective views of the parties and the way the contract was actually performed.

In relation to the subjective views of the parties, how material the terms of the actual contract are will depend upon whether they were negotiated and agreed with a full understanding and acceptance of what they meant (or have now been held to mean).

If the terms were fully understood and accepted, that may provide strong grounds for carrying them across. If not understood or accepted (whether by one or both parties), they will be of little weight, given that their potential relevance lies in providing evidence of what the parties would actually have agreed when negotiating the terms of the hypothetical contract, which needs to reflect what they actually would have agreed to (understanding and intending the terms).

The FTT entirely failed to identify or apply this approach. It does not even mention the Atholl House UT decision.

Mr Firth criticised the FTT’s reliance at [59] on Mr Thompson signing the schedule to the actual contracts. This was never put to him in cross examination. It was never suggested to him that he understood the contract and the Company’s legal obligations in the way that the FTT has interpreted it. It was never suggested that he would have accepted such terms, once spelled out, in a hypothetical contract.

The suggestion that the fact that he signed the schedule was evidence of this was never put to Mr Thompson or even submitted by HMRC. Indeed, the FTT’s own finding of fact contradicts the conclusion that Mr Thompson understood the contract in the way the FTT did. The FTT found, earlier, that “Mr Thompson stated in his witness statement that he was of the view that he did not need permission from Sky to miss a programme” and would tell IC “out of respect” (FTT, [10])