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SpC 383 Patel v Maidment (Insp of Taxes)
P owned a property, let as furnished flats or rooms to various tenants, which was sold in 2000-01. In his self assessment return he claimed business asset taper relief on the sale of the property. He also claimed to offset a loss on the lettings against other income.
The Inland Revenue amended his self assessment and P appealed. He claimed that for the purpose of taper relief an asset was a business asset if it was used for, inter alia, the purpose of a trade. TA 1988 S503 provides that a business which consists of the commercial letting of furnished holiday accommodation is to be treated as if it were a trade under Case I of Schedule D.
The Inland Revenue contended that the letting of furnished flats or rooms is a business, but not a trade and therefore does not qualify for business taper relief, the loss could not be set against other income and the business was not deemed to be a trade by virtue of satisfying the conditions for furnished holiday lettings in TA1988 S504(3).
The Special Commissioner held that it was settled law that the activity of letting furnished flats or rooms, while it might be a business, was not a trade. Therefore, while P carried on a business, he did not carry on a trade and accordingly he was not entitled to business taper relief or to set losses against other income. Further, there was no evidence that the conditions for furnished holiday lettings were satisfied.
P's appeal was dismissed.
Venables and other v Hornby [2003] UKHL 65, 2 October, 4 December 2003
The above case has been going through the courts for some time and revolves around the issue of whether or not a 'retired' non-executive director is indeed retired and how this affects their pension.
Mr Venables set up and ran a company for some time. An Inland Revenue approved pension scheme had been set up in 1980 which set out conditions allowing the individual to retire at the age of 50 and take a tax free lump sum.
At the age of 53, Mr Venables retired from his position of executive director and took up the position of an unpaid non-executive director.
The Revenue has continually contested the case claiming that his position as director has remained a constant and therefore he has not been entitled to retire (and thus a tax free lump sum). The case has been through to the Special Commissioners, High Court, Court of Appeal and the last case was taken to the House of Lords.
The Revenue's final stance declared that Mr Venables at no stage had been an employee, as he was in the position to control who the firm hired and who the firm chose to sack. Once he accepted a position as non-executive director, he remained as director, and therefore, at no stage could he be deemed to have 'retired'.
Their Lordships disagreed with the Revenue's argument. They declared that the position of an employee is a question of fact, and is determined by the functions the individual carries out. Their Lordships declared that the position as an employee and a director were separate, and therefore one could retire from the other independently.
Therefore, as Mr Venables was no longer in 'pensionable' employment (i.e. he was not being remunerated) that was sufficient to satisfy the condition that Mr Venables had indeed 'retired'.
Their Lordships allowed Mr Venables' appeal.
Macdonald (HMIT) v Dextra Accessories Ltd & others [2004] EWCA
This case involved a dispute between the Inland Revenue and the taxpayer regarding whether or not payments into an employee benefit trust (EBT) should be allowable as a corporation tax deduction.
The case has been referred to the Court of Appeal, which has agreed to the underlying principle denying immediate relief for contributions. The Court of Appeal has agreed with the Inland Revenue that payments into an EBT fall under section 43 of the Finance Act 1989. This section states that payments for emoluments will be allowed on the basis that they are actually paid within nine months of the year end.
The case itself has established that although the payments themselves are 'money wholly and exclusively' laid out, they only represent potential emoluments. Lord Justice Jonathan Parker declared that the payments had only been made 'with a view to their becoming relevant emoluments', in other words until the employees receive the emoluments and are actually taxed, then no corporation tax deduction will be allowed.
Therefore, the payment is not permanently disallowed for corporation tax purposes, but merely deferred until the employee actually 'receives' the emolument.
Therefore, anyone considering making payments into an EBT should examine the corporation tax implications therein.