Rupert Grint v The Commissioners for HMRC [2024] UKFTT 956 (TC)

“I have amended your tax return by treating the capital amount you obtained on the sale of your business as income arising under s 778 ITA 07.”

“773 Overview of Chapter (1) This Chapter imposes a charge to income tax— (a) on individuals to whom income is treated as arising under section 778 (income arising where capital amount other than derivative property or right obtained), and (b) on individuals to whom income is treated as arising under section 779 (income arising where derivative property or right obtained). (2) Income is treated as arising under those sections only if— (a) transactions are effected or arrangements made to exploit the earning capacity of an individual in an occupation, and (b) the main object or one of the main objects of the transactions or arrangements is the avoidance or reduction of liability to income tax.” (Emphasis added.)

“28A Completion of enquiry into personal or trustee return [...] (1) This section applies in relation to an enquiry under [section 9A(1)]4 of this Act. (1A) Any matter to which the enquiry relates is completed when an officer of Revenue and Customs informs the taxpayer by notice (a "partial closure notice") that the officer has completed his enquiries into that matter. (1B) The enquiry is completed when an officer of Revenue and Customs informs the taxpayer by notice (a "final closure notice")— (a) in a case where no partial closure notice has been given, that the officer has completed his enquiries, or (b) in a case where one or more partial closure notices have been given, that the officer has completed his remaining enquiries. (2) A partial or final closure notice must state the officer's conclusions and – (a) state that in the officer’s opinion no amendment of the return is required, or (b) make the amendments of the return required to give effect to his conclusions.” (a) in a case where no partial closure notice has been given, that the officer has completed his enquiries, or (b) in a case where one or more partial closure notices have been given, that the officer has completed his remaining enquiries. (a) state that in the officer’s opinion no amendment of the return is required, or (b) make the amendments of the return required to give effect to his conclusions.”

“We shall be pleased to act as your personal tax adviser in the UK with immediate effect….We will advise you of the amounts of tax and National Insurance contributions to be paid and the dates by which you should make the payments…”

“The company [Clay 10] agrees to act as collecting agent but has absolutely no entitlement to the income.”

“The motivation for incorporating Rupert’s business is that as a self-employed person he is currently subject to income tax at 50% plus NIC at 2% on nearly all his earnings, particularly the bonuses and residuals that will continue to flow from the Harry Potter films. We can shelter this income from a 52% tax rate by operating the business through a limited company. Income received by the company will only be subject to Corporation Tax at a maximum rate of 26%. An important element of this process is recording the values of the following at date we transfer the business: 1. Work in progress – income earned by Rupert but not yet received 2. Goodwill – Rupert’s skills and reputation as an actor. The value of work in progress will be charged to income tax in Rupert’s final period of self-employment, which would be the case even if we were not to incorporate the business. We can however justify certain reductions in the value to be assessed to income tax, so that a greater proportion of receipts in the future are subject to lower rates of Corporation Tax. The value of goodwill is important as the new company will be treated as owing consideration equal to that value to Rupert. This deemed sale price for goodwill between Rupert and the company will give rise to a gain with capital gains tax payable by Rupert at 10%. This tax will be payable on January 31, 2013. This is very effective tax planning, as Rupert can then extract income from the company tax-free up to the amount he is owed by the company for the sale of goodwill to it. This income will only have incurred Corporation Tax at a maximum of 26% and capital gains tax at 10%, as opposed to income tax and NIC at 52%. …”

“Warner Bros are ready to execute the documents assigning Rupert’s rights to the new company. We also currently have payments on hold from Warner Bros until the incorporation is completed so that these payments benefit from the lower tax rates in the company…”

“2.1.1 the Transferable Goodwill [which is defined as the goodwill, custom and connection of the Seller in relation to the Business which is separable from the Seller, and the Buyer’s right to represent itself as carrying on the Business in succession to the Seller]; 2.1.2 the Business Information [which is defined as all information, know-how and techniques (whether or not confidential and in whatever form held) which in any way relate, wholly or partly, to the Business] 2.1.3 the Contracts [which are defined as all contracts the Seller has entered into on or before the Completion Date with third parties in respect of the Business including without limitation all contracts relating to (a) the provision of acting services (b) the exploitation of public image and motion pictures], including the Rights to Exploit Motion Pictures [which are defined in clause 1.1 as all rights under the Contracts to share in revenues generated from the exploitation of the Harry Potters (sic.) Pictures] 2.1.4 the Work in Progress [which is defined as the income from contracts accruing to the Seller under general accounting principles as at the Completion Date]; 2.1.5 the Records [which are defined as the books, accounts (including VAT records and returns), Contracts, all the other documents, papers and records relating to the Business or any of the Assets]; 2.1.6 all other property, rights and assets owned by the Seller and used, enjoyed or exercised or intended to be used, enjoyed or exercised primarily in the Business at the Completion Date.”

“[i]f any Third Party Consent is required to transfer a Contract to the Buyer and such Third Party Consent has not been obtained prior to Completion, the Seller shall use all reasonable endeavours after Completion to obtain such consent as soon as possible following Completion and to effect any transfer or assignment or novation of that Contract…”. “[i]n so far as any Contracts are not delivered or formally transferred, novated or assigned to the Buyer at Completion…the Seller shall be deemed to hold all such Contracts on trust for the Buyer” and the Seller “shall use all reasonable endeavours to procure that the Buyer shall be entitled to the benefit, of those Contracts, to receive the income therefrom…”

“Neither party may assign or transfer any of its rights, benefits or obligations under this agreement.” “This agreement and the documents referred to in it constitute the whole agreement and understanding of the parties…” “Any variation of this agreement must be in writing and signed by or on behalf of the parties.”

“3. Consideration for goodwill to be lodged to director’s loan account. Able to extract post CT profits (25% CT) at effective tax rate of 10%. 4.Valued WIP at incorporation at £4.086m. Income tax payable on this in 2011/12. Again extract actual cash tax-free from directors’ loan account when WIP realised. … WICKED MANAGEMENT LTD 1. Winding-up company. Treated as ceased trading on 31/10/11. 2. Need to wait 3 months after ceasing trade before we can actually wind-up. 3. In the meantime and moving forward suggest Mr & Mrs Grint invoice as a partnership. 4. Monies in company will be distributed subject to CGT at 10%. Estimated distribution of £1,230,000 (being £932k at bank and £300k debtors).”

“Dear Nigel, Further to our meeting last week, I have set-out below where we currently stand in respect of Clay 10 Ltd and Wicked Management Ltd, plus the current bank account balances. Clay 10 Limited As discussed, Rupert’s self-employed business has been taken over by this company effective from 13 October 2011. As previously advised, this will save considerable tax moving forward. Profits of the company will only be subject to Corporation Tax at a maximum rate of 25%, whereas whilst Rupert was self-employed, profits were subject to income tax and national insurance at a top rate of 52%. We have sold goodwill of £4.5 million from Rupert to the company, and the company therefore currently owes Rupert £4.5m. Rupert only has to pay capital gains tax on this sale at a 10% rate. This means he can extract up to £4.5m of future profits of the company (post Corporation Tax), having only paid 10% tax personally. Over and above this, Rupert can retain profits in the company. Eventually we can wind-up the company and assuming that the tax law has not changed, there may be scope for Rupert to again access the retained profits at a 10% tax rate. In transferring the business to the company, we did have to value the income earned to 13 October by Rupert, but not yet paid to him. We arrived at a figure of £4,086,814. Whilst this income will be received by the company, it will actually be taxable upon Rupert at current income tax and national insurance rates in the tax year 2011/12. The amount of £4,086,814 will be a debt due from the company to Rupert, until it is received and paid-out to Rupert. In summary, therefore, Rupert can be paid a total of £8,586,814 (goodwill plus income already earned) from the company in the future without further personal tax liabilities arising. This will appears (sic) in the accounts as a “director’s loan” until it is fully repaid. Rupert/Clay 10 Ltd - Bank Balances (i) Total balance on Rupert's personal bank accounts: £4.5m (ii) Total balance on Clay 10 Ltd bank accounts: £776,250 We will look to simplify the number of bank accounts Rupert has personally as he will no longer require "business accounts". Wicked Management Limited The plan is to now wind-up Wicked Management Limited. The company will be treated as ceasing to trade on 31 October 2012. This will enable you and Joanne to access all the profits within the company at a 10% rate of tax. This will amount to just over £1 million of profits. After the 10% tax due, you and Joanne will have cash of circa £900,000 available to invest etc. There is currently £932,538 cash in the Wicked Management bank accounts. This balance will increase as we collect commissions due from Rupert up until 31 October. We can only wind-up the company and distribute the funds to you once the company has not traded for 3 months. Therefore we will be aiming to do this in February 2012. In the meantime, we will complete the company's final accounts, Tax Returns and deregister for VAT. We will also need to pay any outstanding tax liabilities of the company. As Wicked Management Ltd is no longer trading from 31 October, yourself and Joanne should begin to invoice Rupert personally from November 2011 onwards. We will treat you as in partnership together. We are making arrangements to register you with HMRC as self-employed and obtain a VAT Registration number. We will also contact the bank with regards to ensuring that the partnership has appropriate bank accounts. I hope the above is clear but if you have any queries, please let me know. …”

“I recall that Nigel Grint had various sound business reasons for this quite apart from tax concerns but, as Rupert’s accountants, our focus was inevitably on the tax side. It made sense to put on a formal footing the long-standing arrangement that Nigel Grint ran the business, and incorporating it with Nigel Grint as the director was the most obvious way to achieve this. We therefore briefly discussed the commercial and legal merits of operating a business through a limited company, being primarily the protection afforded by limited liability. Nigel Grint, having experience of the business world, was enthusiastic to have this added protection in place for Rupert and for the profits Rupert’s business accrued. I did not have the impression that Nigel was motivated by the tax effects of incorporating the business and I certainly did not have the impression that Rupert had any particular knowledge or interest in the tax treatment of his earnings before or after incorporation. I recall that, as Rupert’s accountants, we explained to Nigel Grint the different tax treatment that would follow from an incorporation of the business, primarily the lower rates of Corporation Tax on business profits when compared to the higher rates of income tax for self-employed persons.” (7) They left the meeting with instructions from Mr Nigel Grint to further explore the details of incorporating the business and to make preparations for completing the exercise, potentially in July 2011. This preliminary target date was chosen, as it was felt it would provide sufficient time to make preparations and “it was also anticipated that Rupert would be due significant acting fees in late 2011, and hence it made sense to enjoy all the benefits of limited liability company as early as possible”. (8) Mr Clay set out details of the steps CK took to implement the arrangements including that CK considered “a valuation of the said contractual rights by reference to the projected residual income due to flow from the rights as advised by Rupert’s legal representatives” and “evaluated the likely value of work-in-progress that would exist in the self-employed business at incorporation and that should be declared for income tax purposes in the final period of self-employment”. (9) CK provided an update on the subject to Mr Nigel Grint by way of the August email in which they: “reminded the client of the reduction in tax on business profits as a result of incorporating the business. We also explained the need to assess the value of the intangible assets that would be transferred into the company by Rupert, as well as the value of the work-in-progress that would be accrued to the date at which the self-employment would cease. In regards to the intangible assets, we explained that this would trigger a liability to capital gain tax with the value reached being treated as consideration outstanding to Rupert from the company. We confirmed that we were in the process of working on the valuations of the intangible assets and work-in-progress, with the assistance of Rupert’s lawyers. I did not, in the course of this email, deal with any non-tax aspects of incorporation because, as Rupert’s accountants, it was that side of the deal which concerned us by this stage…. In regards to the contractual rights, we projected the likely residual income and bonuses that could flow from the recently completed Harry Potter Pictures based on the performance of the earlier Pictures, and arrived at the valuation of £4,500,000. We quantified the work-in-progress by reference to Harry Potter acting fees that we knew should be forthcoming. We produced a formal valuation report.” (10) Standard legal document templates were used for the APA and Services Agreement and the standard legal wording was not revised, other than to enter the details specific to the client’s circumstances. As this was a transaction between Mr Grint and a company that would be under his control as the sole shareholder, with his father as the sole director, it was not deemed necessary to consider revising the standard legal wording to any extent, beyond entering the core data above. In other words, there was no risk of the parties to the transaction taking litigation action against each other or falling into any form of dispute over the intended effects of the agreements. (11) It was the mutual understanding of all parties involved as to the nature of the assets being transferred, and that the consideration payable by the company for those assets would be left outstanding to Mr Grint, as a debt, until such time when he would draw down the sum from his loan account with the company. (12) The legal agreements would have been forwarded to Mr Nigel Grint for approval and readiness to complete the transfer of the business. He understood they would take effect from 13 October 2011 and he believes that Mr Nigel Grint and Mr Grint were agreed on this. (13) Mr Clay attended a meeting with Mr Nigel Grint on 17 November 2011 to ensure that all loose ends were tied-up in relation to the incorporation. This included ensuring that Mr Grint had signed the APA, and the Services Agreement. Mr Nigel Clay signed the APA on behalf of Clay 10, as he was a director of C&A Company Secretarial Services Ltd, which in turn was the Company Secretary of Clay 10. In addition, Mr Clay ensured that Mr Grint and his parents had signed the Deed. (14) Mr Clay referred to the November email and said this “reiterated the basic tax implications of the incorporation as a reminder for Nigel, including the reduction in the immediate rate of tax payable on business profits” and reminded him that: “we had valued the contractual rights at £4,500,000 and the work-in-progress at incorporation at £4,086,814, the latter being subject to income tax and national insurance in the final period of self-employment. I re-emphasised that these two sums would be a debt due of £8,586,814 from Clay 10 Ltd to Rupert.” (15) In the accounting period to 31 August 2012, the total income of Clay 10 Ltd was £10,372,923 as disclosed in the company’s financial statements for the period. As part of the accounts preparation process for the 2012 financial year, CK also reviewed the statement of the debt outstanding between Clay 10 and Mr Grint. There are opening credits of £3,663,454.28 and £4,500,000 in favour of Mr Grint in respect of consideration due for the work-in-progress and the contractual rights transferred to Clay 10 respectively. The loan account journal prepared refers in error to 1 August 2011 as the date of credit, but it should of course have stated 13 October 2011 as the relevant date. (16) In later tax years, beginning with the 2013/14 tax year, Mr Grint provided some acting services in a self-employed capacity. This would have been confined to a limited number of acting jobs, and the preference would always have been for Clay 10 to provide the services if possible. The reason for these confined cases is that: “UK actors working in the United States are subject to local US withholding taxes and the IRS will not recognise a UK limited company providing the services as a the taxable person. Instead, the IRS direct that withholding tax paperwork can only be issued in the name of the individual actor or actress. In the circumstances, it has been routine practice for actors and actresses to contract for US based services in their own name. If they do not, the ability to claim relief in the UK for the significant withholding tax suffered would be lost and this would obviously be financially painful, and not in line with the intention of the international withholding tax systems and treaties. I exhibit as [Exhibit DJC4] the only contracts entered into personally by Mr Grint, albeit a copy of document 38 has not yet been located.” (17) All other acting, voice-over and promotional assignments were undertaken by Clay 10 following the incorporation. (18) To the extent that any of the documents produced do not appear to be fully signed or dated: “I find this to be a common occurrence with the entertainment industry, and particularly the film industry. Contract negotiations and discussions will very often go down to the wire and it is not unusual for contracts to be completed only after filming has started and people are already providing their services. As a result of these tight timelines for completing negotiations, it is simply a matter of fact that the documents are not always completed perfectly. I have never known a case where anyone has contended successfully that the documents were not legally binding for this reason.”

“…I took the responsibility for considering the adviceprovided by [CK]...and, in light of thatadvice and for all the reasons I had for consideringRupert’s business should be carried out througha limited company, deciding to proceed with the incorporation. I would have briefed Rupert on thegeneral issues and provided him with an overview ofthe actions we intended to take, but in the main I madethese business decisions based on my own judgement, withRupert’s best interests in mind. Rupert was happy toaccept my recommendations. He certainly did not proceedwith incorporating the business because of the taxtreatment...” (2) He said that as far as he was aware, Mr Nigel Grint would have updated Mr Grint. Mr Grint never had a total grasp on his affairs, be it accounting or be it taxation or be it anything to do with the management of his business and businesses. Mr Nigel Grint would have made those decisions, and on the basis that he was happy with them, Mr Grint would have been happy with them as well. Mr Nigel Grint was in control and dealt with and managed all of Mr Grint’saffairs. Neither Mr Clay nor anyone else of whom he is aware managed Clay 10’saffairs or took decisions relating to Mr Grint’sbusiness during Mr Nigel Grint’s lifetime: Mr Nigel Grint ran Mr Grint’s entire affairs. Everything to dowith Mr Grint’s day-to-day businesses, Nigel ran. (3) Mr Grint confirmed that his father managed his business since he was about 13. He said: “it was an arrangement that I was very happy with…I have always wanted to kind of concentrate on the work, so I have never really had much of a grasp on everything. I think I have five accounts and when I ever needed money for anything…those accounts were kind of periodically topped up by my father, it was very rare that I would need to ask for money to be put on them. But that would be the situation, I would just ask my father and he would doit. He was a signatory on the accounts.” (4) Mr Grint confirmed that his father was involved in his Harry Potter contracts and would have understood them.He said his father would have had guidance from his US lawyer, Warren Dern, who was involved from the first movie. He confirmed that he is still self-employed in relation to certain US film work and that he thought that was to avoid him being taxed twice. He accepted that his father would meet Mr Clay to discuss his tax position. He said tax formed part of their advice, and theirwork, but he would describe them as more of a general accountant: “It was a kind of number of things that they managed for me. I wouldn’t say predominantly it was a tax thing”

“the way it worked is Rupert was the engagingclient but…Nigel was also a client of the firm,but Nigel represented Rupert on all of these matters…if we took an instruction from Nigel, it was basically theinstruction of Rupert as well”

“We might have touched on tax advice, accounts, property sales, businesses, what’s he got filming coming up, thebanking, what finances are where, financial advisers reports, to what cars he got, to a whole plethora ofthings. So it would cover everything really.It potentially could have covered tax advice yes, but I couldn’t tell youexactly what…We are not justaccountants and tax advisers, we also label ourselves as"business managers", which is a US concept whereby wedeal with all of the finance - you could call ita "financial concierge". So for some clients we willpay their bills, we will buy them a car, we will buythem a house, we will arrange financial advisers to sortout a mortgage, we will get insurance for the propertythrough brokers. We will pay their bills. We will doa lot more than per se an accountant/tax adviser woulddo. We would get involved in a wide variety of things,as much or as little as the client wanted. So…we weren’t just tax advisers…business management services, which covered a whole raftof things as well as the other four points in that…So for some clients we would deal with their wholefinances.”

“This was the firm’s…planning yes, we were involved in it substantially, yes”

“was our job so we looked at it…in my view it wasn’t an important implication butit was an implication…one of the results was the taxposition but as I said earlier, it wasn’t the drivingforce behind this. We provide tax advice and therefore tax advice is in ourcorrespondence, it is going to be, that is what we are paid to do.”

“Again, that is my job to do that.”

“They were important to us as it is our job to do it, ifwe didn’t do it, someone else would…Clients will move if we are not performing…In any service industry, it’s exactly thesame.”

“Yes, but as I said earlier, other taxes kick in tonegate any benefit, potentially…Dividend taxes…On the additional income there is noincome tax per se, there is corporation tax but ifRupert chooses to take £1 out as dividends, there isdividend tax on top of that which negates any benefitfrom being self-employed or operating through a company…So if…Rupert chose to take all of the money out of the company as a dividend, the combined tax rates of corporate plus the dividend rate would equalthat, about, of him being self-employed….you are putting money in Rupert’s pocket and saying he is avoiding income tax, by only putting it in the company’s pocket. If you follow that through to put it into Rupert’s pocket, he hassuffered corporate taxes and then he has suffereddividend taxes which equates to the same rate give ortake 1% as he would as if he was self-employed.”

“It doesn’t reduce the overall liability, it reduces theupfront liability, so it just purely delays the taxliability until a later date. That is all a companyprovides you with, a deferral system to pay tax when youchoose to take that money out of company…if you take themoney out of the company it doesn’t reduce yourliability, it purely defers your liability to when youchoose to take a dividend. And that is the same in anycompany within the UK.”

“I have been very fortunate, tax isn’t something that I have ever really been kind ofworried about or not something I have actively - yes, I can’t remember but I wouldn’t really have thought he would talk to me about those things.”

“Many peers within his industry were beginning to operate their business through limited companies at thetime and take advantage of the commercial benefits ofa corporate entity, and hence it was felt appropriatefor Mr Grint to follow suit.”

“I would like to express that my father was an entirely honest and honourable man. There is no question in my mind that everything stated in his statement would have been entirely true to the best of his knowledge and belief. Where possible, I have confirmed what he said. But because of his very important role in my life and business and, more recently, my limited company, there are matters about which he gave evidence of which I have no knowledge. In relation to these, I can only say that I have no doubt at all that his evidence was truthful.”

“Yes, he did…I am unaware of the kind ofintricacies and the mechanics of other matters. I am sure there were other things that he could sign withoutme being there and that is how I understood it”. (2) He could not give an example of this because: “I am kind of quite removed from any of these things, I don’t really handle….this kind of side of the business. So I am not sure…I guess I amspeculating that there would be things that I don’tunderstand and don’t have much interest in, honestly.” (3) Mr Grint confirmed that his understanding was these arrangements were not about his father being able to run his business, being able to put it on a formal footing and manage it more efficiently because, so far as he was concerned, that was already happening. (a) When it was put to him that nothing changed for him in that respect followingthese arrangements, he said: “Not from memory but…there was a lot going on. The nature of my work is quite kind of manic in some respects…that period especially was…quite chaotic, so…I don't really havemuch memory…nothing I can really recall. Apart from that I wasn’t really signing as much things possibly. But yes, not that I can recall.” (b) He accepted in effect that he was not signing fewer things once Clay 10 was in place. He later agreed that his father used to takecare of all the details of his business andthat did not change before and after these arrangements. (c) He was taken to the comment in his father’s statement that these arrangements “would put on a formal footing the arrangement that had existed since Rupert’s first acting jobs” and “would enable me to run the business administratively and formally with a position of legal authority…”

“It’s possible but…we had a very kind of laid back relationship, we didn’t really go into depths about kind of business matters…I liked not being involved and able to concentrate on my work…we never sat down and had meetings about things, we never really spoke at length on matters like this. So it is not surprising to me that it wouldn’t have kind of come up.” (b) He was taken to his father’s witness statement where he said:“I will consult and keep Rupert informed on major issues and decisions, but it’s very much a case I take care of the details”

“There would have been a conversation, it wouldn’t be that he would just do things without consulting me atall…he definitely would have gone over it with me briefly, the kind of bare bones of it, ordinarily, yes. So…yes, on my behalf for sure” (7) He said he could not really say why there was a delay in incorporation given his father’s apparent reasons for it. (8) He accepted he could not confirm the truth of what his father said about the meeting of March 2011 as he had no recollection of that or of discussions and that he had no recollection of a discussion about him beginning trading through a limited company.He confirmed that he drew money out of Clay 10 when heneeded it. He seemed to accept that these arrangements cannot be about limited liability protection and keeping money safe within a company because he had taken it outpersonally for his own personal use. (9) He was taken to the following comment in his father’s statement: “The July date was identified because we all understoodthat transferring the business would take a little time, but for all the reasons above I was keen to get it done as soon as possible. Dan Clay and I were also aware that over the coming months, Rupert would be receiving payments under his Warner Brothers contracts. Given that we were intending to incorporate the business, it made no business sense to wait until after these had been received before the business was incorporated…As I have set out above, my principal aim remained to ensure that Rupert had the protection of a limited company and the tax benefits were collateral to that.”

“it was definitely something they were obviously talking about…it was clearly factored in, for sure, but I still - I don’t see it being the main purpose, personally”. (10) He accepted that all the advice from CK in the relevant emails was tax advice, not financial advice or any other advice and that CK were responsible for planning and implementing these arrangements. (11) He was taken to his father’s statement that: “Although I would probably have explained the non-tax reasons to them, our discussions would not have focused on other matters beyond Rupert’s tax position.”

“in terms of…what it actually did, what it meant…it didn’t feel like a significant thing to me, and I viewed it more as something a lot of people in my position did and my peers did, so it just didn’t seem like a big deal.” (20) He initially said that saving tax was not of interest to him but he knows that is part of CK’s work and their business, but it’s not particularly something he is focused on. He agreed that he pays CK to provide tax advice which means saving him tax or reducing or avoiding his tax liability where it is legal to. He said he is not averse to saving tax in any way, but “it’s just not something I particularly feel like I have any knowledge of or am involved with. It’s just not part of my world. But I accept…it’s part of my relationship with CK” and he accepted avoiding a 52% rate of income tax on his income and paying lower rates of CT instead, is a benefit to him that would have been absolutely ofinterest to him and his father.He added that he has a little understanding of these things, but he agreed “in kind of basic terms”. (21) It was put to him that (a) his father said that since Clay 10 began trading it entered contracts for the provision of his acting services and he exhibited two examples but did not refer to the fact that there were also contracts for the provision of his services that Mr Grint entered into personally, and (2) his father was aware of the full picture and this shows that tax was so important that where there was a tax reason for doing so, Mr Grint would contract in his own name. He said he thought it was more complicated as it was to stop him from paying tax twice but his knowledge on this again is very limited: “My understanding was that in America I would be paying tax twice and going self-employed in America would it was a slightly different thing, was my understanding.” (22) It was put to him that the November email was about saving considerable tax and shows that was the whole purpose of these arrangements. He accepted that in the context of this email, tax is an important part. He said: “I can only speak for my father’s honesty. I believe him to be honest. Yes. I stand by that.”

“As far as I was concerned I was happy with just having money on my card. It wasn’t really a point of interest of which account or where it originated from”

“There were three main reasons, of which tax was one. But similarly tax wasn’t the driving force for Nigel’s decision in this. I felt -- in my opinion, it was the fact that the running of the business could be - would be more efficient with the corporate structure as well as the limited liability, as I touched on before. Added to that -- and our role was that of tax advisers. So obviously part of that forms the tax advice.”

“getting hold of Rupert to sign papers, to agree papers,to engage in what he needed to engage in was verydifficult. Not just from our side but also Nigel's.Rupert was rarely around. He was abroad a lot. Andtherefore Nigel as director could manage the financesa lot more efficiently with the banking, could also deal with any signing of paperwork, the annual accounts, theVAT, the book-keeping, the personal tax returns, thecorporate tax returns. He could control that and the flow of that a lot better than having to revert toRupert on those matters.” (2) He confirmed that as regards the annual accounts, the VAT,the book-keeping, and the bank accounts generally, even before thesearrangements were carried out, Mr Nigel Grint wasdoing all that for Mr Grint but said that it was not easy for him: “To get approvals forthe bank, to get approvals…for all of thepaperwork, as I have mentioned. This provided him the ability to approve and action what needed actioning”

“If lender [Clay 10] were to be dissolved or ceaseto exist for any reason whatsoever or should fail, beunable, neglect or refuse to perform and observe all ofthe terms and conditions of the agreement... I [Rupert Grint] shall at your election be deemed substitutedas a party to the agreement in place of lender.”

“In reality it is not goingto occur because Rupert is Clay 10. So that in my viewis slightly obsolete”

“I would say I am not a lawyer but on the basisthat it’s slightly like - how would I put it – turkeysvoting for Christmas. In reality, it's not going tohappen…Because Rupert is in control of what happens withClay 10 and the services he provides there - from thereon…Clause 4 is simply not going to happen as I said, so myview -I don’t think it is that relevant. But againI am not a lawyer…”

“All business people have the right to decide if theyshould operate their business as self-employedindividuals or through a limited company. We fail to see how this question relates to the issue underreview.”

“No, Nigel made it quite clear he was very passionateabout incorporating the business and quite passionateabout getting that limited liability…I didn’t say any of the reasons because I felt thatthe question was irrelevant. If I felt it was relevant, I would have given the same reasons that we haveexplained.”

“Copies of all contemporaneous communications and correspondence between you and your advisors in connection with the setting up of Clay 10 Limited and the transfer of your self- employed acting business to the company on 13 October 2011 – to include (but not limited to) emails, notes of telephone calls, notes of meetings and documents and presentations demonstrating the advantages and disadvantages of the transactions taking place, including any commercial reasons.” (2) CK’s response dated 13 October 2017 in which they said they were only able to find certain emails in response to that question as follows: “In response to the notice issued under schedule 36 Finance Act 2008, we have reviewed all our files and we have only been able to identify the following (and enclosed) as relevant to the information you have requested: (a) Email of 5 August 2011 to Mr Grint’s Father. (b) Email of 11 August 2011 to Mr Grint’s Father. (c) Email of 13 September 2011 to Mr Grint’s Father. (d) Agenda for meeting of 17 November 2011. (e) Email of 23 November 2011 to Mr Grint’s Father.”

“We are making further enquiries to get confirmationof what Mr Grint’s actual objectives were, regardless ofthe advice given,in this case.”

“It is in my name. Because everything from the companygoes out in my name. I would have to double-check withRichard on that as to which Mr Grint it was.” (3) A letter of 20 December 2017 where he said:“Further to your letter of 27 October, andcorrespondence since...we have discussed with ourclient his intentions when incorporating his business and we can now report back” and referred to Mr Nigel Grint having a strong beliefin limited liability, and Mr Grint’s grandfather,having suffered unduly. He did not accept that the fact that there was no mention of putting the business arrangements on a formalfooting is inconsistent with that being a reason for these arrangements being carried out. He then said he could not think of a good reason for it not beingmentioned. He was asked why he needed to make enquiries about these objectives when in his witness statement he said that he recalled fromthe March 2011 meeting that Mr Nigel Grint had varioussound business reasons. He said he does not know. He did not agree that the only explanation is that no business reasons werediscussed at the 17 March 2011 meeting. He said they did discuss the reasons for incorporation and he does not know why he was not able to givethem when HMRC askedfor them and he could not think of a good reason. (4) A letterdated 29 March 2016 from HMRC to CK in which HMRC asked for some “background information regarding the reason Mr Grint decided to start operating his business through a limited company” and his response in which he said: “Mr Grint took the decision to operate the businessthrough a limited company based on discussions with his professional advisers. Many peers within the industrywere beginning to operate their business through limitedcompanies at the time and take advantage of the commercial benefits of a corporate entity, and hence it was felt appropriate for Mr Grint to follow suit.”

“You have the limited liability, the commercial - tax isa benefit clearly in this instance ...I don’t know - that is what I would suggest,yes…But again, six years ago is a mighty long time.I can’t - as I have said, the two commercial benefitsas I have seen, I have just told what you they are…Again, a lot of these letters were drafted by Richard Smethurst. So again some of these questions are potentially more appropriate to him.”

“We therefore briefly discussed the commercial andlegal merits of operating a business through a limited company, being primarily the protection afforded bylimited liability.”

“I think there is a general understanding of what limitedliability is, but...I think…Nigelunderstood what that limited liability was as he had setup companies previously…Obviously through the company…we would have saidthat limited liability is provided…A company would provide you with limited liability…Nigel already was aware that they would provide him withlimited liability protection, as he had done it before for exactly that reason. So...he understood what limited liability protection meant…he had set up companies for that sole reason.We would have discussed limited liability and thecompany would provide that limited liability protection.”

“No, because he already knew what it was. We would havediscussed it...it wouldn’t have…been for meto say X, Y and Z because he already knew that havingset up companies previously to provide again limitedliability protection…I am only talking in layman’s terms with regard tothat.”

“as accountants we are obviously going to refer to the accountancy and tax position and…that is the purpose of our records. I expect Rupert and Nigel, not being in the professional services business, would not be keeping meeting notes, keeping files of emails…I don’t think there was anything in email between us and them,I think it was all verbal if…So it was unfortunately limited to what we had on file, which is obviously going to be ofan accountancy and tax-related nature. It would be hard to find evidence of phone calls that Nigel and Rupertwould have had together or if they had conversationsthey are not going to have meeting notes from the time, are they?...I would have only, you know, gone to the work ofpreparing written advice and sending an email ordrafting an email for Dan to send in terms of providing technical or helpful advice of accountancy and tax-related matter or something to do with the mechanicsof incorporating the business. I wasn’t going to spend chargeable time the client has to pay for writing emails about - asking him why was he incorporating the business et cetera. So I wouldn’t expect that to be onour files as an accountancy firm…we didn't always keep meeting notes, so obviously there isan agenda for a meeting there. If there had beenmeeting notes from 17 November 2011 they would be in this bundle. So it is a criticism you may make, but my point is there would have been meetings but there aren't notes. Important things might have been said thatthe meeting, I appreciate what you are saying, you mightexpect every accountancy firm in the country to keep meeting notes of everything that happens, but in realitythat is - that doesn't always happen in my experience.”

“Yes, I mean the way I read this email and would have put it together is from the view of a tax adviser”

“it was a longtime ago so…I might not remember a conversation that happened…as I didn’t have thatdirect communication with the client…it’snot something that is going to be in my memory…if you are in a professional firm and yourpartner or your director or your senior asks you to do something, you might say, "Let's talk about what doesthis mean technically", but you are not necessarilygoing to question why the client wants it done…That email sets out, as far as I am concerned, the taxtreatment.”

“we were writing as accountants and tax advisers, so why would we start talking about the commercial reasons for incorporating the business? That was the client's side of things, to decide if they wanted to incorporate or not, so we were going to talk about accountancy and tax.”

“Wicked only had one client and it was the son of Nigel and Joanne,so that corporate protection wasn't important in thisinstance…obviously if you are dealingwith multiple companies, the general public for exampleand things like that, you would want to protect yourselfthrough the limited liability route. Whereby you aredealing with your son, it means that potentially thatprotection isn’t as important as it is in otherinstances…Harry Potter…had come to an end by then so, the incomefor Wicked had dropped down…That is just from…I am putting two and two togetherreally.”

“As his tax adviser, yes, I covered - again…the tax issues and that was the position arising from that £4.5 million”

“As his tax advisers yes, that is what we covered in thisemail, yes.”

“It was important. To him, forNigel and for the protection of Rupert. As far as [Wicked] is concerned, I have explained that - the reasons why it was probably felt it wasn’t pertinent” and: “the income - just over £4 millionis chargeable to income tax as we know. The 4.5 waschargeable to corporation tax, and then capital gainstax. And then any money in the company over and abovethat is chargeable to corporation tax and dividend taxand salary income tax. If Rupert chose to take all thefunds out of the company, then the tax rate would be similar to that as if he was self-employed.”

“if Rupert chosetomorrow to take all of the income…out of [Clay 10] tomorrow, he would suffer income tax at the same orsimilar-ish rate as if he was self-employed on everypenny over and above the £4.5 million that has ever been received by Clay 10…it is purely a tax deferral, not a tax avoidance or a tax reduction. It is just that a company purely allows you to defer the income tax until you choose to take the income out of the company. That was my point I was making earlier.”

“asNigel says here [in his witness statement] He knowsthat by virtue of the fact I have told him that and it’s clear that is the position…The figures for salary were £37,500 and £50,000 a year.let's say there is £1 million in the company…if hedoesn’t need that money, he doesn’t need to take it outtoday. He can take it out in 20 years’ time, he will besubject to the tax rate in 20 years’ time which will be,I am pretty guaranteed, it will be similar to that as ifhe was self-employed. We are not avoiding - this isnot tax avoidance. This is…purely deferring a tax liability until you need the income.That is what a company is all about.”

“Because I am explaining the tax position as my role as his tax adviser…I can’t pick and choose what I tell my clients. I need to tell my clients the tax position at the time”.He did not agree that if limited liability had actually been a reason for Mr Grint through Mr Nigel Grint, he would have had to say: “By the way, you need to take advice, this will get rid of any limited liability.”

“So…if we were avoiding one, we have created another. It’s not that we have avoided the tax system totally, we have purely avoided income tax.”

“For the other reasonsthat I said yesterday, tax was not the only driver informing Clay 10…To me as his tax adviser, of course it was an importantdriver for me…As far as I am aware, it wasn’t…a maindriver…It was a driver, as I said. It was a consideration that…obviously a consideration for Nigel and Rupert...as far as I was aware…it was a consideration but it wasn’t the mainconsideration. Of course it was a consideration. Thathad effects, material effects.”

“In order to transfer Rupert’s business, we must agree an appropriate legal process with Warner Bros fortransferring the rights…Warren Dern is currently liaising with Warner Brothers and draft documentation has been prepared.”

“We would have read through it…in the main we would have just been concentrating on adding in the factual details”. (2) Mr Clay said this was in the Services Agreement because it was prudent to preventdouble tax, to make sure that the double taxtreaty is effective when Mr Grint works in the US. Otherwise he would be taxed at 70% plus on every poundhe earns which is not the intention of the treaties. (3) He was asked why the US is excluded from the definition of territory in this agreement. He said that is because the USA has a taxing system like no othercountry, and does not recognise “foreign loan-out companies” whenan individual actor performs services in the US. They disregard that company and impose withholding taxes at an individual basis: “….if Rupert went to the US to perform, to do a film let’s say, or a show of some description…the US would withhold taxes on that money, and then….when that money goes into the UK company, obviously the withholding taxes are on an individual basis, not a corporate basis. So corporation tax would then be due, and then further income tax would be due on the same money. So it protects the individual when performing in the US because the US is…a…strange obscure tax system, that that does that.” (4) He added that US film companies do not allow you to contract through a UK company when performing in the US. So that clause gave the ability for Mr Grint not to suffer tax of around 70% when performing in the US. (5) He agreed he is not a US lawyer or tax lawyer, but said he has worked for 15 years closely with the US/UK tax treaty, and had a number of clients bothgoing to the US and coming back from the US and so understands the way in which the system works. (6) Mr Clay was asked in effect why this provision was needed given the agreement does not apply to the US at all. He said: “Yes, clause 2.3 is in there to allow Rupert to contractindividually when he makes a film, does a TV show, in the US.that document is very, very poorly drafted” and in hindsight it should have been expanded. On this point Mr Smethurst said this about how the agreement is intended to operate: “this agreement is just about providing services when they are outside of the US. 2.3 is about the fact that there will be cases where you go and work in the US and you will be working as a freelance, self-employed person. But the company may agree to act as a collecting agent, so the company isn’t providing the services of Rupert Grint in that situation, they are just acting as a collecting agent and holding or taking the income on his behalf. But, as it says, they would have no actual entitlement to that income, the company that is…the only occasions in which Rupert would have, as far as I am aware, worked in his own name would be when he worked in the US…my logical conclusion is that the intention of 2.3 is to deal with a situation where Rupert is acting in the US but the company collects, as administrative agent, thefee on his behalf…That is my understanding of obviously having read this document again. That is my understanding…and my memory of what we intended at the time…We, as in myself and anybody at Clay Knox who wasadvising on the matter” (7) Mr Clay later explained that withholding tax would be suffered inthe US, and that credit for it would be claimed against UKtaxes. So, for example, if Mr Grint earned money in theUS in his self-employed capacity and paid $100,000 inwithheld taxes in the US, and his UK liabilitywas $120,000 or the equivalent, he would be paying that additional $20,000 to HMRC and the US tax authority would have taken the $100,000. He confirmed that he advised that for US workMr Grint should contract in his own name because of that tax point and because if he contracted throughClay 10, it would be subject to corporation tax and if Mr Grint then decided to take that money out, he would not be able toclaim the credit against his self-employed income whichis deemed in the US, so in effect he would be taxed at somewhere north of 70%. He agreed that Mr Nigel Grint and Mr Grint followed his advice on this. (8) It was put to him that where there was a tax reason for doing so Mr Grint just gave up anyalleged limited liability protection of thesearrangements and entered into contracts on his own behalf again. He agreed and said that was because a tax rate of over 70% is not attractive to anybody and would mean that there would be no point in working in the US at all, which would severely affect his career and earning capacity going forward…nobody would purposively put themselves in a positionwhere they are going to be paying over 70% in tax whereby they cannot do that following the legislation and double tax treaties in place. He agreed that Mr Grint and Mr Nigel Grint cared about his advice on the tax in relation to all of these arrangements. He did not agree that it was the only important factor. (9) Mr Smethurst agreed that if CK had wanted to change a clause, they could havedone so but said he did not know if they thought about the collecting agent provision or not. He agreed the position was the same as regards the APA. He agreed that he/CK were very much in a decision-making role in thatsense and said “we provided and prepared to a certainextent, we entered the factual information in these documents. At the end of the day, they were given to the clients to approve, so ultimately they had thedecision-making power to sign them or not as clients.”

“We have paid tax. We have paid a significant amount of taxes. What we did, did not negate tax to zero…Our job was to do that and that is what we are paid to do”

“Able to extract post-CT profits (25% CT) ateffective tax rate of 10%, “Valued [work in progress]…income taxpayable...”, “extract actual cash tax-free…Nigel please ensure that everything is in [Clay 10’s] name in future - not Rupert personally”

“Nigel hada huge amount going on at the time, well, always hada huge amount going on and this was always to reinforce that fact, that was all. The reason why that was inthere, I suspect”. (2) There was also a reference to a question for Nigel Grint “has Lloyds sent forms to Nigel G to provideaccess to Dan to manage company bank account?”

“there is a much wider spectrum of why that point is there, which is just the general point, you have incorporated your business therefore your contracts going forward should be in the name of the company that you have incorporated into. And you are quite right, if they didn’t do that then they would be paying income tax as a self-employed person.”

“The deed will have to be dated as at the dateupon which it is executed, and not before.”

“Itis my opinion and as a firm we deal with a huge amountof people in the entertainment industry.”

“No, because it is - it does happen in theentertainment industry…No, we don’t have evidence in front of us but it is - it has been widely publicised, examples of it, in thenational press…But as an example, there has beensignificant publicity about the fact that contractsweren’t signed and haven’t been entered into…that is my opinion from understanding the entertainment industry and how itworks. And that is a generalisation. So specific to this point, I take your comments. But that is mycomment generally and my opinion, which - I have worked in the industry for many years.”

“I can think of cases where people have started providingservices on films without even having contracts in place. That is the business, I’m afraid. I still don’t agree that the lack of care somehow proves this is a tax reason for the transaction…”

“Whilst we are essentially accommodating yourclient’s request with regard to certain arrangements heis putting into place for his own affairs (and happy to do so in terms of the deed) I don’t want to commit us toanything further that might be required in the future”

“Well, hang on a minute, we arenot having it that you suddenly change the terms of ourdeal”

“In clause 2.3, with reference to the words 'afterthe date of this deed' – let’s just be clear that this includes the payment that was contractually due to be paid to Artist promptly following 31 July 2011 (ie that such payment will be paid to NewCo and not to Artist).”

“I am his tax adviser andtherefore my role is to talk about the tax benefits, notdiscuss other things that are outside of the taxbenefits”

“... the payment that was contractually due to bepaid to [Mr Grint] promptly following 31 July 2011 (ie, that such payment will be paid to [Clay 10] and not to [Mr Grint]).”

“Again, I would say my job is to make sure…anyclient is minimising their taxes. Correctly and fairly.And again this is an instance of that.” (3) It was put to him that Mr Grint or Mr Nigel Grint must have given the instructions to put payments on hold for the tax reasons set out in this email. He said he did not know and had no comment really. (4) When pressed Mr Clay said, in effect, that the purpose ofthis was to take advantage of the corporate structure, andtherefore paying corporate taxes at the rate at the time of 25/26%, and if Mr Grint then chose to take that money outincome taxes would follow giving a net tax position similar to that of income tax, which was at 50%. (5) It was put to Mr Clay that his plan was that eventually this would all be wound up, and profits would be extracted at 10%. He said that did not happen, so it is immaterial and the tax rate was not 10% as Mr Grint was suffering tax at a corporate rate of 25/26%, so the £4.5 million that was taxed at 10% on Mr Grint had already suffered a tax of 26% at a corporate level: “So the overall tax rate for Rupert on that £4.5 million was over 32%...The position was we went from 50% down to over 32/33% of tax…”

“We are given a mandate to do certain things as accountants and tax advisers…it’s not within our mandate tomake sure…we are satisfied with thecommercial objectives of the client….we are only talking about that obviously in hindsight…At the time, we wouldn't have thought commercial objectives were an important issue for us….or certainly myself to be aware of or be noting down on files”

“This is really the first I have ever seen of that…I have no recollection of that ever being discussed with me.”

“I think they definitely contributed to the bigger picture…that is my understanding, my belief.”

“by that stage they would have become more familiar with thebackground to the company, they would have on file the [APA]…They may havereviewed it a number of times for the purposes ofcompleting statutory accounts…So…a bookkeeper or probably an accounts managerwould probably have reviewed the [APA] at some point in completing statutory accountsand they would have been aware by that point that the assets weren’t purchased on the date of incorporation.They were purchased…on that October 2011 date…That is speculation, yes, I don’t - I can’t give you cast-iron 100% fact how that happened due to the time that has passed.” (3) Mr Smethurst agreed that it is unusual that the extract refers to “DC witness statement”

“perhaps we could have been more thorough and…perhaps in that letter there should have been a disclosure that we have corrected this from the original book-keeping record. But I still say that is giving accurate information to the Revenue in the course of the inquiry…this is just anextract because it only covers the period of 1 August to31 October and so we were giving the Revenue what they had asked for, which is to see how the goodwill was dealt with and the work in progress. And we must havemade the decision that the further entries on [the shareholder loan] weren’t relevant to their request.” (4) He explained the reference in the extract to 14 October 2011 as a typo which “is not great” obviously itshould show 13October 2011. He agreed it is misleading in that somebody hasfailed to put the exact correct date but he said it shows the substance of thetransactions, and how they were accounted for and thatanybody reviewing this matter would want to see: “there aremistakes but I don’t think there is any intention to mislead…I would characterise it as an effort to tidy up mistakes made in book-keeping records. I don’t think there would be any intention to mislead…” (5) Mr Clay was taken through the entries in the “shareholders’ loan account”

“….when the question of carrying out a genuine commercial transaction, as this was, is reviewed, the fact that there are two ways of carrying it out - one by paying the maximum amount of tax, the other by paying no, or much less, tax—it would be quite wrong, as a necessary consequence, to draw the inference that, in adopting the latter course, one of the main objects is, for the purposes of this section, avoidance of tax. No commercial man in his senses is going to carry out a commercial transaction except upon the footing of paying the smallest amount of tax that he can. The question whether in fact one of the main objects was to avoid tax is one for the Special Commissioners to decide upon a consideration of all the relevant evidence before them and the proper inferences to be drawn from that evidence.” (2) Challenge Corporation is a New Zealand case, where shares in a company were sold to Challenge Corporation Limited (“C”) for a price equal to $10,000 or 22.5% of the loss in the company of $5.8 million which proved to be deductible from the assessable income of C’s group of companies. The question was whether the contract for the sale was void as against the New Zealand tax authorities under a provision which stated that would be the case if and to the extent that, directly or indirectly the contract’s “purpose or effect” was to reduce liability to income tax. C argued this provision did not apply as the legislation specifically provided for losses to be transferred between group companies. Mr Marre referred to the following comments of Lord Templeman: “There are, however, discernible distinctions between a transaction which is a sham, a transaction which effects the evasion of tax, a transaction which mitigates tax and a transaction which avoids tax… The material distinction in the present case is between tax mitigation and tax avoidance. A taxpayer has always been free to mitigate his liability to tax… Income tax is mitigated by a taxpayer who reduces his income or incurs expenditure in circumstances which reduce his assessable income or entitle him to reduction in his tax liability. Section 99 does not apply to tax mitigation because the taxpayer's tax advantage is not derived from an "arrangement" but from the reduction of income which he accepts or the expenditure which he incurs. Thus when a taxpayer executes a covenant and makes a payment under the covenant he reduces his income. If the covenant exceeds six years and satisfies certain other conditions the reduction in income reduces the assessable income of the taxpayer. The tax advantage results from the payment under the covenant. When a taxpayer makes a settlement, he deprives himself of the capital which is a source of income and thereby reduces his income. If the settlement is irrevocable and satisfies certain other conditions the reduction in income reduces the assessable income of the taxpayer. The tax advantage results from the reduction of income. Section 99 does apply to tax avoidance. Income tax is avoided and a tax advantage is derived from an arrangement when the taxpayer reduces his liability to tax without involving him in the loss or expenditure which entitles him to that reduction. The taxpayer engaged in tax avoidance does not reduce his income or suffer a loss or incur expenditure but nevertheless obtains a reduction in his liability to tax as if he had.”

“There is nothing magical about tax mitigation whereby a taxpayer suffers a loss or incurs expenditure in fact as well as in appearance” and (c) Lord Goff’s comments at page 681B: “Like my noble and learned friend, Lord Templeman, I approach this case on the basis that there is a fundamental difference between tax mitigation and unacceptable tax avoidance. Examples of the former have been given in the speech of my noble and learned friend. These are cases in which the taxpayer takes advantage of the law to plan his affairs so as to minimise the incidence of tax. Unacceptable tax avoidance typically involves the creation of complex artificial structures by which, as though by the wave of a magic wand, the taxpayer conjures out of the air a loss, or a gain, or expenditure, or whatever it may be, which otherwise would never have existed. These structures are designed to achieve an adventitious tax benefit for the taxpayer, and in truth are no more than raids on the public funds at the expense of the general body of taxpayers, and as such are unacceptable. Again, examples have been given in the speech of my noble and learned friend. The question in the present case is into which of these two categories the transaction under consideration falls.” (4) CIR v Willoughby (1997) 70 TC 57 which concerned the application of the “transfer of assets abroad” legislation then in place to transactions involving transfers of assets to an insurance company including whether the deferral of a liability to United Kingdom income tax can constitute the avoidance of liability to income tax for the purposes of those provisions and whether on the facts as found (a) the purpose of avoiding liability to taxation was the purpose or one of the purposes for which the transfer of assets or any operation associated therewith was effected; or b) that transfer and any operations associated therewith were bona fide commercial transactions and not designed for the purpose of avoiding liability to taxation. I refer to this as the motive test. Lord Nolan said this as regards the motive test at page 116: “[Mr. Henderson Counsel for the Revenue, submitted that] ... tax avoidance was to be distinguished from tax mitigation. The hallmark of tax avoidance is that the taxpayer reduces his liability to tax without incurring the economic consequences that Parliament intended to be suffered by any taxpayer qualifying for such reduction in his tax liability. The hallmark of tax mitigation, on the other hand, is that the taxpayer takes advantage of a fiscally attractive option afforded to him by the tax legislation, and genuinely suffers the economic consequences that Parliament intended to be suffered by those taking advantage of the option. ... My Lords, I am content for my part to adopt these propositions as a generally helpful approach to the elusive concept of “tax avoidance”, the more so since they owe much to the speeches of Lord Templeman and Lord Goff of Chieveley in Ensign Tankers (Leasing) Ltd. v. Stokes 64 TC 617, [1992] 1 AC 655 at pages 675C-676F and 681B-E. One of the traditional functions of the tax system is to promote socially desirable objectives by providing a favourable tax regime for those who pursue them. Individuals who make provision for their retirement or for greater financial security are a familiar example of those who have received such fiscal encouragement in various forms over the years. This, no doubt, is why the holders of qualifying policies, even those issued by non-resident companies, were granted exemption from tax on the benefits received. In a broad colloquial sense tax avoidance might be said to have been one of the main purposes of those who took out such policies, because plainly freedom from tax was one of the main attractions. But it would be absurd in the context of s 741 to describe as tax avoidance the acceptance of an offer of freedom from tax which Parliament has deliberately made. Tax avoidance within the meaning of s 741 is a course of action designed to conflict with or defeat the evident intention of Parliament.” (Emphasis added.)

“In our society, a great deal of intellectual effort is devoted to tax avoidance. The most sophisticated attempts of the Houdini taxpayer to escape from the manacles of tax (to borrow a phrase from the judgment of Templeman LJ in W T Ramsay Ltd v Inland Revenue Comrs [1979] 1 WLR 974, 979) generally take the form described in Barclays Mercantile Business Finance Ltd v Mawson [2004] UKHL 51; [2005] 1 AC 684, para 34: ‘... structuring transactions in a form which will have the same or nearly the same economic effect as a taxable transaction but which it is hoped will fall outside the terms of the taxing statute. It is characteristic of these composite transactions that they will include elements which have been inserted without any business or commercial purpose but are intended to have the effect of removing the transaction from the scope of the charge.’” ‘... structuring transactions in a form which will have the same or nearly the same economic effect as a taxable transaction but which it is hoped will fall outside the terms of the taxing statute. It is characteristic of these composite transactions that they will include elements which have been inserted without any business or commercial purpose but are intended to have the effect of removing the transaction from the scope of the charge.’”

“The legislation was drafted very widely and was intended to extend to any arrangements made to exploit an individual’s earning capacity where the main object (or one of the main objects) was to avoid or reduce liability to income tax.”

“[i]t is to be remembered that for income tax purposes "receivability" without receipt is nothing. Before a good debt is paid there is no such thing as income tax upon it. The meaning of the section must be "receivability" speaking of a debt which has been received, and means the date on which it is paid as distinct from the date on which it was accruing.” (b) In Dewar v IRC [1935] 2 K.B. 351 the taxpayer contended that no tax was due on interest payable on a legacy he had received under a will on the basis that the interest had been waived. The IRC contended that the amounts due were payable because the taxpayer could have asked for the debt to be paid at any time, so the sums were at his disposal. Lord Hanworth MR observed: “The respondent [taxpayer] has made, in his capacity as legatee, no demand for the full payment of the legacy, or at the material times he had not, and he has made no demand for payment of interest upon it. The money is left in this way, that if he were minded to ask for 40,000l., or a part of it, it would have been possible for him to have been paid and to have received it. But the fact is he has not done anything at all in respect of that, and the money has not been appropriated to his use, it has not been deposited at his direction, and it is not lying under his name, either in the hands of the bank or any other agent. It is not quite easy to see why this total sum of 40,000l. should be claimed, because upon the facts indicated in the table of payments it does not appear that the 40,000l. is a sum which would have been payable if the legatee had made a demand, which as I say he has not done.” (c) He continued by citing Rowlatt J’s comments in Leigh with approval and said that: “the reason why you make up the return for the particular year is that you look to see in the course of that twelve months what has been received and it may be that a good debt will be paid in a subsequent twelve months and not in the twelve months in respect of which you are making your declaration, and you cannot anticipate that the money will come in in its proper place in the following twelve months. I think Rowlatt J. was right in saying that for income tax purposes receivability without receipt is nothing.” (d) These principles were applied more recently by Neuberger J (as was) in Girvan (Inspector of Taxes) v Orange Personal Communications Services Ltd [1998] STC 567. The headnote provides: “Held – (1) As a matter of ordinary language interest, which was accruing and was being compounded, was income and arose when it was paid. In the instant case, following the arrangements agreed between O and the bank, while the interest was accruing and had not been called by O, it was an accruing debt which was the antithesis of income, since, so long as the debt was wholly unpaid, there was no income, and once it was wholly paid, the payment was income, and the debt had ceased to exist. O had the right at any time to obtain the interest, either by asking for it or by closing the deposit account, but it would not have obtained the interest until it had asked for it or had closed the account or until January 1993. O had not done anything in respect of the interest, the interest had not been appropriated to O’s use, it had not been deposited at O’s directions, it was not lying under O’s name or in the hands of the bank, and it had not enured for O’s benefit until it was paid in December 1992. Moreover, a payment to an account set up by the bank in its own name for internal accounting purposes was not a payment in the commercial world.” (7) The definition of “money’s worth” provided by s 62 of the Income Tax (Earnings and Pensions) Act 2003 is also relevant, as: “something that is - (a) of direct monetary value to the employee, or (b) capable of being converted into money or something of direct monetary value to the employee.”

“... a capital amount other than derivative property...[is]obtained.”

“I have amended your tax return by treating the capital amount you obtained on the sale of your business as income arising under s 778 ITA 07. The capital amount is to be treated for income tax purposes as income arising to you and charged under s776 ITA 07.…”

“…HMRC’s view is that s.778 is the correct charging provision here, but even if s.779 is the correct one we know that there was enough money in the account so the SOOI provisions should apply to the tax year 2011/12. Therefore whether s.778 or s.779 applies the result is the same, the SOOI provisions are triggered in 2011/12. …It is clear from our respective positions that the enquiries will not be settled by agreement and I will now close my enquiries into your clients 2011/12 ITSA Return on the basis that the capital sum obtained by your client is to be treated for income tax purposes as income arising to him in that year. Any appeal will be heard together with your appeal against the 2012/13 assessment...” (5) See also HMRC’s letter dated 11 July 2019 accompanying HMRC’s closure notice, to the same effect: “…I am writing to tell you that I have reached a conclusion to my enquiry and I am issuing a closure notice for the tax year ended 05 April 2012. Please find a closure notice enclosed. I have amended your tax return by treating the capital amount you obtained on the sale of your business as income arising under s778 ITA 07. The capital amount is to be treated for income tax purposes as income arising to you and charged under s776 ITA 07. … My view is that s. 778 is the correct charging provision, but even if s.779 is the correct one we know that there was enough money in the account so the SOI provisions should apply to the tax year 2011/12. Therefore whether s. 778 or s. 779 applies the result is the same, the SOI provisions are triggered in 2011/12.”

“I am satisfied that the Tower MCashback scheme fails on the section 45(4) point alone.”

“be free in principle to entertain legal argument which played no part in reaching the conclusions set out in the closure notice. Subject always to requirements of fairness and proper case management, such fresh arguments may be advanced by either side or may be introduced by the Commissioners on their own initiative.” (3) He then said, at [116], that this did not mean that an appeal against a closure notice “opens the door to general roving enquiry into the relevant tax return”

“The scope and subject matter of the appeal will be defined by the conclusion stated in the closure notice and by the amendments (if any) made to the return. The legislation does not say this in so many words, but it follows from the fact that the taxpayer’s right of appeal under section 31(1)(b) is confined to an appeal against any conclusion stated or amendments made by a closure notice. That is the only appeal which the Commissioners had jurisdiction to entertain.” (4) At [128], he noted that “the result may from the Revenue’s point of view be characterised as conferring a windfall benefit on the taxpayer” but that another way of looking at the limitation on the scope of the appeal is as: “part of the protection given by Parliament to taxpayers under the self-assessment system. There is always a balance to be struck between the interest of individual taxpayers on the one hand and the interest of the State and the general body of taxpayers on the other hand. Parliament has decreed how the balance is to be struck…”

“It seems to me inherent in the appeal system that the tribunal must form its own view on the law without being restricted to what the Revenue state in their conclusion or the taxpayer states in the notice of appeal. It follows that either party can (and in practice frequently does) change their legal arguments. Clearly any such change of argument must not ambush the taxpayer and it is the job of the Commissioners hearing the appeal to prevent this by case management.”

“while the scope and subject matter of the appeal will be determined by the conclusions and the amendments made to the return, s 50 of TMA does not tie the hands of the commissioners (now the Tax Chamber) to the precise wording of the closure notice when hearing the appeal.”

“i) The scope and subject matter of an appeal are defined by the conclusions stated in the closure notice and by the amendments required to give effect to those conclusions. ii) What matters are the conclusions set out in the closure notice, not the process of reasoning by which HMRC reached those conclusions. iii) The closure notice must be read in context in order properly to understand its meaning. iv) Subject always to the requirements of fairness and proper case management, HMRC can advance new arguments before the FTT to support the conclusions set out in the closure notice.”