“In summary, we strongly believe that the valuation applied to the sale of Chelsea Yacht and Boat Company Limited to Thames River Moorings Limited was in no way undervalued. In our opinion it was a conservative valuation.”
“Firstly we want to make it clear that Mr Moffat’s comment, in the letter to HMRC of9 April 2018 , that the mooring fees “are akin to ground rents” was not a technical analysis for a unique situation but a headline comment made for explanatory purposes only and should not be taken out of context or as a substitute for the full answer. Regardless, the company’s income from mooring fees accounts for only a small proportion of the total income of CYBC and is not a “substantial” (i.e. over 20%) proportion for ER purposes. Income from non-trading activities CYBC’s average “fixed” income per boat is approximately£16,500 per annum, comprising of mooring fees and service charges but excluding income from ad hoc maintenance and repair of boats. The average length of CYBC’s vessels is 67 feet and therefore the average income from these fixed fees per linear foot is approximately£246 . Within the fixed annual fee are the services provided by CYBC’s team of 13 staff … Fees for these maintenance/repair services are charged on top of the fixed mooring and service fees, however in order to provide the clients with certainty the mooring fees and service charges are charged as a single fixed fee, depending on the size and location of the mooring. By way of comparison, there are five ‘trot’ moorings available in the same area with mooring fees of between£1,000 and£2,137.56 per annum, which is equivalent to approximately£30 per linear foot. A trot mooring allows the boat owner use of the land (being the riverbed below the boat) but without any services, connections or use of pontoons. As you will appreciate, the trot mooring is therefore a useful comparison in terms of estimating the value of the mooring fee element of CYBC’s income and in evidencing the additional value provided by virtue of the services rendered. In fact, our clients anticipate that the value of CYBC’s mooring fee income per boat would be at the lower end of the range mentioned above by virtue of the fact that the aforementioned trot moorings enjoy exclusive possession, whilst CYBC’s moorings do not. On this basis, Mr and Mrs Moffat’s view is that less than£2,000 per annum per boat is attributable to mooring fees in CYBC’s case. The balance of the fixed income in CYBC is attributable to the significant additional services offered and provided to boat owners occupying CYBC’s moorings. CYBC occupies a premium space within the London moorings market which is made possible only by the value added by the exceptional and round-the-clock services offered by CYBC. The provision of these services is a trading activity which requires active management and involvement by both Mr and Mrs Moffat and their team of dedicated staff, as opposed to being the passive receipt of rental income. Based on a prudent estimate of£2,000 per boat for mooring fees, approximately 88% of CYBC’s income is considered to be trading income from services provided to boat owners, before taking into account the ad hoc income relating to repairs and maintenance services provided, which are also trading activities. Profit It is important to note that the mooring fee element of CYBC’s income is not profitable. CYBC pays£123,588 to the Port of London Authority for its head licence, equating to a license fee of£2,059.80 for each of CYBC’s 60 moorings. This cost is directly attributable and broadly equivalent to the company’s income from mooring fees. As such, the company’s profits are therefore wholly attributable to the trading activities of the business (i.e. the additional services provided over and above the equivalent trot mooring). Expenses incurred and time spent by employees of the company in undertaking its activities. As noted above, CYBC employs a dedicated team of 13 employees to assist with running the business … The cost of employing these staff, alongside the cost of materials and tools required, make up the vast majority of CYBC’s expenditure and are directly attributable to the various trading services provided to boat owners. It is therefore estimated that well over 80% of the business’ costs of sale and overheads are attributable to the trading part of the business, being the provision of boatyard services and the repair and maintenance of the boats. Additionally, it is clear that the employees’ time is dedicated wholly to the provision of these services and a simple trot mooring would not require such staffing. … Conclusion Based on the above facts and information, CYBC’s activities did not, to a “substantial extent”, include activities other than trading activities in the 12 months prior to the sale of the shares in Chelsea Marine Limited (“CML”) in September 2016. Provision of professional advice received prior to filing tax returns No formal written advice was provided to Mr and Mrs Moffat prior to filing their tax returns for the year. This was because we were in discussion with our clients in relation to the filing of the tax returns and were satisfied that (as set out above) a legitimate claim for ER could be made.”
“Licence premiums – the licence premiums are paid for the grant of permission to the boatowner to moor their vessel for a set period. The licence premium is a fixed amount paid over the life of the licence and the reverse is recognised over the licence period accordingly. This broadly equivalent to the right to use a houseboat at one location. Mooring fees – in addition to the licence fee, a mooring fee is paid by the boatowner. This is a fixed fee, calculated per foot and per annum which is payable in exchange for a number of extensive services, supported by 14 on site members of staff provided by CYBC to its customers. Maintenance charge – the maintenance charge is also a fixed annual fee relating to the general maintenance of the boatyard and mooring facilities. It is effectively a reimbursement of maintenance costs incurred by the company, allocated between boat owners relative to the size of their boat and the proportion of the mooring space that this occupies. Ad hoc repairs income – this is income received in relation to ad hoc repairs made to boats as and when requested. This income is not fixed and is distinct from the other activities described above. Boat building and fitting – this activity relates to the construction and sale of boats, including completing all internal and external fittings.”
“165A Meaning of “holding company”, “trading company” and “trading group” (1) This section has effect for the interpretation of section 165 (and this section). (2) “Holding company” means a company that has one or more 51% subsidiaries. … (8) “Trading group” means a group of companies– (a) one or more of whose members carry on trading activities, and (b) the activities of whose members, taken together, do not include to a substantial extent activities other than trading activities. (9) For the purposes of subsection (8) above “trading activities” means activities carried on by a member of the group– (a) in the course of, or for the purposes of, a trade being carried on by any member of the group, (b) for the purposes of a trade that any member of the group is preparing to carry on, (c) with a view to any member of the group acquiring or starting to carry on a trade, or (d) with a view to any member of the group acquiring a significant interest in the share capital of another company that– (i) is a trading company or the holding company of a trading group, and (ii) is not a member of the same group of companies as the acquiring company. … (13) For the purposes of this section the activities of the members of a group of companies are to be treated as one business (with the result that activities are disregarded to the extent that they are intra-group activities). (14) In this section– “51% subsidiary” has the meaning given by Chapter 3 of Part 24 of CTA 2010, “group of companies” means a company which has one or more 51% subsidiaries together with those subsidiaries, … “trade” means (subject to section 241(3)) anything which– (a) is a trade, profession or vocation, within the meaning of the Income Tax Acts, and (b) is conducted on a commercial basis and with a view to the realisation of profits.” (a) one or more of whose members carry on trading activities, and (b) the activities of whose members, taken together, do not include to a substantial extent activities other than trading activities. (a) in the course of, or for the purposes of, a trade being carried on by any member of the group, (b) for the purposes of a trade that any member of the group is preparing to carry on, (c) with a view to any member of the group acquiring or starting to carry on a trade, or (d) with a view to any member of the group acquiring a significant interest in the share capital of another company that– (i) is a trading company or the holding company of a trading group, and (ii) is not a member of the same group of companies as the acquiring company. (a) is a trade, profession or vocation, within the meaning of the Income Tax Acts, and (b) is conducted on a commercial basis and with a view to the realisation of profits.”
“3 Degrees of culpability (1) For the purposes of a penalty under paragraph 1, inaccuracy in a document given by P to HMRC is– (a) “careless” if the inaccuracy is due to failure by P to take reasonable care, …”
“The capital gain made on the disposal of the Chelsea Marine Ltd shares was large and the disposal was made to a related party, which means there was an added element of complexity for tax purposes … this transaction, involving a large Entrepreneurs’ Relief claim was not routine and not something the taxpayer had encountered before. Given these previous penalties charged for failing to take reasonable care, I would have expected a taxpayer to be even more diligent than they would otherwise, especially when again claiming for a CGT relief. Overall, given the size and complexity of the transaction, its novelty, and the previous penalties charged for careless behaviour I would have expected a taxpayer taking reasonable care to take a higher degree of care than otherwise, including seeking written professional advice if they lacked the expertise to undertake a full analysis of the availability of ER themselves. … If the taxpayers lacked the expertise to carry out such an analysis themselves, it is my view that they should have sought formal advice from a suitably qualified and independent professional as to whether CYBC was a trading company for ER purposes prior to claiming ER. When obtaining such advice, the taxpayers should have taken care to ensure complete and accurate information and documents were provided to the advisor in order to demonstrate reasonable care. The taxpayers’ agent stated that no formal written advice was provided in respect of the ER claim prior to filing because the agents “were in discussion with our clients in relation to the filing of the tax returns and were satisfied that…a legitimate claim for ER could be made” (letter of25 April 2019 ). No further details or evidence was provided in respect of these discussions … I doubted that a taxpayer taking reasonable care could conclude that ER was due after a mere discussion with their agents (i.e. without being provided with a more formal technical analysis in writing) … I did not view the agent’s statement that they were satisfied a legitimate ER claim could be made following discussions with the taxpayers as sufficient evidence of the taxpayer taking reasonable care A taxpayer taking reasonable care would have taken steps to ensure they were fully aware of all the conditions for claiming Entrepreneurs’ Relief and that the shares disposed of qualified. One condition of making a successful Entrepreneurs Relief claim is that the shares disposed of relate to a trading company (or a member of a trading group). The taxpayers should have been aware at the time of filing their returns that activities always accepted as non-trading (such as sales of long-licences) were an important part of CYBC’s business.”
“Moorings pontoons entrance piers and gangways to accommodate residential craft drydock administrative and workshop barge campshedding vacuum sewage system and mooring piles in the position in accordance with PLA drawings …”
“For the building maintenance servicing and repair of boats houseboats pontoons and gangways for the mooring of three vessels or structures for access to and from moorings in Cheyne Walk and servicing of moorings for office purposes for research for light industry and for storage”. (2) In the Period, CYBC offered two types of moorings to the owners of boats (“Boatowners”): Houseboat moorings CYBC offered space for 60 houseboat moorings. Each boat is anchored, tied up to the relevant pontoon and connected to utilities. Trot moorings CYBC offered space for eight trot moorings for small water craft but only one was in use in the Period. Trot moorings comprise steel buoys to which the boats are tied using a ring and rope. The boats are not connected to any utilities and do not benefit from any of the services or support provided by CYBC. The trot moorings were removed for maintenance in 2017 and not replaced. (3) CYBC’s contractual relationship with Boatowners fall into one or more of the following categories: mooring fees and licences, formal mooring licences and additional services. All Boatowners who use the houseboat moorings pay mooring fees and maintenance charges annually. The maintenance charges are not optional. Boatowners using the trot moorings only pay mooring fees. Payment of the mooring fee is payment for the right to moor a vessel for an indeterminate period of time. Payment of the mooring fees is linked to payment of the maintenance charges as the former cannot be paid without the latter and vice versa. The maintenance charges are charged at cost and estimated at the start of the year. (4) Three types of formal mooring licences were in existence in the Period: (a) A ten year or five year licence with an option to renew for the same period; (b) A one year licence with no option to renew; and (c) A longer licence, 17 or 23 years, with no option to renew. (5) Not every Boatowner had a mooring licence in the Period as some had expired and had a “periodic licence” as the Boatowner continued to make payments per the terms of the expired licence. Notwithstanding the type of mooring licence, all required payment of the maintenance charges. Regardless of whether the Boatowner has a formal mooring licence or not, there is no right to a specific mooring. CYBC reserves the right to move the boat and has repositioned boats for good estate management. (6) CYBC ran the business in a similar fashion as it had been run by the previous owners and, as far as Mr Moffat was aware, the facts had not changed during the Period. (7) In the Period, the mooring fees were£138 per foot (calculated by reference to the length of the boat). The maintenance charge for the Period was£75.35 per foot with a discretionary discount of£6 per foot for Boatowners who also have a mooring licence. (8) Each mooring licence was drafted in similar terms and made reference to and provided for the payment of the maintenance charge and contained similar rights and obligations. The 10-year mooring licence dated12 April 2012 is representative of the three types of mooring licences in existence in the Period and, relevantly for these purposes, stated: (a) “Boatyard” is defined as the boatyard wharf premises and mooring owned occupied or licenced by CYBC at 106 Cheyne Walk and shown on the plan; (b) “Licence Period” is defined by reference to a period of 10-years with a specified commencement and termination date; (c) “Maintenance Charge” is defined as the maintenance charge payable by the Boatowner in accordance with Clause 3; (d) “Mooring” means the mooring known as berth [relevant berth number inserted]106 Cheyne Walk London SW10 indicated approximately for the purposes of identification only on the Plan or in such other position as CYBC may from time to time require in writing in accordance with this Licence; (e) “Mooring Fee” means until28 September 2012 £108 per foot per annum. until28 September 2013 £115 per foot per annum and until28 September 2014 £120 per annum, multiplied by the overall length of the Vessel until reviewed; (f) “Mooring Facilities” means the facilities and services set out in the Fifth Schedule; (g) Clause 2 is headed “Licence to Moor” and states that CYBC grants permission to the Boatowner to moor the Vessel on the Mooring for the duration of the Licence in consideration of the Boatowner: (a) paying a sum of£60,000 on the grant of the Licence; (b) paying the Mooring Fee; (c) paying the Maintenance Charge; and performing and observing the obligations of the Boatowner set out in Clause 3 together with the rights set out in the First Schedule reserving and granting to CYBC the rights set out in the Second Schedule.
“Property or Trading 34. As discussed above, the tax legislation has long sought to grapple with the dividing line between property and trading income. The starting point in the analysis – what HMRC in their submissions called “the default position” – is that income derived from the exploitation of property is to be taxed as property income. In certain situations, however, the taxpayer may be able to establish that the activities giving rise to the income constitute a trade. While the existence of a trade is ultimately a question of fact, it was argued by both parties that case law establishes certain characteristics as having particular significance. 35. Passages from two decisions relevant to this appeal neatly summarise this position. In the decision of the House of Lords in Salisbury House Estate, Ltd v Fry [1930] 15 TC 266 , Lord Macmillan stated (at page 330): “A landowner may conduct a trade on his premises, but he cannot be represented as carrying on a trade of owning land because he makes an income by letting it. The relatively insignificant services for which the company makes charges to its tenants are not in my opinion sufficient to convert the company from a landowner into a trader, though the profits so made may quite properly be charged with tax under Schedule D. To hold otherwise would be to invert the rule that the principal follows the accessory.” 36. In the more modern case of Griffiths v Jackson [1985] 56 TC5 83, Vinelott J. reaffirmed the force of this principle while helpfully summarising its historical origins (at page 190): “It is a cardinal principle of United Kingdom tax law that “income derived from the exercise of property rights properly so-called” by the owner of land (freehold or leasehold) is not income derived from the carrying on of a trade. The words I have cited come from the speech of Lord Macmillan in Salisbury House Estate, Ltd v Fry 15 TC 266 at page 329. The historical origin of the principle is that tax under Schedule A was formerly charged “in respect of the property in all 37. On the face of it, income from a business of letting property, such as that in this appeal, would fall naturally within the wording of section 266(1): “’generating income from land’ means exploiting an estate, interest or right in or over land as a source of rent or other receipts.”
“Profits are undoubtedly received in the present case which are applied to charitable purposes, but they are profits derived not merely from the letting of the tenement but from its being let properly equipped for entertainment, with seats, lighting, heating and attendance. The subject which is hired out is a complex one. The mere tenement as it stands, without furniture, etc, would be almost useless for entertainment. The business of the Governors in respect of those entertainment is to have the hall properly fitted and prepared for being hired out for such uses.” 49. Viscount Cave expressed himself in similar terms, at page 585: “I am unable to see how the profits in question can be said to be derived from the Rotunda Rooms alone. They result, not from the letting of bare rooms, but from the whole venture, consisting of the equipment, and disposal of the rooms with their fixtures and furniture and the provision of the service of heating, lighting and attendance. They may perhaps be described as profits of a trade or concern in the nature of trade, that is to say, of the business of providing and letting rooms for entertainment …” 50. Salisbury House Estate, decided in 1930, was relied on by HMRC. The case concerned unfurnished offices which were leased, with the landlord providing lighting, heating, caretaking and other services. Some of the services were optional and only charged for if taken up. The taxpayer also provided and operated lifts in the building, and provided uniformed staff, cleaners, housekeeper and concierge services. 51. The House of Lords held that on the facts the total income fell to be taxed as property rather than trading income (as then was, Schedule A rather than Schedule D). Much of the discussion concerned the need for exclusivity amongst the various Schedules. The court remarked that Rotunda “… entirely differs in its facts and appears to throw little light on the law in question before this House” (Lord Atkin at page 321). The ratio for the decision in Salisbury appears to be that on the facts the services offered by the taxpayer were not sufficiently significant to supplant the natural characterisation of the leasing income as property income: see the passage from Lord Macmillan’s judgment quoted at [35] above. 52. Sywell Aerodrome concerned income which was potentially assessable under any of the former Schedules A, B or D. The taxpayer’s argument was that the income was properly property income taxable under Schedule A, or income from the occupation of land taxable under Schedule B. The income arose from various licences of the aerodrome, and the taxpayer also provided the services of a guardsman and made available first aid appliances and tools. 53. The Court of Appeal held by a majority that the entire income was taxable under Schedules A or B. Having considered authorities including Rotunda and Salisbury House , Lord Greene stated (at page 143): “I have so far ignored the one thing done by the company which in my view falls outside the profit-making activities with which Schedules A and B are concerned – viz; the provision of tools and equipment which is a condition of the licence. Compliance with this condition cannot in my opinion change the whole picture and turn what would otherwise be profits covered by Schedule A or Schedule B into profits assessable under Schedule D, any more than would be the case if, for example, under housing bye-laws the landlord of a block of flats were bound to keep fire-fighting appliances on the premises. On principle, however, whatever part of the profits made by the company ought to be apportioned to the provision of this equipment [is a] matter for the Commissioners [and] is assessable under Schedule D. The point, however, is obviously too trivial to lead to any practical result. I have given the best consideration that I can to the authorities which, I must confess, do not appear to me to throw a particularly clear light on the point which we have to decide.” 54. Gittos v Barclay is a more modern decision (1982). Its facts are closer to those in this appeal than those in Rotunda , Salisbury House or Sywell Aerodrome , in that the case concerned the taxation of an individual in respect of income from the letting of holiday villas. The High Court held that they could not overturn the findings of fact which had led the General Commissioners to conclude at first instance that the profits were not profits of a trade. Before the General Commissioners, the taxpayer had relied heavily on the presence of many of the conventional “badges of trade”
“So the real question that was before the General Commissioners in the present case and which, so far as I can see, they properly grasped – and, indeed, they were referred to the Salisbury House case – was whether the activities of Mrs Gittos over and above the mere exploitation of her landed property were significant enough to make her a trader and not a mere landowner who derived an income by exploiting her property. It is not of course possible to give an answer to such a question in general terms. It is a question of fact and degree.” 55. The decision in Griffiths v Jackson concerned income from various properties which were mainly let furnished to students and other short-term occupiers. The taxpayers provided various amenities and services, and spent considerable time in collecting rents and looking after the properties. The High Court overturned the decision of the General Commissioners that the taxpayers were carrying on a trade. 56. Vinelott, J. reaffirmed the “cardinal principle” that “income derived from the exercise of property rights so-called” by a landowner is not trading income, in the passage quoted at [36] above. Applying a similar approach to that in Salisbury House he stated (at page 591): “Thus, the income derived by the owner of property from letting the property furnished, whether for a short or a long term and whether in small or large units and whether in self-contained units or to tenants who share a bathroom or kitchen or the like, is not income derived from carrying on a trade but is still taxable under Schedule A or, in the case of para 4 [of Schedule A], under Case VI of Schedule D. Of course, if the owner provides services and the services are separately charged or the receipts can be otherwise apportioned in part to the provision of the services any profit derived from the provision of the services will be taxable as the profits of a trade. That was the case in Salisbury House Estate, Ltd v Fry . But the rents the owner derives from the use of the different parts of the property are not receipts of a trade.” 57. Vinelott, J. rejected the taxpayer’s argument based on Rotunda (at page 592): “However, on a close examination of the facts of that case it does not, in my judgment, support his argument. In that case the taxpayers remained in legal occupation of the entertainment rooms and retained control over them. The income was not derived from their property in the rooms, as it would have been if they had parted with legal occupation to someone who had carried out the activities of providing the rooms for public entertainment. That was the ground on which the Rotunda Hospital case was distinguished in Salisbury House Estate, Ltd v Fry . Viscount Dunedin said at page 309: “But the rooms were not let to anyone. There was no question of including the rents of the rooms in the profits which were calculated under Schedule D; the hospital was held to be in occupation of the whole premises.” ” 58. He continued by discussing the relevance and meaning of “occupation” in this context as follows (at page 592): “The Rotunda Hospital case, in fact, is a useful illustration of the way in which the owner of land may, without parting with his occupation of it, exploit his rights of property and occupation by carrying on a trade. That, I think, affords the answer to Mr. Sokol’s alternative argument. He drew an analogy between the position of these taxpayers and that of a hotel owner or the landlord of a lodging house. It was the analogy of a lodging house keeper which led Rowlatt J. to conclude in Salisbury House Estate, Ltd. v Fry that the taxpayer was carrying on a trade (see page 282). However, as Lord Russell of Killowen pointed out in Westminster Council v Southern Railway Co.[1936] AC 511 at page 530, the landlord of a lodging house remains in occupation and “for the purpose of that business he has a continual right of access to the lodgers’ rooms and … in fact, retains the control of ingress and egress to and from the lodging house, notwithstanding that the power of ingress and egress at all times is essential to the lodger”
“Guiding Principles From the authorities cited, I derive, albeit with some difficulty, the following principles. (1) Income derived from the exercise of property rights properly so-called by the owner of land, that is to say the exploitation of the right of property and the right of occupation, is not income derived from the carrying on of a trade. (2) Income derived by an owner from granting or limiting his rights as owner of the land in favour of others is not regarded for income tax purposes as the carrying on of a trade. Thus, income derived from the commercial letting of furnished accommodation, whether for a short or long period, is not generally regarded as income derived from carrying on a trade, even although this activity may properly be described as the carrying on of a business. Business is a wider concept than trade. (3) Activities over and above the mere exploitation of heritable property or turning to profitable account the land, of which he is the owner, may be significant enough to classify a man’s business as a trade. Whether the provision of services or other activities are significant enough to cross the line between land ownership and commercial enterprise in land is a question of fact and degree depending upon the nature and extent of the operations or activities concerned. (4) However, the fact that an owner makes the visit to his land by a licensee more attractive by providing various services, eg keeping the property in a proper state and condition, will not turn exploitation of property rights into a trade. 5) Whether income is derived from the location of the land, which is the normal manner in which property in land yields revenue, is a relevant consideration. Like so many areas of law, principles can be stated but their application to any given set of facts may be attended with the greatest difficulty. I have not found the reasoning in the authorities particularly easy to apply to the circumstances of this appeal and such principles as I have been able to extract, I have found to be of limited value and of questionable utility in the modern context of carrying on the business (to put it neutrally) of providing serviced apartments.” 60. Drawing together these various authorities, one striking point is that none of them articulates the determinative criteria in establishing a trade in this context as occupation by the taxpayer combined with a substantial level of additional services. There are “guiding principles” derived from the authorities summarised in Maclean. There are numerous conclusions to the effect that additional services provided by a landlord must be substantial if they are to stand any prospect of displacing the “cardinal principle” and establishing a trade. And there are several pronouncements as to the limited value of the described cases given the importance of the facts. 61. In relation to the significance of occupation, it may be that the passage from Griffiths v Jackson quoted at [58] above has been taken by HMRC and others to mean that a trade in this context can be established only where there is occupation by the taxpayer. A close reading of the passage shows that in fact it is not saying this. It is attempting to reconcile the various authorities by observing that continued taxpayer occupation of the land, as in Rotunda, may help to distinguish the lodging house keeper (in Salisbury House) from the property owner who lets furnished rooms and provides services. 62. We asked HMRC to amplify the precise basis for the statement in BIM22001, quoted at [41] above, that a furnished lettings business “is only treated as a trade when the landlord remains in occupation of the property and provides services substantially beyond those normally provided by a landlord”
“HMRC does not attach particular weight to occupation or services. We instead examine the nature of the activity that gives rise to the payment.” 63. HMRC further articulated this approach as a two-fold test intended to identify the true derivation of the income. The first question, they submitted, is “what is the activity giving rise to the payment?”
"… the owner of land may carry on activities on the land that go beyond the mere exploitation of his proprietary rights in the land and which constitute a trade. Where it is shown that there have been such activities, it is a matter of fact and degree whether they are sufficient to amount to the carrying on of a trade."
“Activities over and above the mere exploitation of heritable property or turning to profitable account the land, of which he is the owner, may be significant enough to classify a man’s business as a trade. Whether the provision of services or other activities are significant enough to cross the line between land ownership and commercial enterprise in land is a question of fact and degree depending upon the nature and extent of the operations or activities concerned.”
“I have so far ignored the one thing done by the company which in my view falls outside the profit-making activities with which Schedules A and B are concerned – viz; the provision of tools and equipment which is a condition of the licence. Compliance with this condition cannot in my opinion change the whole picture and turn what would otherwise be profits covered by Schedule A or Schedule B into profits assessable under Schedule D.”
“It is necessary to look at both the nature of the activities and to measure in some way the extent of those activities. Further the company activities must be looked at as whole.”
“There is an ongoing High Court action which was filed in Spring 2017 against the company. It claims that the company does not have the legal right to charge licence premiums. Whilst this case has taken up a substantial amount of time and money, it was filed after the relevant date [the Period]”
“As noted, the maintenance charge is effectively a reimbursement of costs incurred in maintaining the facilities and is not profitable. Instead, it forms part of the wider, value add service of the business alongside the mooring fees. Mooring fees cover the services that are considered to be exceptional when compared with services offered by other boatyards in the area. These services go over and beyond what is standard, and they therefore do “change the picture” to one in which a customer is paying for a full package of services.”
“The main value [of CYBC] was in the long term mooring licences … We subsequently did more work on this and our estimate of fair market value was low … the annual mooring fees have become out of line with the local mooring fees market. There is an opportunity to trend these fee over the next 0-3 years to the market value”
“In terms of the tangible fixed assets of the company, CYBC had£1.7m of assets on its balance sheet at the end of September 2016. Apart from a boat it held on its balance sheet … the rest of its assets were related to mooring fees (80% of the total fixed assets).”
“19. In my view carelessness can be equated with “negligent conduct” in the context of discovery assessments undersection 29 Taxes Management Act 1970 . In that context, negligent conduct is to be judged by reference to the reasonable taxpayer. The test was described by Judge Berner in Anderson (deceased) v Revenue and Customs Commissioners[2009] UKFTT 206 at [22], cited with approval by the Upper Tribunal in Colin Moore v Revenue and Customs Commissioners[2011] UKUT 239 (TCC) : “The test to be applied, in my view, is to consider what a reasonable taxpayer, exercising reasonable diligence in the completion and submission of the return, would have done.” 21. What is reasonable care in any particular case will depend on all the circumstances. In my view this will include the nature of the matters being dealt with in the return, the identity and experience of the agent, the experience of the taxpayer and the nature of the professional relationship between the taxpayer and the agent. In my view, if a taxpayer reasonably relies on a reputable accountant for advice in relation to the content of his tax return then he will not be liable to a penalty under Schedule 24.” “The test to be applied, in my view, is to consider what a reasonable taxpayer, exercising reasonable diligence in the completion and submission of the return, would have done.”
“As discussed in recent email correspondence, a claim for [ER] has been made … There is also a risk the that claim for [ER] could be denied by HMRC, either because the company has not been actively trading for a sufficient amount of time, or because of wide ranging anti-avoidance rules. Chis Smith called on15 October 2018 and mentioned the company had only been owned from February 2016, which was less than 12 months to the date of sale in September 2016 – he therefore questioned whether Entrepreneurs Relief was correct or not. I explained there were pre-trade activities ongoing since September 2015, which met the 12 months test. Chris said he would be reading the disclosure wording on receipt of the tax return carefully and warned that any incorrect claim could result in penalties being charged.”
“No formal written advice was provided to Mr and Mrs Moffat prior to filing their tax returns for the year. This was because we were in discussion with our clients in relation to the filing of the tax returns and were satisfied that (as set out above) a legitimate claim for ER could be made.”