“Unless otherwise indicated (whether expressly or by implication), a firm is not to be regarded for income tax purposes as an entity separate and distinct from the partners.”
“(1) If – (a) a firm carries on a trade, and (b) any partner in the firm is chargeable to income tax, the profits or losses of the trade are calculated on the basis set out in subsection (2) or (3), as the case may require. (2) For any period of account in which the partner is a UK resident individual, the profits or losses of the trade are calculated as if the firm were a UK resident individual. (3) For any period of account in which the partner is non-UK resident, the profits or losses of the trade are calculated as if the firm were a non-UK resident individual. …”
“(1) For income tax purposes, if a limited liability partnership carries on a trade, profession or business with a view to profit– (a) all the activities of the limited liability partnership are treated as carried on in partnership by its members (and not by the limited liability partnership as such), (b) anything done by, to or in relation to the limited liability partnership for the purposes of, or in connection with, any of its activities is treated as done by, to or in relation to the members as partners, and (c) the property of the limited liability partnership is treated as held by the members as partnership property. References in this subsection to the activities of the limited liability partnership are to anything that it does, whether or not in the course of carrying on a trade, profession or business with a view to profit. (2) For all purposes, except as otherwise provided, in the Income Tax Acts– (a) references to a firm or partnership include a limited liability partnership in relation to which subsection (1) applies, (b) references to members or partners of a firm or partnership include members of such a limited liability partnership, (c) references to a company do not include such a limited liability partnership, and (d) references to members of a company do not include members of such a limited liability partnership.”
“(1) For any period of account a partner’s share of a profit or loss of a trade carried on by a firm is determined for income tax purposes in accordance with the firm’s profit-sharing arrangements during that period. […] (6) In this section— “profit-sharing arrangements” means the rights of the partners to share in the profits of the trade and the liabilities of the partners to share in the losses of the trade.”
“(1) For any period of account a partner's share of a profit or loss of a trade carried on by a firm is determined for income tax purposes in accordance with the firm's profit-sharing arrangements during that period. This is subject to sections 850A and 850B. (2) In this section and sections 850A and 850B “profit-sharing arrangements” means the rights of the partners to share in the profits of the trade and the liabilities of the partners to share in the losses of the trade.”
“(1) So long as a trade, profession or business is carried on by persons in partnership, and any of those persons is a company, the profits and losses (including terminal losses) of the trade, profession or business shall be computed for the purposes of corporation tax in like manner, and by reference to the like accounting periods, as if the partnership were a company and, subject to section 115(4), as if that company were resident in the United Kingdom, and without regard to any change in the persons carrying on the trade, profession or business, except that— (a) references to distributions shall not apply; and (b) subject to section 116(5), no deduction or addition shall be made for charges on income, or for capital allowances and charges, nor in any accounting period for losses incurred in any other period nor for any expenditure to which section 401(1) applies; and (c) a change in the persons engaged in carrying on the trade, profession or business shall be treated as the transfer of the trade, profession or business to a different company if there continues to be a company so engaged after the change, but not a company that was so engaged before the change. (2) A company's share in the profits or loss of any accounting period of the partnership, or in any matter excluded from the computation by subsection (1)(b) above, shall be determined according to the interests of the partners during that period, and corporation tax shall be chargeable as if that share derived from a trade, profession or business carried on by the company alone in its corresponding accounting period or periods; and the company shall be assessed and charged to tax for its corresponding accounting period or periods accordingly. In this subsection “corresponding accounting period or periods” means the accounting period or periods of the company comprising or together comprising the accounting period of the partnership, and any necessary apportionment shall be made between corresponding accounting periods if more than one.”
“(1) For any accounting period of a firm a partner’s share of a profit or loss of a trade carried on by the firm is determined for corporation tax purposes in accordance with the firm’s profit-sharing arrangements during that period. This is subject to sections 1263 and 1264. (2) If a firm pays charges on income, a partner’s share of the charges is determined for corporation tax purposes in accordance with the firm's profit-sharing arrangements during the accounting period of the firm in which the charges are paid. (3) For the purposes of subsection (2) a charge on income which arises from a disposal such as is mentioned in section 587B (1) of ICTA (gifts of shares, securities and real property to charities etc) is taken to be paid when the disposal is made. (4) In this section and sections 1263 and 1264 “profit-sharing arrangements” means the rights of the partners to share in the profits of the trade and the liabilities of the partners to share in the losses of the trade.”
“(1) For corporation tax purposes, if a limited liability partnership carries on a trade or business with a view to profit— (a) all the activities of the limited liability partnership are treated as carried on in partnership by its members (and not by the limited liability partnership as such), (b) anything done by, to or in relation to the limited liability partnership for the purposes of, or in connection with, any of its activities is treated as done by, to or in relation to the members as partners, and (c) the property of the limited liability partnership is treated as held by the members as partnership property. References in this subsection to the activities of the limited liability partnership are to anything that it does, whether or not in the course of carrying on a trade or business with a view to profit. (2) For all purposes, except as otherwise provided, in the Corporation Tax Acts— (a) references to a firm include a limited liability partnership in relation to which subsection (1) applies, (b) references to members of a firm include members of such a limited liability partnership, (c) references to a company do not include such a limited liability partnership, and (d) references to members of a company do not include members of such a limited liability partnership. […]”
“Did the PIP arrangements form part of the “profit-sharing arrangements” of the Partnership, within the meaning of s 850 ITTOIA 2005 and/or s 1262 CTA 2009? In particular, did the individual partners who participated in the PIP thereby have rights to share in the profits of the Partnership and, if so, what is the correct amount of profits to be allocated to them in each year under appeal and/or did SCL and/or Avon have rights to share in the profits of the Partnership and, if so, what is the correct amount of profits to be allocated to them in each year under appeal?”
“333. However, in the case of a partnership, a provisional award, such as under the PIP, is not an allocation of profits but drawings from a partnership which is not within the scope of tax. The taxation of partners is in relation to the profits of the underlying trade and the division of profits as agreed between the partners. As such I am unable to derive an assistance from Rangers in this case where it is necessary to consider what the partners actually received under the PIP. 334. It is apparent from the PIP arrangements that it was not a share of the profits that the partners received or had credited to their accounts but special capital credited to the Corporate Partner, SCL and/or Avon, which it agreed to transfer to the partners and was a transfer of part of the amount credited to the Corporate Partner as a result of previously being allocated profits which removed the Corporate Partner’s debt on its distribution account. As Mr Gammie submits, this is not in the character of income or a share of profits. 335. The Partnership profits, ie the profits that were agreed to be allocated were, in fact, allocated by BCM LP (BCM LLP or BCM(UK) LLP) to SCL and Avon and were correctly brought into charge to corporation tax with the post-tax share of the profits of the Corporate Partners’ being invested in partnership assets as special capital which formed the basis of the awards made to individual partners under the PIP.”
"There are, in effect, three stages. First, the profits of the firm for an appropriate basis period must be ascertained. What has to be ascertained is the profits of the firm and not of the individual partners. That is not, I think, stated anywhere in the Income Tax Acts, but it follows necessarily from the fact that there is only one business and not a number of different businesses carried on by each of the partners. The income of the firm for the year is then treated as divided between the partners who were partners during the year to which the claim relates – the year of assessment – in one of the many senses of that word: see the proviso tos 26 of the Taxes Act 1970 . That is the second stage. The tax payable is then calculated according to the circumstances of each partner – that is, after taking into account on the one hand any personal allowances, reliefs or deductions to which he is entitled and any higher rate of tax for which he is liable. The Acts do not provide for the way in which personal allowances, reliefs and deductions are to be apportioned between the partnership income and other income. I understand that in practice they are deducted from the share of the partnership income if that was the partner's main source of income. When the tax exigible in respect of each share of the partnership income has been ascertained the total tax payable is calculated. Section 152 (formerly Rule 10 of the Rules applicable to Cases I and II of Schedule D) provides that the total sum so calculated is to be treated as "one sum … separate and distinct from any other tax chargeable on those persons … and a joint assessment shall be made in the partnership name."
"Prior to self-assessment, the basis periods for the assessment of partnership profits depended upon whether the entry or departure of any partner was treated as a cessation of the partnership trade or its discontinuance. The determination of the basis period for the assessment of the partnership's profits on partners generally depended upon that determination. Following the introduction of self-assessment, however, each partner is assessed to tax on their share of the profits by reference to the basis period determined according to their notional trade. It is, however, as the language of [ITTOIA 2005] recognises, a notional trade only for the purposes of assessment. The actual trade remains that of the partners collectively and it is the profits of that collective trade that must be computed before being allocated or shared among partners to provide each partner's share of the profit that is the profit of their notional trades for the purposes of their self-assessment."
“10. There are numerous authoritative statements in modern case law which emphasise the central importance in interpreting any legislation of identifying its purpose. Two examples will suffice. In R (Quintavalle) v Secretary of State for Health[2003] 2 AC 687 , para 8, Lord Bingham of Cornhill said: ‘Every statute other than a pure consolidating statute is, after all, enacted to make some change, or address some problem, or remove some blemish, or effect some improvement in the national life. The court’s task, within the permissible bounds of interpretation, is to give effect to Parliament’s purpose. So the controversial provisions should be read in the context of the statute as a whole, and the statute as a whole should be read in the historical context of the situation which led to its enactment.’ In Bloomsbury International Ltd v Department for Environment, Food and Rural Affairs (Sea Fish Industry Authority intervening)[2011] 1 WLR 1546 , para 10, Lord Mance JSC stated: ‘In matters of statutory construction, the statutory purpose and the general scheme by which it is to be put into effect are of central importance... In this area, as in the area of contractual construction, ‘the notion of words having a natural meaning’ is not always very helpful (Charter Reinsurance Co Ltd v Fagan[1997] AC 313 , 391 C, per Lord Hoffmann), and certainly not as a starting point, before identifying the legislative purpose and scheme.’ See further Lowe and Potter, Understanding Legislation (2018), paras 3.45—3.48 (and cases there cited). 11. The result of applying the purposive approach to fiscal legislation has often been to disregard transactions or elements of transactions which have no business purpose and have as their sole aim the avoidance of tax. This is not because of any principle that a transaction otherwise effective to achieve a tax advantage should be treated as ineffective to do so if it is undertaken for the purpose of tax avoidance. It is because it is not generally to be expected that Parliament intends to exempt from tax a transaction which has no purpose other than tax avoidance. As Judge Learned Hand said in Gilbert v Comr of Internal Revenue (1957) 248 F 2d 399, 411, in a celebrated passage cited (in part) by Lord Wilberforce in Ramsay[1982] AC 300 , 326: “If... the taxpayer enters into a transaction that does not appreciably affect his beneficial interest except to reduce his tax, the law will disregard it; for we cannot suppose that it was part of the purpose of the Act to provide an escape from the liabilities that it sought to impose.”
‘to give the statutory provision a purposive construction in order to determine the nature of the transaction to which it was intended to apply and then to decide whether the actual transaction (which might involve considering the overall effect of a number of elements intended to operate together) answered to the statutory description.’
‘the driving principle in the Ramsay line of cases continues to involve a general rule of statutory construction and an unblinkered approach to the analysis of the facts. The ultimate question is whether the relevant statutory provisions, construed purposively, were intended to apply to the transaction, viewed realistically.’ 14. Almost all statements of principle, however broadly framed, tend to be responsive to the particular facts under review. The above statements refer to “the transaction” and most of the leading expositions of the Ramsay doctrine do the same. This is because most of the provisions being considered taxed, or as the case may be exempted, transactions. But not all do. Some involve a tax (such as stamp duty) on instruments. Others impose charges by reference to the status of a person, or their rights in relation to specified property, such as the owner of unoccupied non-domestic property in the present case. The Ramsay doctrine is no less applicable in such cases. In MacNiven v Westmoreland Investments Ltd[2003] 1 AC 311 , 320, para 8, Lord Nicholls said: ‘The paramount question always is one of interpretation of the particular statutory provision and its application to the facts of the case.’
“48. In the unusual circumstances of this case, however, identifying ‘the person entitled to possession’ in section 65(1) of the 1988 Act as the person with the immediate legal right to possession of the property would defeat the purpose of the legislation. As we have explained, the schemes were designed in such a way as to ensure that the SPV to whom a lease was granted had no real or practical control over whether the property was occupied or not and that such control remained at all times with the landlord. 49. In our view, Parliament cannot sensibly be taken to have intended that ‘the person entitled to possession’ of an unoccupied property on whom the liability for rates is imposed should encompass a company which has no real or practical ability to exercise its legal right to possession and on which that legal right has been conferred for no purpose other than the avoidance of liability for rates. Still less can Parliament rationally be taken to have intended that an entitlement created with the aim of acting unlawfully and abusing procedures provided by company and insolvency law should fall within the statutory description. 50. In these circumstances we have no difficulty in concluding that, on the agreed and assumed facts, the SPVs to which leases were granted as part of either of the schemes we have described did not thereby become “entitled to possession” of the demised property for the purposes of the 1988 Act. Rather, throughout the term of the lease that person remained the defendant landlord. This does not involve ignoring the leases, in the way that an intermediate element in a circular transaction might be ignored under the Ramsay doctrine. Rather it involves their close examination in their context, and a conclusion that they did not transfer to the SPVs the entitlement to possession required by the Act as the badge of ownership. If the defendants did not thereby transfer their entitlement to possession it necessarily remained, for the purposes of the Act, with them. The Act requires someone to be identified as the owner. That will be the person who, in any tenurial chain, starting with the freeholder and working downwards, has not disposed of the entitlement to possession of the property in question.”
“Although the Ramsay approach to construction has undoubtedly involved the courts in looking at the commercial realities of the transaction and ignoring financial components of a scheme which are circular or have no purpose other than to produce a tax loss in order to identify whether and, if so, which parts of the transaction engage the relevant tax provisions, it does not enable the courts to fix the taxpayer with a contract which under the scheme it does not have. The actual transactions remain the same.”
“New Zealand tax legislation does not isolate partnership income as a separate source of income. In New Zealand law a partnership is not a separate tax entity. It is not a “taxpayer” and partners make a return of partnership income only for the purpose of providing information on which their separate incomes are calculated.”
“There is no justification in principle for differentiating between salary and wage earners and professionals whose income is the product of their personal exertion. In either case the person whose personal exertion earns the income derives the income.”
“By contrast, the advice of the Privy Council in Hadlee v Comr of Inland Revenue[1993] AC 524 is in point. The appeal concerned income tax legislation in New Zealand.Section 38(2) of the Income Tax Act 1976 provided that income tax was payable by every person on income derived by him during the year for which tax was payable. A partner in an accountancyfirm assigned a proportion of his share in the partnership to a trust under which the primary beneficiaries were his wife and child. He sought to argue that he was not liable to income tax on that proportion of his annual partnership income. The New Zealand courts rejected that contention and the Privy Council upheld their decision, holding that income tax was a tax on income which was the product of the taxpayer’s personal exertion and that the taxpayer could not escape liability to pay that tax by assigning a part of his share in the partnership. While the relevant provision of the New Zealand statute was worded differently from the United Kingdom legislation, the latter, by its emphasis on emoluments arising from a taxpayer’s employment, adopts a similar concept of the tax charge. It supports the view which I have reached that a charge to income tax on employment income can arise when an arrangement gives a third party part or all of the employee’s remuneration.”
“Parliament in enacting legislation for the taxation of emoluments or earnings from employment has sought to tax remuneration paid in money or money’s worth. No persuasive rationale has been advanced for excluding from the scope of this tax charge remuneration in the form of money which the employee agrees should be paid to a third party, or where he arranges or acquiesces in a transaction to that effect.”
“687 Charge to tax on income not otherwise charged (1) Income tax is charged under this Chapter on income from any source that is not charged to income tax under or as a result of any other provision of this Act or any other Act. (2) Subsection (1) does not apply to annual payments. (3) Subsection (1) does not apply to income that would be charged to income tax under or as a result of another provision but for an exemption. (4) The definition of “income” in section 878(1) does not apply for the purposes of this section. (5) … 689 Person liable The person liable for any tax charged under this Chapter is the person receiving or entitled to the income.”
“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. 774 Meaning of “occupation”
“(1) Were sums received by the Appellants pursuant to the PIP income or capital for the purposes of the Income Tax Acts? (2) If they were income, were they charged to tax under s.687(1) of the ITTOIA 2005?”
“As I have found in the PIP Appeals that the effect of the PIP is that Special Capital “belongs” to the company concerned, ie SCL or Avon, which is not subject to any further charge to tax on that income. It then transfers that income to an individual who was not previously entitled to it under the partnership arrangements. The issue is whether those individuals are subject to tax on what they have received from the company as miscellaneous income.”
“425. It is clear from the authorities that the distinction between that income which falls within the miscellaneous income charge in s 687(1) ITTOIA and that which does not, is whether the receipts are analogous to income or something charged to income elsewhere in the Taxes Acts. If analogous to income or something charged to tax, it would be within the charge to tax but if it falls within the exclusions identified by Rowlatt J in Ryall (Inspector of Taxes) v Hoare it would not. As an example of the distinction to be drawn Mr Baldry compared presents and bonuses both of which as he said, “tend to get paid at Christmas”
“If they were capital, were the sums received by the Appellants pursuant to the PIP charged to income tax under Chapter 4 of Part 13 of the ITA 2007? In particular: (1) Was the main object, or one of the main objects, of the transactions or arrangements the avoidance or reduction of the Appellants’ liability to income tax? (2) In respect of each Appellant, were the transactions effected, or arrangements made, to exploit the earning capacity of that individual in an occupation? In this regard: (a) Was the relevant Appellant carrying out an “occupation” within the meaning of s.777(2) of the ITA 2007, ie was the Appellant undertaking activities of a kind undertaken in a profession or vocation? (b) If so, were the transactions effected, or arrangements made, to exploit that Appellant’s earning capacity in the occupation by putting another person in a position to enjoy: (i) all or part of the income or receipts derived from the individual 's activities in the occupation; or (ii) anything derived directly or indirectly from such income or receipts?”
“452. From these authorities it would appear that the issue whether the IP Appellants were carrying on an occupation, ie undertaking activities of a kind undertaken in a profession or vocation, is a question of fact. 453. Mr Gammie, in addition to relying on the authorities referred to Pride and Prejudice in which Jane Austen wrote of a relative of who was “merely in commerce” which Mr Gammie says is the distinction in this case. He contends that it is not a matter of defining the characteristics of a profession - something eschewed by the courts - but, having regard to the evidence, it is clear that the individuals concerned are trading which Parliament has chosen not to bring within the scope of the legislation. 454. Like Du Parq LJ in Carr, I do not consider it appropriate to define what is meant by “profession”
“In relation to the source issue, the UT noted in the Spritebeam case at para 55 that the House of Lords in National Provident Institution v Brown[1921] 2 AC 222 left open the question whether it is necessary to identify a source before a Case VI liability can arise. We note, however, that section 687(1) expressly refers to “income from any source” which suggests to us that in order for income to be taxable under Case VI it requires a source. Moreover, it is hard to see how a receipt which had no source could be euisdem generis with the other heads of charge in what was formerly Schedule D, all of which require a source for the receipt in question. None the less, although we would be minded to accept that a receipt taxable under section 687(1) ITTOIA must have a source, it is not necessary for us to reach a decision on this point for the reasons set out below.”
“Now, Case VI sweeps up all sorts of annual profits and gains which have not been included in the other five heads, but it has been settled again and again that that does not mean that anything that is a profit or gain falls to be taxed. Case VI necessarily refers to the words of Schedule D, that is to say, it must be a case of annual profits and gains, and those words again are ruled by the first section of the Act, which says that when an Act enacts that income shall be charged for any year at any rate, the tax at that rate shall be charged in respect of the profits and gains according to the Schedules.… profits and gains must mean profit and gains eiusdem generis with the profits and gains specified in the preceding five Cases. … none the less the receipt must be of the nature of income.”
“Mr Goldberg also submitted that SDG’s receipt of a sum equal to VRP2 did not have a former trade as its source but was the result of an intra-group arrangement which was either a transfer for no consideration of that sum or a transfer for no consideration of the rights to VRP2. He posed the question, ‘what is the receipt from?’ and submitted that the correct answer was the transfer of either the sum or the right. He referred to Hochstrasser (Inspector of Taxes) v Mayes[1959] 3 All ER 817 ,[1960] AC 376 , and Abbott v Philbin (Inspector of Taxes)[1960] 2 All ER 763 ,[1961] AC 352 in support of the contention that regard must be had to the most proximate cause of the receipt. I do not accept this submission. In my view those cases have no bearing. They concern the charge to tax under Sch E on the remuneration of an employee. I accept Mr Gammie’s submission that in the context of Sch E the relevant statutory question focused on the character of the receipt in the employee’s hands. Rule 1 of the Schedule spoke of a charge on a ‘person having or exercising an office or employment’ in respect of ‘salaries … perquisites or profits whatsoever therefrom’ (emphasis added). The question was whether the employee has received money or money’s worth representing remuneration for his services. By contrast, under s 103 the focus was on the original source of the receipt. The decisions and arrangements within the VAT group of companies about the specific company which was to receive the repayment did not alter the original source of the receipt. The question was whether the sum received arose from the discontinued trade before its discontinuance.”
“The conclusion we draw from the authorities to which we have referred is that it is immaterial that the recipient cannot enforce payment; what matters is whether there is an obligation on the payer to pay. Thus in Stedeford there was no obligation on the governors to make any payment; they could have refrained at any time from making further payments, and neither the former headmaster nor anyone else could have compelled them to continue. By contrast, in the trustee cases the beneficiaries, individually, could not enforce the payment of any particular sum to themselves; but the trustees were under an enforceable obligation to exercise their discretion and make a payment to one or more of the beneficiaries as circumstances required. In Drummond, for example, the payments were not voluntary payments in any relevant sense because the payments were made on the basis of the trustees’ duties arising under the testamentary trust. In the present case, the right to payment may not have been enforceable by the Share Recipient but it was not voluntary either; the Borrower was under a contractual duty to the Lender to allot and issue shares to the Share Recipient. Thus we conclude, in relation to issue (ii), that the shares were income in the Share Recipient’s hands.”
“[82] Here, the source of the Share Recipient’s income was the Loan Agreement, in which it was the named beneficiary. It was entitled to receive the shares, by reason of its being so named, even if it did not have the capacity to enforce that entitlement itself: it was in a similar position to that of the beneficiaries in Drummond v Collins but not in an analogous position to that of the former headmaster. Although, in Cunard’s Trustees[1946] 1 All ER 159 , 27 TC 122, the court was addressing the question whether the payments were or were not voluntary, what Lord Greene said (see para [67] above) was equally relevant to the question whether there was a connection between the recipient and a source. The source in that case was ‘the joint operation of the will and the exercise of their discretion by the trustees.’ Once it was accepted (as the taxpayers had done in their skeleton argument) that the shares were derived from the Loan Agreement there was no need to enquire further: the source of the shares was identified, and sufficient. [83] On this issue we prefer Mr Ghosh’s arguments. Although we accept Mr Prosser’s argument that the categories of property and activities do demonstrate what constitutes a necessary connection, we are not persuaded that the test for necessary connection is limited to them. In short, Mr Prosser’s test under this head is too narrow. It implies that ‘possession’ is to be equated with ownership, but we do not find anywhere in the authorities to which we were referred any support for the proposition that ownership is required. The beneficiaries in Drummond v Collins and Cunard’s Trustees did not own the fund from which their income was derived, but they were nevertheless found to ‘possess’ (if that is the right word— as we have said, other terms have been used) a sufficient connection to the source. [84] We think, rather, that Mr Ghosh is correct to say that the required connection between taxpayer and source need not be limited to legal rights but can include the situation where the payment is made pursuant to any legal duty owed by the payer. That proposition is consistent with what was said by Lord Greene in the passage we have set out at para [67] above, in which the focus was on the payer’s obligation to the recipient, and not on the recipient’s ability to enforce it.”
“The result of these considerations is to satisfy me that for the purposes of Income Tax, the income of a foreign company and the income received from it in dividends by its British shareholders are not to any extent or effect one and the same income, but are two distinct incomes. The fact that the foreign company’s total income is in part composed of British dividends which have borne tax by deduction is entirely irrelevant to the question of the tax to be paid by a British shareholder on the dividends received by him from the foreign company. There is no such identification of the British shareholder with the foreign company as there is between a British shareholder and a British company, and the attempted analogy is only misleading. The income of the foreign company and the income received in dividends from it by its British shareholder are in our revenue law the incomes of two different persons, and there can thus be no room for any invocation of the rule against double taxation, which applies only against taxing twice the same income of the same person.”
“The meaning of an ordinary word of the English language is not a question of law. The proper construction of a statute is a question of law. If the context shows that a word is used in an unusual sense the court will determine in other words what that unusual sense is. But here there is in my opinion no question of the word " insulting " being used in any unusual sense. It appears to me, for reasons which I shall give later, to be intended to have its ordinary meaning. It is for the tribunal which decides the case to consider, not as law but as fact, whether in the whole circumstances the words of the statute do or do not as a matter of ordinary usage of the English language cover or apply to the facts which have been proved. If it is alleged that the tribunal has reached a wrong decision then there can be a question of law but only of a limited character. The question would normally be whether their decision was unreasonable in the sense that no tribunal acquainted with the ordinary use of language could reasonably reach that decision.”
“108. In the present case, however, the Partnership’s business is conducted by the IP Appellants collectively, in conjunction with a large number of other partners, and many individuals who worked for the Partnership as employees. In the case of BCM LLP and BCM (UK) LLP, the IP Appellants are members and, as such, s. 863(1) of ITTOIA 2005 treats the activities of the LLP as carried on by its members collectively as partners and not as individuals to whom particular income or receipts can be attributed. Each is entitled to a share of the profits of the Partnership generated by their collective efforts (and those of the individuals employed by the Partnership). As such, there are no transactions or arrangements of the type at which Chapter 4 is directed. 109. To support an argument that Condition B was satisfied in relation to the PIP arrangements: 109.1. each individual participant in the PIP would have to have rights to an allocation of the Partnership’s profit derived from income or receipts generated by his/her specific activities or property generated by his/her activities; and 109.2. the Corporate Partner would have to have been put in in a position to enjoy all or part of the relevant individual’s allocation of profit derived from his/her specific activities. 110. It is impossible, however, to identify the Partnership’s profits or a partner’s share in the profits in the way envisaged by Condition B. The Corporate Partner, as a partner, shared with the other partners in the product of the collective efforts of the partners and the other individuals working for the Partnership as employees, and not in the income or receipts of any particular individual.”
“My Lords, I would only conclude my speech by saying, 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 the 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.”
“We have also given some consideration to the question of the partners’ appeals, should HMRC intend to pursue the secondary (miscellaneous income) argument in the event that HMRC is unsuccessful with its primary (partnership allocation) argument. As the two arguments essentially involve the same facts, we think that it would be more efficient and a better use of the Tribunal’s resources if the primary and secondary arguments were heard by the same Tribunal at the same time. To achieve this, we will need to lodge the partners’ appeals with the Tribunal and take the necessary steps to have their appeals joined with the PIP Appeals. We, therefore, suggest submitting the appeals of Andrew Dodd and Amine Benamer and propose that those partners are the representative sample of all partners.”
“The above grounds of appeal are without prejudice to their further elaboration in the course of the preparation and presentation of the Appellants’ case or to such further grounds as the Appellants may identify in due course in response to HMRC’s case.”
“The Commissioners request … that the matter be dealt with at a hearing. A decision in principle is requested and thereafter, but only if necessary, a separate hearing should there be any outstanding issues on the figures.”
“The precise figures in respect of which the Appellants will be liable to tax as a result of the Tribunal’s decision are of no consequence to the PIP arrangements, the Tribunal’s reasoning or its decision. Its reasoning and decision are the same for all the Appellants, notwithstanding a wide range of different figures represented by the Closure Notices (which figures may or may not correspond to the final figure in respect of which tax is due, depending upon the particular partner’s circumstances).”
“In the case of the individual partner appeals, it is our understanding that the Judge is giving a decision in principle, leaving the figures to be agreed between the parties in the light of his decision. It was HMRC’s primary case that the PIP Awards were part of the profit sharing arrangements of the partnership. It was the individual partners’ case (and will be on appeal) that the reallocation of special capital was not income; nor was it derived from any relevant source giving rise to a charge to income tax. Accordingly, a number of issues needed to be resolved in principle before it could be known whether any further tax would be due, from whom, and on what basis. Thus, it was initially necessary to determine in principle whether additional tax was due from individual partners on the partnership profits (on HMRC’s primary argument) and, if so, on what basis that additional tax should properly be computed and for what years. Similarly, before any tax due from individual partners could be accurately computed (should HMRC’s primary argument fail, as it has), a decision in principle would be needed to determine: (a) that the amounts were income; (b) that they derived from a taxable source, and (c) in which year the amounts were properly taxable.”
“At the hearing, HMRC sought to have the appeals determined in principle, in case the awards of Special Capital were not in the amounts HMRC had believed when issuing the Closure Notices. HMRC’s understanding, from the draft Decision, is that the Tribunal has chosen not to do this. The draft Decision does not identify any matters left outstanding for the parties to seek agreement or return before the Tribunal. As the basis on which HMRC have succeeded on the IP Appeals is straightforward (that is, that all awards of Special Capital are income of the recipient in the year in which they are awarded), HMRC no longer see any need for a decision in principle. As far as HMRC are aware the figures correctly reflect the awards made of Special Capital.”
“The Tribunal has chosen not to clarify whether it regards the Decision is being given in principle or finally. The IP Appellants have therefore proceeded on the basis that the Decision is in principle only, being the basis on which the IP Appeals were heard, and this application for permission to appeal is made on that basis. The IP Appellants reserve the right to make further submissions on this matter should it be contested by HMRC.”
“14. The Appellants’ joint Grounds of Appeal of October 2018 sets out the actual Grounds in paragraphs 19 and 20. The grounds are set out briefly, and no challenge to taxation on the basis that the income would be foreign source is made. Similarly, the agreed List of Issues does not include such an issue. Having mentioned the question of foreign source income on Day 15 of the trial, no application was made to amend the Grounds of Appeal. Such an application would have been resisted. 15. As said above, the Application for Permission does not explain what the Appellants’ position is on which issues have been left outstanding, if the decision is in principle, or on how those issues are to be resolved. Their earlier representations suggest that their position is that they are entitled to raise new points (possibly any new points whatsoever), as long as those have not been expressly dealt with by the Tribunal: and that they can somehow dispute those outside this Appeal. Even if the Decision had been made in principle (which, as currently released, it has not) that would not allow this: as the only forum in which an amendment or assessment can be challenged is the (single) appeal process, a decision in principle can only set aside issues which have been raised in the appeal. 16. HMRC ask for a decision in principle. As the Tribunal will be aware, this is often done where there may be complicated, but not contentious, matters of calculation. Here, for example, the Tribunal has held that awards of Special Capital are taxable income: if in fact the amendments and assessments do not accurately reflect those awards, HMRC would still accept that it is a matter that the parties should be directed to agree, with a return before the Tribunal if no agreement is made within a short period. HMRC are not aware that there is any dispute about the amounts awarded. 17. As there are no issues in the appeal which have not been determined by the Tribunal, there is nothing for the Tribunal to direct the parties to agree, and no scope for a decision in principle. 18. If, however, the Tribunal is of the view that there are outstanding issues, already within the scope of the appeal, which remain to be determined then HMRC would respectfully suggest that the decision be revised so as to be made in principle explicitly, with those issues identified and appropriate directions given for the parties to seek agreement and return before this Tribunal. In HMRC’s view the Tribunal has power to do this under rule 41 of the Tribunal Rules.”
“68. The IP Appellants were selected at the request, and with the concurrence, of HMRC to be representative of the partners generally (of whom there are some 150 in total) and, in particular, to reflect the different roles that partners performed for the purpose of testing HMRC’s sale of occupational income argument. Their appeals were not, therefore, designed or intended to address (and at the hearing did not address) any specific issues relating to the liability to tax of a particular partner in respect of their PIP awards in contrast to the liability of partners generally under HMRC’s alternative arguments. 69. Accordingly, the Decision in relation to the IP Appellants was an “in principle” decision on the issues which the Tribunal considered. The IP Appeals proceeded on the basis that HMRC only sought to have the appeals determined in principle and had indicated in their skeleton argument for the hearing (at paragraph 139) that, “HMRC asks that the amendments and assessment are upheld in principle with the specific figures to be calculated by the parties in the light of the Tribunal’s decision”
“(1) For the purposes of subsection (2), the reference to a right of appeal is to a right to appeal to the Upper Tribunal on any point of law arising from a decision made by the First-tier Tribunal other than an excluded decision. (2) Any party to a case has a right of appeal, subject to subsection (8). (3) That right may be exercised only with permission (or, in Northern Ireland, leave). (4) Permission (or leave) may be given by– (a) the First-tier Tribunal, or (b) the Upper Tribunal, on an application by the party.” on an application by the party.”
“The second issue is that, for the avoidance of doubt, I consider it clear that the application to add further grounds of appeal was properly made to this Tribunal, and did not fall to be made initially to the FTT. Some confusion appears to have been generated by the obiter comments of Lord Tyre in Revenue & Customs Commissioners v Earlsferry Thistle Golf Club[2014] UKUT 0250 (TCC) . In that case, the learned judge took the view that a particular argument could not be admitted by the Upper Tribunal because leave to admit it had not been sought from the FTT, and Rule 21(2) of the Upper Tribunal Rules has the effect that a person may apply to the Upper Tribunal for permission to appeal against an FTT decision only if they have first applied to the FTT and been refused. However, Rule 21(2) does not apply in a situation such as this application. In Earlsferry the issue was whether the party which had not been granted permission to appeal by the FTT could challenge an element of the FTT decision. Where, as here, permission to appeal has been given, there is nothing to prevent this Tribunal from granting permission, if it so decides, to add new grounds of appeal.”
“26.These authorities show that there is no general rule that a case needs to be "exceptional" before a new point will be allowed to be taken on appeal. Whilst an appellate court will always be cautious before allowing a new point to be taken, the decision whether it is just to permit the new point will depend upon an analysis of all the relevant factors. These will include, in particular, the nature of the proceedings which have taken place in the lower court, the nature of the new point, and any prejudice that would be caused to the opposing party if the new point is allowed to be taken. 27. At one end of the spectrum are cases such as Jones in which there has been a full trial involving live evidence and cross-examination in the lower court, and there is an attempt to raise a new point on appeal which, had it been taken at the trial, might have changed the course of the evidence given at trial, and/or which would require further factual inquiry. In such a case, the potential prejudice to the opposing party is likely to be significant, and the policy arguments in favour of finality in litigation carry great weight. As Peter Gibson LJ said in Jones (at [38]), it is hard to see how it could be just to permit the new point to be taken on appeal in such circumstances; but as May LJ also observed (at [52]), there might nonetheless be exceptional cases in which the appeal court could properly exercise its discretion to do so. 28.At the other end of the spectrum are cases where the point sought to be taken on appeal is a pure point of law which can be run on the basis of the facts as found by the judge in the lower court: see e.g. Preedy v Dunne d at [43]-[46]. In such a case, it is far more likely that the appeal court will permit the point to be taken, provided that the other party has time to meet the new argument and has not suffered any irremediable prejudice in the meantime.”
“(1) Subsection (2) applies if the Upper Tribunal, in deciding an appeal under section 11, finds that the making of the decision concerned involved the making of an error on a point of law. (2) The Upper Tribunal– (a) may (but need not) set aside the decision of the First-tier Tribunal, and (b) if it does, must either– (i) remit the case to the First-tier Tribunal with directions for its reconsideration, or (ii) re-make the decision. (3) In acting under subsection (2)(b)(i), the Upper Tribunal may also– (a) direct that the members of the First-tier Tribunal who are chosen to reconsider the case are not to be the same as those who made the decision that has been set aside; (b) give procedural directions in connection with the reconsideration of the case by the First-tier Tribunal. (4) In acting under subsection (2)(b)(ii), the Upper Tribunal– (a) may make any decision which the First-tier Tribunal could make if the First-tier Tribunal were re-making the decision, and (b) may make such findings of fact as it considers appropriate.” (a) may (but need not) set aside the decision of the First-tier Tribunal, and (b) if it does, must either– (i) remit the case to the First-tier Tribunal with directions for its reconsideration, or (ii) re-make the decision. (a) direct that the members of the First-tier Tribunal who are chosen to reconsider the case are not to be the same as those who made the decision that has been set aside; (b) give procedural directions in connection with the reconsideration of the case by the First-tier Tribunal. (a) may make any decision which the First-tier Tribunal could make if the First-tier Tribunal were re-making the decision, and (b) may make such findings of fact as it considers appropriate.”
“(1) Notice of an appeal under section 31 of this Act must be given– (a) in writing, (b) within 30 days after the specified date, (a) in writing, (b) within 30 days after the specified date, (c). to the relevant officer of the Board. (2) In relation to an appeal under section 31(1)(a) or (c) of this Act– (a) the specified date is the date on which the notice of amendment was issued, and (b) the relevant officer of the Board is the officer by whom the notice of amendment was given. (3) In relation to an appeal under section 31(1)(b) of this Act– (a) the specified date is the date on which the closure notice was issued, and (b) the relevant officer of the Board is the officer by whom the closure notice was given ….. (5) The notice of appeal must specify the grounds of appeal.” (2). Section 54 makes provision for appeals to be settled by agreement and (as Mr Gammie told us) many appeals are settled in this way. However, where there is no settlement section 49D of the TMA 1970 provided for an appeal to the FTT: “(1) This section applies if notice of appeal has been given to HMRC. (2) The appellant may notify the appeal to the tribunal. (3) If the appellant notifies the appeal to the tribunal, the tribunal is to decide the matter in question.” (3). Section 50 provides for the consequences of the FTT deciding the matter in question and the relevant parts provide as follows: “(7A) If, on an appeal notified to the tribunal, the tribunal decides that a claim or election which was the subject of a decision contained in a closure notice under section 28A of this Act should have been allowed or disallowed to an extent different from that specified in the notice, the claim or election shall be allowed or disallowed accordingly to the extent that the tribunal decides is appropriate, but otherwise the decision in the notice shall stand good …. (10) Where an appeal is notified to the tribunal, the decision of the tribunal on the appeal is final and conclusive. (11) But subsection (10) is subject to— (a) sections 9 to 14 of the TCEA 2007, (b) Tribunal Procedure Rules, and (c) the Taxes Acts.” (a) sections 9 to 14 of the TCEA 2007, (b) Tribunal Procedure Rules, and (c) the Taxes Acts.” (4). We accept (without deciding) that the position before the General Commissioners and the Special Commissioners might well have been different. However, in our judgment, the position changed fundamentally following the reform of the Tribunal structure. The FTT is a judicial body with exclusive jurisdiction to determine tax appeals. Once an appellant has notified an appeal to the FTT, HMRC no longer has jurisdiction to act as an appellate body (and, indeed, becomes a party to the appeal). Rule 20 of the FTT Rules governed the commencement of an appeal and the relevant parts of it provide as follows: “(1) A person making or notifying an appeal to the Tribunal under any enactment must start proceedings by sending or delivering a notice of appeal to the Tribunal. (2) The notice of appeal must include— (a) the name and address of the appellant; (b) the name and address of the appellant’s representative (if any); (c) an address where documents for the appellant may be sent or delivered; (d) details of the decision appealed against; (e) the result the appellant is seeking; and (f) the grounds for making the appeal.” (a) the name and address of the appellant; (b) the name and address of the appellant’s representative (if any); (c) an address where documents for the appellant may be sent or delivered; (d) details of the decision appealed against; (e) the result the appellant is seeking; and (f) the grounds for making the appeal.” (5). In our judgment, the scope of the appeal to the FTT was governed exclusively by the Grounds of Appeal which the IP Appellants sent or delivered to the FTT. It is common ground that the IP Appellants did not identify either of the additional points in the Disputed Paragraphs. We accept that the IP Appellants attempted to reserve their position to add “such further grounds as the Appellants may identify in due course in response to HMRC’s case”