The Law is not an ass.  It is a quadruped, designed by a committee, who, over many years and many different committee members, cannot quite recall whether they were designing a camel, a horse or a spaceship.

  1. Hands up all those who believe the Rule of Law is important?
  1. Hands up (in Magna Carta year) all those who think the Law should be applied consistently?
  1. Hands up all those who believe that professional tax advice should be clear and based on proper interpretation of the Law?

Hopefully, I have everyone’s hands up for each question?  At least mentally?  Those too embarrassed to react or having a quiet lunch snooze should, I hope, still have made a genuine twitch towards acceptance.  If not, please say.  I genuinely would be interested to know why.

I now move on to the recent cases of Gemsupa and Trigg.  They would make a superb exam question in terms of ‘compare and contrast’.

In Gemsupa, the Courts agreed with the taxpayer that the CGT legislation was so clear that, even though various steps were taken for tax avoidance purposes, this did not meant that they were ineffective legally (the case was pre-GAAR so query whether those new rules may have an impact?)

And Compare:

Trigg(onometry) and Lawyers

The Trigg case heard in the First Tier Tribunal concerned the definition of Qualifying Corporate Bonds for tax purposes.  This may sound esoteric and technical, but in fact they raise some very interesting issues.  [Remember ‘Tax is Fun’].

Amongst the reasons the case is interesting is that it may have an impact on both future and historic Commercial, Corporate Sale and Purchase agreements where some of the consideration is deferred in the form of loan notes.  As will be generally known, (at least in esoteric tax and legal circles) the loan note form of deferred consideration makes a profound different on the way it is taxed.

In Trigg, HMRC lost, which seems to have widened the definition of QCBs.  This could have a profound impact on Sales and Purchase Agreements so Solicitors need to beware!

Having reviewed many Sales and Purchase agreements over the years, I fear that sometimes matters may be glossed over.  Perhaps so because of infrequent HMRC review of the detailed documentation?  This is understandable, from a commercial perspective.  A precedent has worked in the past, so just tweak it?

The ‘purposive’ approach in Trigg contrasts with the legalistic interpretation adopted by Gemsupa.  Which is correct?  Which ought to be correct?  Bearing in mind most of us just wish to get commercial deals done to help business people achieve their commercial objectives, how many professionals believe the objectives suggested in 1-3 above are being achieved?

As they used to say in exam questions – Discuss!

A recent case (J. Thorne) found in favour of HMRC, so denying a taxpayer’s claim for loss relief.  This was on the grounds that the taxpayer’s loss making business was uncommercial.  The business was described as horse breeding and farming on the Self-Assessment Return, with integrated accounts.
With a first reading of the case it is hard to be unsympathetic to the technical issues raised by HMRC.  In terms of breeding, at much of the key time there were 3 horses in the business, a gelding, a mare over breeding age and an unproven filly.
I suspect many people may query how each of these fitted into  a business model for a breeding programme (as opposed to an interesting hobby or ‘dilettante venture’ as the case puts it).  Hence, ‘uncommercial’ does not seem too much of a surprise as a conclusion.
A second reading though raises questions of whether things could have been improved by better planning.

  1. The ‘farming’ element incorporated what seemed to be a separate strand of business, that of growing asparagus.  This made a loss, because of the slow growth and development of asparagus plants, but it seems to have been acknowledged this element of the loss was commercial.  By that time, it was too late for the taxpayer though, because the question before the Tribunal was based on the integrated claim, showing a single set of loss making results.


  1. Could more have been made of the point that whilst S9 ITTOIA 2005 refers to all farming in the UK by a person representing a single trade, this does not automatically bring in hobby elements, and horse breeding and equestrian events are obviously radically different in nature to growing asparagus.  The Tribunal actually suggests that they may be treated separately in future returns.


  1. The Tribunal found that the fact that asparagus represents a long term crop does not preclude early losses from qualifying as ‘commercial’, available to be offset against general income.  When added to another loss making business strand though it just detracts further from the prospect of commercial profit.  The case evidence though seems to focus on the equestrian side, rather than the asparagus farm.

Of course, if they had won everything then the client would have been happy.  Accountancy advice though is not just about adding up figures, it is thinking what the numbers are to be used for and then working out the most meaningful way of presenting them.

Good news for taxpayers (well a bit!).  Times are hard and paying tax an unfortunate if important and compulsory imposition.  Business being business, sometimes it proves difficult to pay on time.  Late payment now results in surcharge penalties unless there is a ‘reasonable excuse’.

The concept of ‘reasonable excuse’ is one which is evolving.  Sometimes it seems HMRC treat all claims like the ones they have heard about ‘my dog ate my tax return’ or ‘my Mam threw the HMRC cheque on the fire’, but thankfully HMRC cynicism can be overcome by a good case well presented (at least on appeal).

In the recent case of T James, the taxpayer persuaded the Tax Tribunal that he had a ‘reasonable excuse’ because he chose (out of limited resources) to provide his corporate business with funds to pay their PAYE, VAT and corporation tax, rather than keep up with his previously agreed ‘time to pay’ arrangements on his personal account with HMRC.

Whilst saying the taxpayer would have been well advised to explain the position to HMRC in advance of making the decision, the Tribunal helpfully found that although a mere inability to pay tax was not an excuse in itself the reasons why a person is unable to pay can constitute a reasonable excuse.

In this case the Tribunal took into account the business pressures and the fact that maintaining the businesses as going concerns increased employment and the overall tax take.

It was not so much a failure to pay tax altogether, more a choice to focus on the business taxes first.

Mr Sandford was a service engineer for Slush Puppie Limited (SPL).  From 2001 to March 2007 the individual had always considered himself to be self-employed and paid tax on that basis.

However; when his engagement ceased, the individual’s tax agents reviewed the situation and concluded that they believed he had been an employee of the company.

As a result they informed HMRC and sought a refund of self-assessment tax paid, suggesting SPL should be liable.

After a review of the facts HMRC accepted this view. They subsequently issued SPL with a notice that ruled Mr Sandford was an ‘employed earner’ and as result SPL were liable for income tax and Class 1 NICs.

SPL appealed.

The tribunal looked at several of the key indicators and found on balance Mr Sandford was self-employed.

Below are some of the key points which the tribunal felt indicated self-employment:

  • He was free to take on business from elsewhere and was able, having accepted a job, to find someone else to do it.
  • SPL’s supervision and control of his work was restricted to ensuring he complied with legal obligations
  • The use of a daily rate of pay was ‘a strong indicator’ that matters were based on a daily contract.  The fact that monthly invoices were raised for convenience did not alter this fact.
  • The lack of redundancy rights or other employment protection meant Mr Sandford shouldered financial risk.
  • The fact ‘that no substantial risks materialised in the course of five years is no indication that they did not exist potentially’.

The case does, however, highlight the importance of taking advice in this area as the company could have been liable for the tax due through PAYE should the tribunal have found that he was employed.

HMRC had raised assessments in relation to the tax years 2002/03 – 2006/07, alleging that Miss Ali had underdeclared income.  This arose as a result of deposits made into her bank accounts for the years in question which HMRC asserted were income.

Income tax
(Photo credit: Alan Cleaver)

The appelent explained that the reason for the transactions was that money had been lent to members of her family who had then returned the funds to her.
The tribunal found that the burden of proof was on Miss Ali to show that the payments did not amount to income.  They found that she was a truthful and careful witness, and in particular noted that it was normal in the community of which Miss Ali is part for there to be communal use of bank accounts by family members, even to extended family.
The tribunal therefore allowed Miss Ali’s appeal as on the balance of probabilities they were satisfied that the deposits did not represent taxable income.