On appeal from: [2014] EWCA Civ 255

The Supreme Court unanimously dismissed the appeal concerning the circumstances in which tax repayments (and the interest thereon) received after the permanent discontinuance of the carrying on of a trade are chargeable to corporation tax.

Over a number of years, companies, such as the appellant, within the Littlewoods corporate group made substantial overpayments of VAT to HMRC. These VAT overpayments were made on an incorrect understanding of law: the VAT was wrongly calculated when goods were sold to agents of the supplier with a discount for commission. In June 2003 they claimed for a repayment from HMRC the Value Added Tax Act 1994, s 80. The HMRC made the VAT repayment to the appellant as beneficial owner at the time of receipt. The challenge before the Supreme Court was whether the repayment was liable to corporation tax under the Income and Corporation Tax Act 1988 (ICTA). In the proceedings below, the First-tier Tribunal, Upper Tribunal and Court of Appeal all held that the appellant was liable to corporation tax on the receipt of the VAT Repayment.

In giving the lead judgment Lord Hodge stated that, against the background of the other relevant provisions of ICTA, the court concluded that s 103 does not contain an implicit restriction so that the charge to tax on post-cessation receipts falls only on the former trader whose trade was the source of the income. This is because nothing in the wording of the provision necessitates such implication. It in fact aimed to make sure that sums which a person received, which arose from a discontinued trade and which were not otherwise taxed, were brought into a charge to tax.

Lord Hodge reasoned that s 106 of ICTA also supports a wider interpretation of the scope of the s 103 charge to corporation tax. Applying the analysis of ss 103 and 106 of ICTA to the facts of this case, he concluded that the Group’s affairs were organised such that the VAT Repayment was received by the appellant as beneficial owner, receiving sums “arising from the carrying on of the trade” of the companies making relevant supplies during periods “before the discontinuance” and the sums were not otherwise chargeable to tax. The VAT repayment accordingly is subject to a charge to corporation tax in the hands of the appellant.


For judgment, please download: [2016] UKSC 7
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