In Spring Capital Ltd v HMRC 1 , the First-tier Tribunal (FTT) allowed the taxpayer's application for the postponement of payment of tax under section 55 Taxes Management Act 1970 (TMA), as it had a reasonable argument in relation to the underlying substantive issue.
Spring Capital Limited (the Company), applied to the FTT for the postponement of payment of £516,721.32 corporation tax, under section 55, TMA.
The disputed amount arose following a consequential amendment to paragraph 34(2A), Schedule 18, Finance Act 1998, for the period ending 30 April 2012. The amendment disallowed a claim for intangibles relief of £2million.
The Company's disallowed claim was for intangible relief made in relation to amortisation of goodwill acquired by the Company on the transfer of a business, between September 2004 and January 2005, that had originally been operated by Spring Salmon & Seafood Limited (Spring Salmon). This transfer had been the object of the FTT's decision in Spring Capital Limited v HMRC. The judge below had concluded that there had been a migration of the same trade between related companies.
The Company's application to the FTT was based on whether:
(i) what the judge below had described as a 'gradual migration' was a transfer between a company and a related party for the purposes of paragraph 92, Schedule 29, Finance Act 2002; and
(ii) the consequential assessment was valid.
Was the gradual migration a transfer between a company and a related party?
The Company submitted that although the judge below had been satisfied that it was operating the same trade as previously carried on by Spring Salmon, his decision made clear that he did not go on to consider the application of paragraphs 92 and 118, Schedule 29, Finance Act 2002. It contended that 'gradual migration' was synonymous with a 'transfer' of the trade.
HMRC argued that the judge, in concluding that the Company was not entitled to any deduction in respect of the amortised goodwill, had considered paragraph 92 and therefore to re-open the issue would be an abuse of process.
In the view of the FTT, as paragraphs 92 and 118 had not been addressed by the judge, given his conclusion that there had been a migration of the business from Spring Salmon to the Company, there was a reasonable, as opposed to fanciful, argument that paragraphs 92 and 118 could apply in relation to the instant appeal.
Was the consequential assessment valid?
Under paragraph 34(2A), Schedule 18, Finance Act 1998, HMRC may amend a company's other tax returns delivered by the company in order to 'give effect to the conclusions stated in the closure notice'. HMRC's Enquiry Manual 3878 provides guidance on this and confirms that such a consequential amendment should only be made if it is a 'direct result' of the conclusions stated in a closure notice. The Company argued that the consequential assessment in its case was not a direct result of the closure notice and was therefore invalid.
Again, the FTT was persuaded that the Company's arguments in this regard were both reasonable and arguable and allowed its appeal.
Under section 55, TMA, a taxpayer who has appealed to the FTT and has grounds for believing that he has been overcharged tax by an assessment or amendment may apply to HMRC for payment of the tax to be postponed and if HMRC does not agree to postpone payment, the taxpayer can apply to the FTT for payment of the tax to be postponed.
This decision confirms that in order for such an application to succeed, the taxpayer only has to establish that his arguments are reasonable.
A copy of the decision can be found at: