JTI Acquisition Company (2011) Limited v The Commissioners for HMRC
[2024] EWCA Civ 652
UK Care No 1 Limited v The Commissioners for HMRC
13 June 2024
[2024] UKFTT 542 (TC)
First-tier Tribunal
A company moved its loan business to the UK and claimed a big tax loss from early loan repayment. The tax authority argued some of the loss happened before the move, so shouldn't be allowed. The court decided part of the loss was allowed (from the early repayment penalty) but most wasn't (because it reflected market conditions and expenses from *before* the move to the UK). The court clarified that the test looks at whether the loss existed in reality before the company became a UK resident, regardless of when it was actually discovered. They also dismissed the argument that the loss was an expense and not a loss for tax purposes.
Key Facts
- •UK Care No. 1 Limited (UKC1), a Guernsey company, issued loan notes secured by UK care homes.
- •BUPA Group acquired UKC1, making it UK resident, and redeemed the loan notes early.
- •Redemption resulted in a £150m accounting loss for UKC1.
- •HMRC initially disallowed the entire loss but later sought to disallow only £94m, claiming it was referable to a time when UKC1 was non-UK resident.
- •UKC1 argued that no part of the loss was referable to the pre-migration period and that the debit related to an expense, not a loss.
Legal Principles
Section 327 CTA 2009 disallows losses from loan relationships referable to times when the company wasn't subject to UK taxation.
Corporation Tax Act 2009, Section 327
Statutory interpretation should be purposive, considering commercial reality.
Rossendale BC v Hurstwood Properties (A) Limited [2022] AC 690
A loss may exist before crystallisation by an event like sale or impairment recognition.
Case arguments and judge's interpretation
Referability is distinct from computation; a factor used in calculating loss doesn't automatically make the loss referable to that factor.
Case arguments and judge's interpretation
Section 306A CTA 2009 distinguishes between profits/losses from loan relationships and expenses incurred under them.
Corporation Tax Act 2009, Section 306A
Section 327's application is an objective test, not dependent on the taxpayer's subjective belief.
Judge's interpretation
Outcomes
Appeal partially successful; £56,845,205 of the loss allowed.
This portion of the loss, relating to the penalty for early redemption, was not referable to the pre-migration period.
£93,903,841 of the loss disallowed.
This part of the loss was referable to the pre-migration period due to changes in market conditions and expenses incurred before UKC1 became UK resident. The judge rejected the argument that the loss was an expense rather than a loss under Section 327.