HM Inspector of Taxes v Billings & Ors

For the purposes of the Business Expansion Scheme provisions, the attribution rule in section 291(8) of the Income and Corporation Taxes Act 1988 applies throughout section 291. It is not confined to cases where an individual is entitled to acquire shares at a future date.

Accordingly, the rights and powers of associates may be attributed when determining present ownership under section 291(4). Where associated shareholders collectively possess all the company’s shares, each may be treated as possessing more than 30 per cent and therefore as connected with the company. The statutory purpose of restricting relief to outside investors supported that construction.

Seven taxpayers, who had been partners and had each subscribed for just under 15 per cent of the shares and voting rights in a property company, claimed Business Expansion Scheme relief under section 289 of the Income and Corporation Taxes Act 1988.

The General Commissioners accepted the claims. Laddie J dismissed the Revenue’s appeals and affirmed that decision in [1999] STC 661. The Revenue appealed to the Court of Appeal, contending that section 291(8) attributed the rights and powers of each taxpayer’s associates, so that each taxpayer was treated as possessing more than 30 per cent of the company.

The central issue was whether the second limb of section 291(8) operated throughout section 291 or only in conjunction with its first limb.

The appeals were allowed, the order of Laddie J was set aside, and the refusal of relief under section 289(1) of the Income and Corporation Taxes Act 1988 was affirmed. Mummery LJ gave the leading judgment. Otton LJ expressly preferred and followed that reasoning. Ward LJ dissented.

1. Construction of section 291(8). The opening words, “For the purposes of this section”, governed both limbs of the subsection. The second limb was not confined by implication to the first limb or to future entitlements to acquire shares.
2. The first limb did not apply because the taxpayers directly possessed their shares and were not entitled to acquire them at a future date. That did not prevent the separate attribution rule in the second limb from applying to section 291(4), (6) and (7).
3. Each taxpayer was therefore attributed the rights of every other person who was his associate. As all the shareholders were associates, each was treated as possessing more than 30 per cent, indeed the whole, of the issued ordinary share capital. Each was consequently connected with the company and failed to qualify for relief.
4. The ordinary interpretative rule in section 6(c) of the Interpretation Act 1978, that words in the singular include the plural and vice versa, was not displaced. “Any other person” therefore included all relevant associates, rather than only one associate.
5. The construction was reinforced by the statutory purpose. The scheme was intended to encourage outside investment and expressly excluded persons with significant personal, contractual, financial or investment connections with the company. Competing hypothetical anomalies were not a reliable guide to construing fiscal legislation.

Ward LJ considered the language and structure ambiguous, placed weight on the drafting and punctuation, and would have dismissed the appeals. His reasoning did not command the majority.

• Court of Appeal (Civil Division) — Appeals allowed; Laddie J’s order was set aside and the refusal of relief under section 289(1) affirmed.
• High Court, Chancery Division (Revenue) — Laddie J dismissed the Revenue’s appeals from the General Commissioners and affirmed entitlement to relief, reported at [1999] STC 661.
• General Commissioners — Determinations dated 16 January 1997 allowed the taxpayers’ claims for relief.