Little and Others v Messrs George Little Sebire & Co.

In a professional-negligence claim involving a company tax scheme, damages for lost personal tax savings are not reduced by advance corporation tax paid by the company unless the evidence shows that the claimants would have had to fund that liability personally as a matter of practical necessity. A company’s later deterioration and approach to its overdraft limit do not establish that consequence where it could pay the tax from its resources at the relevant time. Under the statutory negligible-value test, the court must consider the relevant date rather than being confined to an accounting year-end. Acceptance of negligible value on 30 April, with no material difference 25 days earlier, supported the conclusion that the condition was satisfied for the earlier tax year.

The claimants, directors and shareholders of a property-related company, sued their accountants for negligent advice on two tax schemes. The first failed because share-pooling provisions were overlooked and advice on timing was omitted. The second failed because transfers through a trust prevented the intended relief. The Deputy High Court judge awarded £50,946.79, rejected a proposed reduction for advance corporation tax, and treated the shares as becoming of negligible value in 1994/95. The accountants appealed on the tax-credit issue. The claimants cross-appealed on the date of negligible value. The central questions were whether the claimants would have been obliged in practice to fund the company’s advance corporation tax and whether the statutory condition for negligible value was met during 1993/94.

1. Disposition. The Court of Appeal unanimously dismissed the accountants’ appeal and allowed the claimants’ cross-appeal. The award was increased to £51,895.41.
2. Advance corporation tax. The trial judge’s references to the claimants being obliged to contribute meant factual necessity, not a legal obligation to reimburse the company. A reduction in damages would be justified only if personal funding of the company’s tax liability were an inevitable or integral feature of the transaction and the contribution could not be recovered.
3. The alternative scenario considered by the judge was materially different. By March 1991 the company had reached its borrowing limit, and the bank would not reasonably have funded a transaction designed to secure the claimants’ personal tax advantage. The claimants would therefore have had to provide the money needed for the later tax payment. That did not establish the same consequence if the company had paid £34,284 in May 1990, when it had sufficient resources and reasonably expected to recover the payment by setting it against mainstream corporation tax. Later adverse trading conditions and an earlier approach to the overdraft limit did not make personal funding practically necessary.
4. Negligible value. Under section 24(2) of the Taxation of Chargeable Gains Act 1992, the relevant condition was whether the Inspector of Taxes was satisfied that the shares had become negligible in value. The court accepted that a non-perverse decision by the Inspector could not simply be replaced by the judge’s own view. However, the judge had considered only 30 April 1993 and 30 April 1994. Since negligible value was accepted at 30 April 1994 and there was no material difference 25 days earlier, the evidence established that the statutory condition would have been satisfied on 5 April 1994, within 1993/94.
5. The defendants were ordered to pay the costs specified in the order, including the costs of the appeal and cross-appeal.

• Court of Appeal (Civil Division): The defendants’ appeal was dismissed. The claimants’ cross-appeal was allowed and the award was increased to £51,895.41.
• High Court, Queen’s Bench Division: On 29 September 1999, Deputy Judge David Foskett Q.C. awarded the claimants £50,946.79 inclusive of interest and costs.