Britax International GmBH v Inland Revenue

For the purposes of Capital Allowances Act 1990, s 35(2), “hiring” is construed from the statutory language and context. It includes an intermediate hiring under a finance lease, even where the hirer onward-hires the vehicle to an end-user. The commercial description of a finance lease as a funding arrangement does not alter its statutory character.

Expenditure brought into account in computing gross trading profits is still expenditure deducted in computing taxable profits. The distinction between “above-the-line” and “below-the-line” expenditure does not restrict s 35(2). Section 3(1) of the Human Rights Act 1998 does not operate retrospectively to alter the tax consequences of trading activities occurring before its commencement.

Autolease hired expensive motor cars from funders under finance leases and onward-hired them to members of the public. The appellant, Britax, was involved in warranty litigation concerning Autolease’s tax liabilities for the accounting period ending 31 December 1999.

On preliminary issues, the Vice-Chancellor held that rental payments under the finance leases were expenditure on the hiring of motor cars within s 35(2) of the Capital Allowances Act 1990. Britax appealed, arguing that intermediate finance leases were outside the provision, that the payments were “above-the-line” expenditure, and that a Convention-compatible interpretation was required.

The central questions were the meaning of “hiring”, the scope of deductible expenditure, and whether s 3(1) of the Human Rights Act 1998 applied retrospectively.

1. Appeal dismissed. The Court of Appeal agreed with the Vice-Chancellor that s 35(2) of the Capital Allowances Act 1990 applied to all rental payments made by Autolease under the relevant finance leases.
2. The statutory question was the meaning of “the hiring of a motor car” in the context of s 35(2). The court rejected the suggestion that the word should be given a special commercial meaning derived from usage in the contract-hire industry. A finance lease is, in legal terms, a hiring, and there was no justification for excluding intermediate hirings.
3. The statutory context supported that conclusion. Section 35(3) recognised that hire-purchase agreements generally fell within s 35(2), subject to the express exception. Sections 36(1)(c) and 36(2) expressly addressed limited categories of short-term sub-hire, indicating that long-term or intermediate hirings remained within s 35(2). The fact that the finance lease formed part of a wider funding arrangement did not alter the nature of the expenditure.
4. The court rejected the alternative argument based on gross and net profits. The words “would be allowed to be deducted in computing ... the profits of any trade” were not limited to expenditure deducted after gross profits had been calculated. Applying Odeon Associated Theatres Ltd v Jones, expenditure brought into account in computing gross profits was equally expenditure deducted in computing taxable profits.
5. The Human Rights Act argument failed on retrospectivity. Following Pearce v Governing Body of Mayfield School and The Home Office v Wainwright, it was not open to the Court of Appeal to treat s 3(1) as retrospectively changing the law applicable to trading activities in 1999. The court added, obiter, that it was far from convinced that the tax treatment constituted discrimination contrary to Article 14 read with Article 1 of the First Protocol.
6. Order: appeal dismissed with costs.

• Court of Appeal (Civil Division): dismissed the appeal from the Vice-Chancellor’s order on preliminary issues and awarded costs.