Taylor v MEPC Holdings Ltd

For group relief, the surrendering company’s profits must be determined under section 403(8) of Income and Corporation Taxes Act 1988 without regard to deductions for losses or allowances of another period. That restriction includes allowable capital losses carried forward under section 8(1) of Taxation of Capital Gains Act 1992. It applies even though those losses are deducted in calculating the chargeable-gains component of total profits and may reduce that component to nil. The phrase losses or allowances is not confined to trading losses and capital allowances capable of surrender. Section 409 does not narrow the phrase, because it operates in a different statutory context. Group relief is therefore restricted to amounts arising in corresponding accounting periods.

MEPC Holdings Ltd, an investment company, claimed group relief for its accounting period ending on 30 September 1994. It had substantial charges on income and carried-forward allowable losses which exceeded its chargeable gains.

The Inspector determined that £42,304,116 was available for surrender, disregarding the carried-forward losses. The Special Commissioners allowed the company’s appeal and calculated the available relief at £48,344,284. Sir Donald Rattee, sitting in the Chancery Division, allowed the Inspector’s appeal and restored the lower figure. The central issue before the Court of Appeal was whether carried-forward allowable losses were deductions for losses or allowances of another period within section 403(8) of Income and Corporation Taxes Act 1988.

The Court of Appeal unanimously dismissed the appeal. Chadwick LJ delivered the leading judgment; Clarke LJ agreed, and Pill LJ gave a separate judgment agreeing with the result and reasoning.

1. Construction of section 403(8). Section 403(7) permits excess charges on income paid by the surrendering company to be set off against the claimant company’s profits. Section 403(8) specifies how the surrendering company’s profits are to be determined. The words requiring determination without regard to deductions for losses or allowances of another period include any deduction which would otherwise be made in determining those profits. They are not confined to deductions made after profits have first been established.
2. Allowable losses. Section 8(1) of Taxation of Capital Gains Act 1992 requires allowable losses, including previously unused losses, to be deducted in calculating the chargeable-gains amount included in total profits. The fact that the calculation produces a net figure, and that chargeable gains cannot be negative, does not prevent the deduction from being one falling to be made in determining profits for section 403(8). The proposed two-stage analysis was rejected.
3. Meaning of losses or allowances. The phrase in section 403(8) has a broad meaning. It includes allowable losses and is not confined to trading losses and capital allowances capable of surrender under section 403(1) and (3). Section 409, including section 409(3), concerns group changes and apportionment in a different context. It does not restrict the meaning of section 403(8).
4. Statutory structure and order. The provisions of section 403 show a common restriction: group relief concerns losses, allowances and expenses arising in the surrendering company’s corresponding accounting period. The declared available amount was therefore £42,304,116. The company was ordered to pay the respondent’s agreed costs of £6,000. The application for permission to appeal to the House of Lords was to be considered and determined in writing.

• Court of Appeal [2002] EWCA Civ 883: dismissed MEPC Holdings Ltd’s appeal and upheld the available group-relief amount of £42,304,116.
• High Court, Chancery Division: Sir Donald Rattee allowed the Inspector’s appeal from the Special Commissioners and declared that £42,304,116 was available for surrender.
• Special Commissioners: allowed the company’s appeal and determined that £48,344,284 was available for surrender.