HM Revenue & Customs v Salaried Persons Postal Loans Ltd

Whether a company carries on a business for the purposes of section 13(4) of the Income and Corporation Taxes Act 1988 is a question of fact. Rental income may arise from a business, but it does not inevitably do so. A company’s memorandum, accounts, tax returns and receipt of rent are relevant, but none is determinative. The prima facie inference that a company carries on business when it makes gainful use of its assets may be rebutted by the surrounding circumstances. On an appeal from a factual determination, the appellate court may intervene only where the tribunal acted without evidence, adopted a view that could not reasonably be entertained, or reached a conclusion inconsistent with the only reasonable conclusion available on the facts.

HM Revenue and Customs appealed from a decision of the Special Commissioner, Dr John Avery Jones. The Special Commissioner held that Malcolm Muir Ltd, an associated company controlled by the same person as the respondent, did not carry on a trade or business during the accounting years ending in 1998 to 2001.

The issue was whether Malcolm Muir Ltd, which had ceased trading and continued to receive rent from former trading premises through an agent, was an associated company to be counted under section 13(3) and (4) of the Income and Corporation Taxes Act 1988. The central questions were the proper approach to the meaning of business and whether the Special Commissioner’s factual conclusion could be disturbed on appeal.

1. The appeal was dismissed. The question whether Malcolm Muir Ltd carried on any business was one of fact. The appellate court therefore applied the principles in Edwards v Bairstow [1956] AC 14, rather than substituting its own view of the facts.

2. The court could intervene only if the Special Commissioner acted without evidence, adopted a view of the facts that could not reasonably be entertained, or reached a conclusion which contradicted the true and only reasonable conclusion. The issue was not whether the judge would have reached the same conclusion.

3. Under American Leaf Blending Co SDN BHD v Director-General of Inland Revenue [1979] AC 676, rents may constitute income from a business where they are received in the course of putting property to profitable use by letting it. In the case of a profit-making company, that may create a prima facie inference of business. The inference is not conclusive and may be displaced.

4. The company’s memorandum of association was relevant but not determinative. The fact that it authorised the letting of property did not establish that the company carried on a business. Similarly, the accounts, the description of the principal activity as property investment, and Schedule A tax returns were relevant but not conclusive.

5. The deeming provisions in section 15(2) of the Income and Corporation Taxes Act 1988, which treated transactions producing income from United Kingdom land as a business for Schedule A purposes, did not determine the meaning of business in section 13.

6. The Special Commissioner was entitled to find that the rental arrangement was a continuation of a letting of former trading premises, with no active participation or management by Malcolm Muir Ltd during the relevant years. The facts did not compel the conclusion that it carried on an investment or other business.

• High Court (Chancery Division): appeal from the Special Commissioner dismissed. The court upheld the determination that Malcolm Muir Ltd did not carry on any trade or business for the relevant accounting periods.