Shop Direct Group v Revenue And Customs

Section 103(1) of the Income and Corporation Taxes Act 1988 charges qualifying post-cessation receipts on the recipient, whether or not it was the original trader, subject to section 106. No general beneficial-entitlement requirement is implied. A recipient entitled to keep the receipt is chargeable, although a mere agent or nominee may not be. A VAT repayment remains a sum arising from the discontinued trade despite intra-group arrangements. Statutory interest is taxable under the extended loan-relationship provisions where the repayment is a money debt and the recipient stands, or has stood, as creditor. A primary statutory obligation to repay money is a debt, not damages.

Shop Direct Group received a substantial VAT repayment, VRP2, and statutory interest, IP2, in September 2007. It had ceased trading, while the relevant VAT overpayments had been made by it and other companies during trades later transferred within the group.

The First-tier Tribunal found that the repayment rights had vested in Shop Direct Group and upheld corporation-tax assessments under section 103(1) of the Income and Corporation Taxes Act 1988 and the loan-relationship provisions of the Finance Act 1996. The Upper Tribunal dismissed the appeal, finding no error of law or perversity. The central issues before the Court of Appeal were whether section 103(1) applied only to the original trader, and whether the VAT repayment was a money debt in respect of which Shop Direct Group stood as creditor.

Lord Justice Briggs delivered the leading judgment. Lord Justice Rimer and Sir Stanley Burnton agreed. The appeal was dismissed in relation to both VRP2 and IP2.

1. VRP2. Section 103(1) of the Income and Corporation Taxes Act 1988 imposes a charge on qualifying sums received after permanent discontinuance. Its language contains no restriction to receipts by the original trader. Section 103(2) identifies the relevant sums as those arising from carrying on the trade before discontinuance and not otherwise chargeable. The charge is therefore on receipts, regardless of the recipient’s identity, subject to section 106 and other express derogations.
2. There is no implied requirement that the recipient have been beneficially entitled to the repayment right. A mere agent or nominee may fall outside the charge, but a recipient entitled to keep the money is chargeable even where the payment was directed to it by gift. Section 106(1) concerns transfers for value rather than gifts. Section 106(2) disapplies section 103 only while the successor company is trading and can be taxed on the alternative trading basis. It therefore did not assist a company that had ceased trading before receipt.
3. The repayment remained a sum arising from the carrying on of the discontinued trades. The identity of VAT-group representative members, the appointment of solicitors as receiving agents, and intra-group decisions about the destination of the money did not alter that character.
4. IP2. The court applied the distinction in Jarvis v Harris [1996] Ch 195 between a primary monetary obligation and damages for breach. HMRC’s obligation under section 80 of the Value Added Tax Act 1994 was a primary obligation to repay money and therefore created a money debt. The fact that its amount required historical investigation did not alter that conclusion. Under section 100(1) of the Finance Act 1996, the written undertaking by HMRC gave Shop Direct Group a contractual entitlement supported by consideration, sufficient to establish creditor status.
5. The court also upheld the FTT’s alternative findings. The FTT’s conclusion that the payments were not gifts was rational and involved no error of law. Its construction of the business-transfer agreement was likewise upheld.

Appeal dismissed.

1. Court of Appeal (Civil Division) dismissed Shop Direct Group’s appeal concerning VRP2 and IP2: [2014] EWCA Civ 255.
2. Upper Tribunal (Tax and Chancery Chamber) dismissed Shop Direct Group’s appeal from the First-tier Tribunal, finding no perversity or error of law.
3. First-tier Tribunal, in a decision published on 14 February 2012, found that the repayment rights had vested in Shop Direct Group and upheld the corporation-tax assessments.