Thomas William Good v The Commissioners of HM Revenue And Customs

The Court of Appeal dismissed Mr Good’s appeal against discovery assessments issued by HMRC. The only live issue on appeal concerned the scope and application of sections 609–611 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA): whether the taxpayer was "entitled to" Minimum Annual Payments ("MAPs") under s 611 and whether those MAPs constituted income "from" a non-trade films business under s 609. The court took a purposive approach to s 611 and held that "entitled to" should be given its ordinary meaning and that more than one person can fall within s 611. Applying the commercial and contractual reality, the court concluded that the taxpayer retained an entitlement and received a real benefit from the MAPs notwithstanding the Security Assignment and Direction; the MAPs therefore fell within s 609 as income from the film exploitation business.

This is an appeal from the Upper Tribunal ([2021] UKUT 281 (TCC)) upholding the First-tier Tribunal ([2020] UKFTT 0025 (TC)) decision dismissing Mr Good’s appeal against discovery assessments issued by HMRC. The assessments related to MAPs paid under a suite of Scion-designed scheme documents (Loan Agreement, Acquisition Agreement, Distribution Agreement, Security Assignment and Direction) concerning the exploitation of film distribution rights for tax years 2010/11–2012/13.

Nature of the claim / relief sought: The taxpayer challenged the discovery assessments, arguing they were procedurally invalid and, substantively, that (i) the MAPs were not income to which he was "entitled" under s 611 ITTOIA because he had assigned those rights to the lender; and (ii) the MAPs were not income "from" the non-trade films business under s 609 ITTOIA.

Procedural posture: FTT dismissed the appeal. The UT dismissed the subsequent appeal. Permission was given to appeal to the Court of Appeal on the narrowed issue limited to the meaning and application of ss 609–611 ITTOIA.

Issues framed by the Court:

• Whether, as a matter of statutory construction and commercial reality, the taxpayer was "entitled to" the MAPs within s 611 ITTOIA despite the Security Assignment and Direction (Issue 1: Entitled; Issue 2: Assignment).
• Whether the composite arrangements were self-cancelling or such that the taxpayer obtained no real benefit from the MAPs (Issue 3: Composite transaction).
• Whether, if entitled, the MAPs were income "from" the non-trade business of exploiting films for the purposes of s 609 ITTOIA (Issue 4: Business income).

Court’s reasoning (concise): The court applied a purposive construction consistent with Ramsay principles, accepting the UT’s view that s 611 is intended to capture persons receiving or entitled to income arising from non-trade film businesses. "Entitled to" carries its ordinary meaning rather than importing a specialised domestic-law concept of beneficial ownership; the class of persons caught is wider than mere recipients and may include more than one person. The existence of an assignment or charge is not determinative: the court must consider the contractual rights and the commercial and economic reality. On the facts, the Distribution Agreement continued to confer on the taxpayer rights to the MAPs; the Security Assignment and Direction were conditional in effect and operated in parallel with an obligation that the lender apply any MAPs received to discharge the taxpayer’s loan obligations. The taxpayer therefore continued to derive a real and enduring benefit from the MAPs while the loan remained outstanding, and retained reversionary rights on repayment. The MAPs were part of the consideration received under the Distribution Agreement and thus were income "from" the film exploitation business under s 609.

Subsidiary findings and context: The court explained that the Security Assignment was conditional and did not operate as an absolute statutory assignment under s 136 Law of Property Act 1925. Authorities dealing with beneficial ownership were of limited assistance; cases where a third party received payments but the payee derived benefit (for example Paterson, Dunmore, Peracha) were directly instructive. The court rejected the argument that the arrangements were mere self-cancelling artifices such that the taxpayer obtained no real benefit from the MAPs.

Appeal dismissed. The Court of Appeal held that, applying a purposive construction to ss 609–611 ITTOIA and assessing the commercial and contractual reality, Mr Good remained "entitled to" the MAPs and derived a real benefit from them despite the Security Assignment and Direction; accordingly the MAPs were income from the non-trade film business within s 609 and taxable under s 611. The Security Assignment was conditional and did not effect an absolute statutory assignment under s 136 Law of Property Act 1925.

Appeal from the Upper Tribunal (Tax and Chancery Chamber) [2021] UKUT 281 (TCC), which upheld the First-tier Tribunal decision [2020] UKFTT 0025 (TC) dismissing the taxpayer's appeal against discovery assessments under s 29 Taxes Management Act 1970. The Court of Appeal dismissed the taxpayer's further appeal ([2023] EWCA Civ 114).