THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMS v JASPER ALEXANDER THIRLBY CONRAN

For statutory market-value purposes, the hypothetical sale assumes that legal impediments to a sale are overcome, but it does not alter the identity or content of the assets transferred. Assets specifically excluded from the transaction cannot be treated as transferred merely because they are commercially necessary to operate the business.

Under paragraph 5 of Schedule 29 to the Finance Act 2002, accounts later shown not to comply with generally accepted accounting practice are treated by reference to accounts that should have been drawn up, even if they appeared correct on the facts known when prepared. Whether a payment is “in respect of shares” is a question of fact and degree. The taxpayer must displace the inference that a benefit received by a shareholder was received in that capacity.

Jasper Conran controlled Jasper Conran Optical LLP, which transferred the benefit and obligations of a licensing agreement to JC Vision Limited for £8.25 million. The agreement excluded any grant of a licence to use the Jasper Conran trademark. JC Vision claimed intangibles relief by reference to the consideration, while HMRC contended that the assets transferred had a value of £1.

Mr Conran treated the receipt as a capital sum. HMRC treated it as a distribution under section 209(2)(b) of the Income and Corporation Taxes Act 1988. The First-tier Tribunal dismissed JC Vision’s appeal but allowed Mr Conran’s appeal. The Upper Tribunal considered the proper valuation for the intangibles regime and whether the payment was made in respect of shares.

1. JC Vision’s appeal dismissed. The statutory hypothesis of an open-market sale assumes that preconditions or impediments preventing the sale are fulfilled or overcome. It does not change the asset being valued. The assets transferred under the Business Transfer and Novation Agreement did not include use of the trademark. The principles in IRC v Crossman and Re Lynall therefore did not justify treating trademark use as transferred. The value of the transferred assets was £1.

2. The FTT was entitled to prefer the valuation evidence that the assets without trademark use had only nominal value. Its conclusion was not displaced by arguments concerning a hypothetical vendor, special purchasers or the value of the business to JC Vision. The valuation remained subject to the statutory focus on the assets actually transferred, and the appeal disclosed no error of law.

3. Paragraph 5 of Schedule 29 to the Finance Act 2002 applies where accounts are later found not to comply with GAAP, even if they appeared compliant on the facts known when prepared. The provision requires a hypothesis of the accounts that should have been drawn up. The FTT was entitled to find that fair value for accounting purposes was £1. That was sufficient to determine the intangibles-relief issue; the Upper Tribunal declined to decide the meaning of paragraph 92.

4. HMRC’s appeal allowed. Whether a payment is “in respect of shares” is a question of fact and degree requiring consideration of all the circumstances and substance of the transaction. The legal form of the transaction, the capacity in which the recipient was formally paid and the parties’ labels are not determinative. Where a benefit is received by a direct or indirect shareholder, the taxpayer must explain the other capacity in which it was received and displace the distribution basis.

   The FTT relied on the LLP’s tax transparency and the existence of valuations, neither of which established that Mr Conran received the payment as partner rather than as indirect shareholder. The surrounding circumstances, including his control of both entities, the intra-group nature of the transfer and the tax-reducer clause, pointed towards payment in his shareholder capacity. The FTT had applied the burden incorrectly and reached a decision it was not entitled to reach.

5. The argument that the new consideration was worth £8.25 million to JC Vision was rejected. The relevant quid pro quo was the assets transferred, excluding trademark use already available to JC Vision. The FTT’s decision was set aside and remade. Mr Conran’s appeal failed, and the amendments to the tax assessments were upheld, subject to the transferred assets being valued at £1 rather than nil.

• Upper Tribunal (Tax and Chancery Chamber) [2023] UKUT 166 (TCC): JC Vision’s appeal dismissed. HMRC’s appeal allowed. The FTT’s decision was set aside in relation to Mr Conran and remade in HMRC’s favour.
• First-tier Tribunal (Tax Chamber) [2022] UKFTT 39 (TC): JC Vision’s appeal dismissed. Mr Conran’s appeal against the distribution treatment was allowed.