Michelle McEnroe & Anor v The Commissioners for HMRC

Where neither party contends that a contractual working-capital adjustment applies, a tribunal does not err by failing of its own motion to undertake an involved analysis requiring assumptions and extrapolation from the evidence. Double-entry bookkeeping records transactions; it does not itself create a debt or other liability. A party challenging factual findings as errors of law must not use the appellate process as a disguised factual appeal.

The appellants sold all the shares in their company under a share sale and purchase agreement. The stated consideration was £8 million, subject to a working-capital adjustment and an earn-out. On completion, the buyer's solicitors paid about £1.1 million directly to the company's bank to redeem its loan, and paid the balance to the appellants' solicitors.

HMRC assessed the consideration for capital gains tax as £8 million plus the earn-out. The First-tier Tribunal dismissed the appellants' appeals, holding that they had not shown the closure notices to be incorrect. The appellants appealed, contending that the First-tier Tribunal should have considered whether the working-capital provisions reduced the consideration. They also sought, shortly before the hearing, to advance a factual challenge to the First-tier Tribunal's findings.

1. Appeal dismissed. The First-tier Tribunal made no error of law in deciding that the appellants had not displaced HMRC's closure notices.

2. The First-tier Tribunal was aware of clause 3.3 and the possibility of a working-capital adjustment. Neither party had argued that the clause did, or should, adjust the consideration. In those circumstances, it was reasonable for the tribunal not to investigate that issue further of its own motion.

3. There was no obligation on the First-tier Tribunal to construct the proposed adjustment from abbreviated financial statements. The exercise would have required assumptions, detailed analysis and extrapolation from the evidence. The statutory balance sheet would not necessarily have reflected the completion accounts, which were to be prepared using different accounting policies.

4. The tribunal rejected the contention that the buyer's payment of the company's bank debt automatically made the company indebted to the buyer. Double-entry bookkeeping is a method of recording transactions and cannot itself create transactions or liabilities. Any possible restitutionary claim was legally difficult and could not reasonably have been determined without reasoned submissions and relevant authority.

5. The appellants' late proposed Edwards v Bairstow ground was properly refused. The Upper Tribunal lacked the evidence and submissions before the First-tier Tribunal, the point had not been pleaded or argued below, and admitting it would have required an adjournment and caused further delay. The attempt to recast the case as an error of law was also a disguised challenge to factual findings, attracting the caution stated in Georgiou v HMCE.

• Upper Tribunal (Tax and Chancery Chamber): dismissed the appellants' appeal.
• First-tier Tribunal: dismissed the appeals against HMRC's closure notices in a decision released on 30 March 2022.