Sharon Clipperton & Anor v The Commissioners for HMRC

The Court of Appeal rejected an appeal against findings that a marketed tax-avoidance arrangement (the "Aikido" scheme) resulted in a taxable distribution by Winn & Co. (Yorkshire) Ltd to its shareholders. Applying the Ramsay purposive approach to statutory construction, the court held that a distribution which is designed to reach and does reach a company's shareholders by a series of pre‑planned steps falls within the statutory description of a distribution "in respect of" shares in s. 1000 and s. 1113 Corporation Tax Act 2010 and ss. 383–385 Income Tax (Trading and Other Income) Act 2005 (ITTOIA).

The court considered and distinguished Khan v HMRC on the basis that Khan concerned the separate question of who "received or was entitled to" a distribution under s. 385 ITTOIA, whereas the present case raises the prior question of what constitutes a distribution in respect of shares. The Court also held that the settlements code (ss. 619–625, 644–645 ITTOIA) did not operate to treat the sums paid to the appellants as the income of Winn Yorkshire, because the taxable distribution identified by the purposive Ramsay analysis derived from the appellants' shares in Winn Yorkshire rather than from the settled B share in Winn Scarborough.

Background and facts:

• Winn & Co. (Yorkshire) Ltd ("Winn Yorkshire") had distributable reserves, and its two 50% shareholders and sole directors (the appellants) used a marketed scheme called Aikido in 2012. The scheme involved the creation of a subsidiary (Winn Scarborough), issue of a B share held on trust, and a B share dividend routed so that each appellant ultimately received £98,465 from a £200,000 payment.
• The appellants disclosed the arrangements but did not declare the receipts as their income. HMRC opened enquiries and amended the returns, assessing the sums as taxable in the hands of the appellants.

Procedural history: The appellants lost before the First‑tier Tribunal ([2021] UKFTT 12 (TC)) and the Upper Tribunal ([2022] UKUT 00351 (TCC)). They appealed to the Court of Appeal.

Nature of the claim / relief sought: The appellants sought to challenge HMRC's decision that the amounts they received were taxable as distributions in respect of their shares and alternatively to invoke the settlements code to treat the income as that of Winn Yorkshire alone.

Issues framed by the court:

• Whether the sums paid to the appellants were a "distribution … in respect of shares" within ss. 1000 and 1113 CTA 2010 and thereby taxable under ss. 383–385 ITTOIA, applying the Ramsay purposive approach.
• Whether the settlements code (ss. 619–625, 644–645 ITTOIA) applied to treat the income as arising under a settlement and therefore as income of the settlor (Winn Yorkshire) rather than of the appellants.
• Whether the authority Khan v HMRC required a different analysis.

Court’s reasoning and conclusions:

• The Court applied the two‑stage Ramsay approach (identify the class of facts Parliament intended to tax; then ask whether the facts fall within that class). On a purposive reading the statutory phrase "distribution … in respect of shares" is wide enough to include distributions designed to reach the company's shareholders by pre‑planned intermediary steps with no commercial purpose other than tax avoidance. The series of steps in the Aikido scheme were mechanics to achieve a return to Winn Yorkshire's shareholders and thus the sums received by the appellants were taxable distributions from Winn Yorkshire.
• The Court distinguished Khan as addressing the separate question under s. 385(1)(b) of who "received or was entitled to" a known distribution; Khan did not determine the earlier question of what counts as a distribution "in respect of shares" for the purposes of ss. 383–385 ITTOIA and ss. 1000/1113 CTA 2010.
• As to the settlements code, the Court held that the relevant taxable distribution (the Winn Yorkshire distribution) derived from the appellants' shares in Winn Yorkshire and not from the B share held on trust in Winn Scarborough; therefore s. 624 ITTOIA did not apply to recharacterise the income as that of Winn Yorkshire. The intermediate steps, even if constituting a settlement in isolation, were subsumed into the overall transaction for fiscal purposes under Ramsay, or, if viewed separately, did not change the taxability of the Winn Yorkshire distribution.

Disposition: The Court dismissed the appeals.

The appeal is dismissed. The Court held that, applying the Ramsay purposive approach, the sums received by the appellants were a distribution by Winn Yorkshire in respect of its shares and therefore taxable under ss. 383–385 ITTOIA read with ss. 1000 and 1113 CTA 2010. The Court further held that the settlements code did not operate to treat that income as the income of Winn Yorkshire alone; Khan v HMRC was distinguishable because it concerned the separate question of receipt or entitlement under s. 385 rather than the identification of what constitutes a distribution in respect of shares.

First‑tier Tribunal (Tax Chamber) dismissed the appellants' appeals: [2021] UKFTT 12 (TC). Upper Tribunal (Tax and Chancery Chamber) dismissed the appeal from the FTT: [2022] UKUT 00351 (TCC) (HMRC cross‑appeal on settlements considered and would have been allowed). The appellants’ appeal to the Court of Appeal was dismissed: [2024] EWCA Civ 180.