Alan Blackburn v Revenue & Customs Commissioners (2008)


In the circumstances money paid to a company with the intention that the company would issue shares in return was to be treated as a contribution to capital and not as a loan to which the "value received" provisions in the Taxation of Chargeable Gains Act 1992 Sch.5B para.13 would apply.


The appellants appealed against a decision ((2007) STC (SCD) 519) on the availability of relief under the Enterprise Investment Scheme. The first appellant (B) acquired the second appellant company (X) off the shelf. He invested approximately £1.2 million in X by a total of 10 subscriptions and issues of shares. He had made capital gains on other disposals during the period and the object of investing in X was to obtain relief under the scheme so that the tax that would otherwise have arisen on the disposals would be deferred until the shares in X were disposed of. B had invested the money in X informally without a contract of allotment or a share application. B submitted claim forms in respect of the share issues to the respondent commissioners who refused his claim for relief. The Special Commissioner held that B was entitled to relief where the share register had been written up before the money was received, on the basis that there had been a conditional issue of shares, but that he was not entitled to relief where the share register was written up after the money was received since a debt due to B had been repaid and that was a return of value prohibited under the Taxation of Chargeable Gains Act 1992 Sch.5B para.13. The appellants contended that when the moneys were used to pay for the share subscription, even though the money had been provided earlier to X, the debt was a "technical" debt and B received nothing back from X as a matter of fact; alternatively that the Special Commissioner's finding that there was an intention on the part of B to put money into X in respect of shares should have led him to conclude that the moneys received by X were on account of capital and not a loan, so that X could never come under an obligation to repay but came instead under an obligation to issue shares.


(1) If the legal analysis meant that the moneys were to be treated as a loan, that loan could not be disregarded as being "technical". A broad approach to construction of the value received provisions could not be used to overturn the plain meaning of the words used which involved any arrangement by which a loan was repaid, Inwards v Williamson (Inspector of Taxes) (2003) STC (SCD) 355 Sp Comm considered. (2) The correct legal analysis on the facts of the instant case was that although the general intention found by the Special Commissioner could not be treated as an application to subscribe for shares, with the consequent allocation at a later date, the general intention meant that the moneys received by X were on account of capital and not a loan, Kellar v Williams (2000) 2 BCLC 390 PC (TCI) applied. (3) The Special Commissioner held that a number of shares were part of larger issues in relation to which, on his interpretation, the receipt of value provisions applied. To obtain relief the entirety of the shares comprising the issue had to be issued in order to raise money for the purpose of the qualifying business activity. If part of the shares were affected by a return of value then it could not be said that "all the shares" were issued to raise money for the purpose of qualifying business activity. The Special Commissioner's factual findings as to whether in fact there were separate issues or whether there were a set of shares issued which together were part of a single issue could not be challenged by the appellants. Therefore, had it been relevant, the appellants' appeal on that point would have failed. (4) The moneys were not received by X impressed with a trust that required them to be used for the purpose of issuing shares, Barclays Bank Ltd v Quistclose Investments Ltd (1970) AC 567 HL considered.

Appeal allowed