Nigel Grogan v Revenue & Customs Commissioners (2010)


The tax avoidance provisions contained in the Income Tax Act 2007 s.682 to s.713 relating to a tax advantage obtained through a transaction in securities could apply where an express statutory scheme such as a qualifying employee share ownership trust had been utilised.


The appellant taxpayer (G) appealed against a First-tier Tribunal decision that a share transaction fell within the tax avoidance provisions contained in the Income Tax Act 2007 s.682 to s.713, while the commissioners cross-appealed against the tribunal's decision that its first notice of counteraction to G had been invalid.

G was the director and majority shareholder of a company (N) which made a contribution to a qualifying employee share ownership trust. The trustees used the monies contributed to acquire shares in N from G, who then paid capital gains tax on the disposal. At the time, G had already sold most of N's business to a third-party purchaser and was in the process of selling the remaining business to another party, which would leave N with one employee, apart from G himself. The Revenue concluded that G had obtained an income tax advantage from a transaction in securities and served a notice to counteract that advantage. It considered that the transaction fell within the Income and Corporation Taxes Act 1988 s.703 to s.710, which meant he was also liable to pay income tax, and so it served the notice under s.703(3) of that Act. However, the tribunal held that the notice was invalid as the relevant provisions were s.682 to s.713 of the 2007 Act. The Revenue served a second notice under s.698(2) of that Act during the course of the hearing before the tribunal. The latter held that G had obtained a tax advantage: as a result of his sale of shares to the trust, he had received a capital sum instead of a substantial dividend from N. It concluded that, since G had not proved that the sale had had a genuine commercial purpose or that the avoidance of income tax was not a main object, he had a liability to income tax under s.698(4) of the 2007 Act.

G submitted that the use of an express statutory scheme, such as the trust scheme, could not constitute tax avoidance; and there was no tax advantage because the commissioners could not postulate an alternative transaction which would have given rise to a taxable receipt in his hands.


1) The question was whether the contribution of the purchase prices of the shares by N to the trust and the acquisition of G's shares in N by the trust were within the circumstance specified in s.689 of the 2007 Act (see para.53 of judgment). There was, however, an escape clause in s.685, under which the provisions were inapplicable if the taxpayer could show that the transaction was effected for genuine commercial reasons or in the ordinary course of making or managing investments, and that enabling tax advantage or an income tax advantage to be obtained was not the main object or one of the main objects of the transaction (para.55). It was a question of fact whether the adoption of the trust scheme was effected with the main object or one of the main objects of obtaining a tax advantage. It was not correct to say, as a matter of law, that a person who adopted the scheme was necessarily immune, in relation to it, from the effects of the provisions. Thus, in the instant case, it had to be judged whether, in the context of all of the surrounding facts, the two limbs of the escape clause were satisfied. The tribunal had carried out a full and thorough assessment of the facts including the financial impact of the arrangements on G. It directed itself correctly in relation to the escape clause, but it was not satisfied on a balance of probabilities that it applied. That conclusion was one which it was entitled to reach on the evidence before it. Accordingly, it was necessary to reject G's argument that the provisions could not apply to the situation where an express statutory scheme had been utilised and complied with (paras 112-114). As regards G's alternative argument that there was in fact no tax advantage, if it was permissible to take into account all of the transactions in the overall scheme which was undertaken, starting with the establishment of the trust and including the payment of monies to it by N and the sale of shares to it by G, then there could be no doubt that the commissioners could postulate an alternative transaction, namely a dividend by N to G equivalent to the purchase price of the shares. In contrast, if the starting point was the sale of the shares, as the first transaction in securities, then it was not possible, on the facts of the case, to postulate an alternative transaction giving rise to an income tax liability on G (para.116). A tax advantage could be obtained in consequence of a transaction in securities notwithstanding that another operation, which was not a transaction in securities, was a necessary ingredient and that such other operation was not one which took place in consequence of the transaction in securities. There was no reason in principle why the other operation had to take place after the transaction in securities itself. It was enough if the tax advantage was obtained as the result of an overall series of transactions which were linked together to form a scheme and where the relevant transaction in securities was part of that scheme. Accordingly, it was also necessary to reject G's argument that there was no tax advantage obtained in consequence of a transaction in securities, Williams v Inland Revenue Commissioners [1980] 3 All E.R. 321 applied (paras 119-120). (2) The instant case was within the transitional saving provision Sch.2 para.129(1) of the 2007 Act, with the result that the first notice was valid (para.47).

Appeal dismissed, cross-appeal allowed