Revenue & Customs v Salaried Persons Postal Loans Ltd (2006)
In the circumstances, a company that had ceased trading but still received rental income from its former trading premises did not carry on a trade or business for the purposes of the Income and Corporation Taxes Act 1988 s.13(4).
The appellant Revenue appealed against a decision holding that, for the purposes of the Income and Corporation Taxes Act 1988 s.13(4) , a private limited company (M) did not carry on a trade or business between 1998 and 2001. M was one of four companies under the control of one individual. M ceased trading in late 1995 and it vacated its premises. It continued to own other premises from which it received a rental income twice a year. Section 13 of the 1988 Act provided for a lower rate of corporation tax for small companies. The effect of s.13(3) was to divide the available amount of small companies' relief between relevant companies where a company had associated companies. The Revenue had restricted the small companies' rate of corporation tax available to one of the companies in the group under s.13(3) and s.13(4) for each of the relevant years on the ground that in the respective years that company had three relevant associated companies, rather than two, as the company had argued. The Special Commissioner had found that in each of the relevant years M did not carry on an investment business or any other business, and that the letting of its former trading premises was the continuation of a state of affairs that had continued for nearly 30 years while M was trading, which merely continued after M ceased trading. The Revenue argued that the Special Commissioner had been wrong to conclude that the prima facie inference that a company putting its assets to gainful use by letting its premises for rent was carrying on a business was negated. The Revenue contended that s.13 contained an anti-avoidance provision and should be construed in such a way as to give effect to the anti-avoidance purpose. It contended that s.13 did not imply a lacuna between trading or carrying on a business on the one hand, and dormancy on the other hand. It submitted that M filed active accounts, and the common-sense view of its turnover and profit figures was that M must have been trading or carrying on a business in the way those words were commonly understood.
The question of whether M carried on any business was a question of fact, and the court should only interfere with the Special Commissioner's decision in accordance with the principles in Edwards (HMIT) v Bairstow 36 TC 220 , Edwards applied. The Special Commissioner was entitled to come to the view, on the facts, that M did not carry on an investment business or any other business. He had taken into account a number of factors that could support a conclusion that M had carried on a business. The Special Commissioner had been entitled to come to the conclusion that the rent received by M did not come from a source that amounted to a business, American Leaf Blending Co Sdn Bhd v Director General of Inland Revenue (1979) AC 676 applied. Not every act of a kind that was authorised by a company's memorandum of association necessarily constituted the carrying on of a business. The fact that M's memorandum of association permitted the letting of property did not necessarily lead to the conclusion that M carried on or had carried on a business. The memorandum of association had been correctly taken into account by the Special Commissioner as a relevant, but not determinative, factor. The figures in M's accounts were not conclusive. The fact that M's income derived from land rather than bank deposits did not inevitably mean that it carried on a business, Jowett (HM Inspector of Taxes) v O'Neill & Brennan Construction Ltd (1998) STC 482 considered. M had simply been left with former trading premises that it let without any active participation or management. There was no artificial arrangement to take advantage of the small companies' rate.