Sarah Thomas v The Commissioners for HMRC

Sarah Thomas v The Commissioners for HMRC

The assignment of the NRL Loan by TML to the Appellant was a distribution taxable as dividend income to the extent its value (£2,135,713) exceeded the Appellant’s loan account (£1,480,684.93), resulting in taxable income of £655,028.07. The Appellant, through Mr Thomas, deliberately failed to declare this income. No s.54 agreement settled the assessment. HMRC made a valid discovery and were entitled to assess. The penalty for deliberate inaccuracy stands, subject to recalculation based on the reduced tax liability.

Parties
Appellant: Sarah Thomas; Respondents: The Commissioners for His Majesty’s Revenue and Customs
Jurisdiction
England and Wales
Judgment Date
24 April 2026
Procedural Posture
Tax Appeal / First Tier Tribunal Judgment
Outcome
Appeal allowed in part; assessments and penalties varied but not cancelled.
Legal Topics
Income Tax on Shareholder Distributions, Discovery Assessments, Penalties for Deliberate Behaviour, Section 54 TMA Agreements, Article 6 ECHR in Tax Penalties
Tax Law Income Tax on Shareholder Distributions Discovery Assessments Penalties for Deliberate Behaviour Section 54 TMA Agreements Article 6 ECHR in Tax Penalties

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Parties

Sarah Thomas

Appellant

The Commissioners for His Majesty’s Revenue and Customs

Respondents

Procedural Posture

Tax Appeal / First Tier Tribunal Judgment

Legal Issues

  1. 1 Whether assignment of company debt to controlling shareholder is taxable as dividend income
  2. 2 Whether a valid discovery was made under s.29 TMA
  3. 3 Whether the tax position was previously settled under s.54 TMA

Ratio Decidendi

The assignment of the NRL Loan by TML to the Appellant was a distribution taxable as dividend income to the extent its value (£2,135,713) exceeded the Appellant’s loan account (£1,480,684.93), resulting in taxable income of £655,028.07. The Appellant, through Mr Thomas, deliberately failed to declare this income. No s.54 agreement settled the assessment. HMRC made a valid discovery and were entitled to assess. The penalty for deliberate inaccuracy stands, subject to recalculation based on the reduced tax liability.

Court Disposition

Appeal allowed in part; assessments and penalties varied but not cancelled.

Orders

  • Income Tax Assessment upheld as varied: Appellant liable for income tax on £655,028.07 as a distribution.
  • Penalty Assessment upheld as varied: penalty to be recalculated in accordance with reduced tax liability.