Baker v Revenue & Customs [2013] UKFTT 394 (TC) (17 July 2013)

Baker v Revenue & Customs [2013] UKFTT 394 (TC) (17 July 2013)

Payments made to the appellant for the purchase of his shares were void under the Companies Act 1985 due to insufficient distributable reserves and deferred consideration; as such, the appellant was under a legal obligation to return the amounts received, and they did not constitute a distribution under s.209(2)(b) ICTA 1988. Only the £3,525 paid pursuant to the 2008 Judgment constituted a distribution, but it arose in a later tax year.

Citation
[2013] UKFTT 394 (TC)
Parties
Appellant: Russell Baker; Respondents: The Commissioners for Her Majesty’s Revenue & Customs
Jurisdiction
United Kingdom
Judgment Date
17 July 2013
Procedural Posture
Tax Appeal / First Tier Tribunal Decision
Outcome
Appeal allowed
Legal Topics
Income Tax, Company Purchase of Own Shares, Distributions, Companies Act Compliance, Restitution
Tax Law Company Law Income Tax Company Purchase of Own Shares Distributions Companies Act Compliance Restitution

Case Brief

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Parties

Russell Baker

Appellant

The Commissioners for Her Majesty’s Revenue & Customs

Respondents

Procedural Posture

Tax Appeal / First Tier Tribunal Decision

Legal Issues

  1. 1 Whether payments to director/shareholder for purchase of own shares are taxable as distributions under s.209(2)(b) ICTA 1988 despite failure to comply with Companies Act requirements
  2. 2 Whether amounts received are subject to tax as distributions or loans under s.415 ITTOIA 2005

Ratio Decidendi

Payments made to the appellant for the purchase of his shares were void under the Companies Act 1985 due to insufficient distributable reserves and deferred consideration; as such, the appellant was under a legal obligation to return the amounts received, and they did not constitute a distribution under s.209(2)(b) ICTA 1988. Only the £3,525 paid pursuant to the 2008 Judgment constituted a distribution, but it arose in a later tax year.

Court Disposition

Appeal allowed

Orders

  • HMRC’s assessment for the 2005-06 tax year in respect of the £120,000 distribution is set aside.
  • Application for costs refused.