Thomas v Revenue and Customs (Taxation of shareholder on assignment of debt - whether deliberate - whether there has been a discovery...) [2026] UKFTT 627 (TC) (24 April 2026)

Thomas v Revenue and Customs (Taxation of shareholder on assignment of debt - whether deliberate - whether there has been a discovery...) [2026] UKFTT 627 (TC) (24 April 2026)

The Tribunal found that the assignment of the NRL Loan by TML to the Appellant constituted a taxable distribution to the extent the value of the assigned debt (£2,135,713) exceeded the Appellant's loan account (£1,480,684.93), resulting in a taxable distribution of £655,028.07. The Appellant failed to discharge the burden of proof that her loan account equaled or exceeded the assigned debt. There was no binding section 54 agreement settling the assessment. HMRC made a valid discovery and the Appellant's failure to declare was deliberate, justifying the penalty, though the penalty quantum was reduced to reflect the correct tax calculation as a dividend.

Citation
[2026] UKFTT 627
Parties
Appellant: Sarah Thomas; Respondents: The Commissioners for His Majesty's Revenue and Customs
Jurisdiction
United Kingdom
Judgment Date
24 April 2026
Procedural Posture
Tax Appeal / First Tier Tribunal (tax Chamber) Judgment
Outcome
Appeal dismissed in principle; assessments and penalties varied to reflect findings.
Legal Topics
Taxation of Shareholder on Assignment of Debt, Income Tax on Distributions, Discovery Assessment, Penalties for Deliberate Behaviour, Section 54 Taxes Management Act Agreements, Article 6 ECHR in Tax Penalties
Tax Law Taxation of Shareholder on Assignment of Debt Income Tax on Distributions Discovery Assessment Penalties for Deliberate Behaviour Section 54 Taxes Management Act 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 (tax Chamber) Judgment

Legal Issues

  1. 1 Whether the assignment of a company debt to a shareholder constitutes taxable dividend income
  2. 2 Whether there was a prior agreement under section 54 Taxes Management Act 1970 settling the assessment
  3. 3 Whether HMRC made a valid discovery entitling them to issue an assessment

Ratio Decidendi

The Tribunal found that the assignment of the NRL Loan by TML to the Appellant constituted a taxable distribution to the extent the value of the assigned debt (£2,135,713) exceeded the Appellant's loan account (£1,480,684.93), resulting in a taxable distribution of £655,028.07. The Appellant failed to discharge the burden of proof that her loan account equaled or exceeded the assigned debt. There was no binding section 54 agreement settling the assessment. HMRC made a valid discovery and the Appellant's failure to declare was deliberate, justifying the penalty, though the penalty quantum was reduced to reflect the correct tax calculation as a dividend.

Court Disposition

Appeal dismissed in principle; assessments and penalties varied to reflect findings.

Orders

  • The Appellant is liable to income tax on a distribution of £655,028.07 for the 2009-10 tax year.
  • The tax and penalty assessments are to be reduced to reflect the correct calculation as a dividend, with tax due of £263,081.25 and penalty of £177,579.84.