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HMRC tax guidance under fire

11 February 2010
Issue: 7404 / Categories: Legal News
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Parliament urged to review “complex and obscure” provisions

The Supreme Court has refused the taxpayer’s appeal in the long-running Grays Timber Products tax case.

However, HMRC did not escape criticism from the judges. Delivering judgment in the first tax case concerning employee share awards under rules introduced in 2003, Walker LJ said HMRC’s 2003 guidance on employment-related securities was “clearly wrong”, and went on to describe the amendments as being “in anything but plain English”. “The principle that tax is to be charged only by clear words may be less potent than it was, but it is still relevant to the construction of taxing statutes,” he said.

“I am left in real doubt as to whether Parliament has, in Pt 7 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) enacted a scheme which draws a coherent and consistent distinction between intrinsic and extrinsic rights attaching to shares and other financial instruments.”

Dismissing the appeal, he said: “I express the hope that Parliament may find time to review the complex and obscure provisions of Pt 7 of ITEPA 2003.”
The case, Grays Timber products Ltd v HMRC [2010] UKSC 4, concerned Alexander Gibson, who in 1999 was appointed managing director of Grays Timber, a wholly owned subsidiary of Grays Group Ltd, of which Gibson became a director. 

Gibson paid £50,000 to take up shares amounting to about six per cent of the issued ordinary capital in Grays, and was entitled under a subscription agreement to about 25% of sale proceeds—significantly more per share than other shareholders.

In 2003, Jewson Ltd acquired Grays’ entire share capital for about £6m, and Gibson was paid 25% of the proceeds, or £1.4m. A rateable part would have been about £0.4m. HMRC argued that the disposal of the shares was for a consideration that exceeded “the market value of the employment-related securities at the time of the disposal” within the meaning of ITEPA 2003.

Michael Sherry, of Temple Tax Chambers, counsel for the taxpayer, said: “It is regrettable that HMRC argued this case contrary to its own clear guidance, and that the Supreme Court did not find that guidance authoritative.”
 

Issue: 7404 / Categories: Legal News
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