John Douglas Wardle v The Commissioners for HMRC

Decision date: 8 May 2022

Neutral citation: [2022] UKFTT 158 (TC)

Overall AI summary confidence: medium

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Short overview

This short overview is intended to summarise the case, issues and outcome so far as they are supported by the judgment.

AI confidence in this short overview: medium

This appeal concerned whether the appellant's disposal of LLP units qualified for entrepreneurs' relief by being a "material disposal of business assets," which required the LLP to have been trading for the one-year period before the disposal. The tribunal found insufficient evidence that the LLP had commenced trading in that period (construction had not started, key contracts were conditional or not produced), and dismissed the appeal.

Ratio decidendi

This summary is intended to identify the ratio decidendi, meaning the legal reasons for deciding and the binding part of the decision.

AI confidence in this ratio decidendi summary: medium

The tribunal applied an "operational activities" approach: to qualify for entrepreneurs' relief the LLP must have commenced trading for the required one-year period, which in cases of an embryonic project requires demonstrable operational activities (a specific idea or business set up, dealings with third parties directly related to supplies/services, and money genuinely at risk). Absent such activities or clear contractual commitments, mere preparatory steps and conditional contracts do not suffice to show trading.

Obiter dicta

This summary is intended to identify obiter dicta, meaning observations made by the way that were not necessary to deciding the case and are not binding.

AI confidence in this obiter dicta summary: medium

The judgment endorses Special Commissioner Hellier's operational-activities framework as a useful lens in cases of projects still in the preparatory phase, and observes that entry into preparatory contracts or corporate structures alone is unlikely to constitute commencement of trade where obligations are conditional and construction/commissioning have not begun.

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