Kevin John Pitt v The Commissioners for HMRC
Decision date: 19 July 2022
Neutral citation: [2022] UKFTT 222 (TC)
Overall AI summary confidence: high
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: high
This case concerns claims to tax relief under paragraph 2 of Schedule 13 (Finance Act 1999) arising from subscription and transfer of loan notes that the Tribunal found were part of an integrated, tax‑driven scheme. The Tribunal held that only £55,316 of the £750,000 subscribed was properly attributable to acquisition of the loan notes, the remainder being a capital contribution and not giving rise to a genuine commercial loss under Schedule 13, and therefore upheld HMRC's Closure Notice reducing relief to nil. The Tribunal also held that the follower notice relying on the decision in Audley was a relevant judicial ruling, it was unreasonable not to take corrective action, and affirmed a 30% penalty.
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: high
The Tribunal applied a purposive, commercial‑reality approach to paragraph 2 of Schedule 13: when identifying the amount “paid in respect of” an acquisition and amounts received on disposal, labels in documents are subordinate to the true economic inputs of the transaction. Where payments in excess of the market value effectively constituted capital contributions that increased issuer equity within a connected group and had no independent commercial purpose, those excesses are not acquisition consideration for Schedule 13 and do not generate the intended commercial loss.
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 noted (obiter) that the 2002 insertion of paragraph 9A providing for market‑value acquisition cost does not illuminate the meaning of Schedule 13 as it stood in 1999. It also observed that a pre‑planned loss is not necessarily incapable of being a qualifying loss under paragraph 2 in every circumstance, though that was not sufficient to assist the appellant on these facts.