The UT found that (i) payments made to acquire partnership interests were trading in nature and (ii) an alternative contention not in the closure notice was open to HMRC.
The taxpayers made payments to acquire partnership interests. They argued that these payments were revenue expenditure as the trade was dealing in the partnership interests, whereas HMRC argued that the payments were (i) either capital or not wholly and exclusively for trade purposes; or (ii) alternatively there were two trades, the profits of which should be taxed separately.The taxpayers also argued HMRC could only rely on the grounds and conclusions set out in the closure notices. HMRC said they had been unable to set out contention (ii) in the closure notice which could only contain one amendment, but that they had included it and the alternative amendment in the covering letter to the closure notices.
The UT disagreed with HMRC’s contention that the alternative conclusion and amendment could not have been set out in the closure notices, but found that HMRC were not prevented from arguing them since the notice had to be read in its context which included the covering letter. It found against HMRC on the main contentions (i) and requested further argument on the alternative contention (ii).
In the decision, the UT concluded that as there were two trades in each case, there needed to be two tax computations, but it did not follow that the same income needed to be brought into account in both computations. It therefore agreed in principle that profits which had been taxed in the hands of the partnerships did not fall to be taxed again in the appellants’ hands. However, the UT was unsure how this principle should be applied where the companies’ receipts were returns of capital contributions rather than profits, and it requested further submissions from the parties on this front.
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