Friday, March 26, 2010



I was reading an article recently in Taxation magazine about the recent tax Tribunal decision in D J Thresh v HMRC. I was struck by the author’s comment that, “Curiously, the Tribunal found in favour of Mr Thresh”. HMRC had contended that Mr Thresh had obtained a benefit from employment from his own company. The Tribunal decided that he had not. Why should that be curious? We have surely not yet reached the stage where it is not possible to do anything without creating a tax liability!

The facts in the case were fairly straightforward. Mr Thresh was the sole director and shareholder of Hunt’s Construction Ltd. The company entered into an arrangement with a Mr Baxendale that it would build three cottages on land held by Mr Baxendale and Mr Baxendale would keep one of these and transfer the other two to the company. The company intended to finance the development by raising a mortgage on the land. However this intention was thwarted because Mr Baxendale’s solicitor advised him not to transfer the land to the company until the cottages had been built.

So what could be done? Mr Thresh proposed that he should raise the money personally and finance half of the development costs in return for being given one of the cottages. Accordingly there became a three-way joint venture, Mr Baxendale would put in the land, Mr Thresh would provide a large part of the finance needed to make the deal happen, Hunt Construction Ltd would provide the building expertise and they would each take one of the completed cottages. If I entered into such an arrangement with a couple of neighbours I would be most surprised if HMRC were to claim that the house that I ended up with somehow gives rise to income.

I accordingly found nothing “curious” about the Tribunal’s decision. It seems to me to reflect commonsense. Perhaps that is the author’s concern. Maybe he feels that in recent years tax and commonsense have drifted so far apart that it is not possible that a commonsense solution to a commercial problem cannot create as a by-product a tax liability.



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