Tax Cases Ch 4-6

Question 1

Smart v Lincolnshire Sugar Co Ltd

Answer 1

Received weekly ‘advances’ to, amongst other things, help them pay sugar beet growers prices agreed under contract. The payments were held to be revenue receipts because they helped the company meet its trading obligations

Question 2

Received weekly ‘advances’ to, amongst other things, help them pay sugar beet growers prices agreed under contract. The payments were held to be revenue receipts because they helped the company meet its trading obligations

Answer 2

Smart v Lincolnshire Sugar Co Ltd

Question 3

White v G & M Davies

Answer 3

Dairy farmers received grant to become beef farmers for 4 years. Grant was compensation for the loss of income from milk production, and was calculated by reference to this loss. Receipts therefore held to be revenue as they were a contribution to revenue receipts.

Question 4

Dairy farmers received grant to become beef farmers for 4 years. Grant was compensation for the loss of income from milk production, and was calculated by reference to this loss. Receipts therefore held to be revenue as they were a contribution to revenue receipts.

Answer 4

White v G & M Davies

Question 5

Burman v Thorn Domestic Appliances (electrical) Ltd

Answer 5

Received a grant to cover interest payments on a loan received to build a new factory. Grant was held to be a revenue receipt as it was specifically paid as a contribution to a revenue expense (interest).

Question 6

Received a grant to cover interest payments on a loan received to build a new factory. Grant was held to be a revenue receipt as it was specifically paid as a contribution to a revenue expense (interest).

Answer 6

Burman v Thorn Domestic Appliances (electrical) Ltd

Question 7

Ryan v Crabtree Denims Ltd

Answer 7

Company received a grant to enable it to keep people in employment. As no capital or revenue purpose was designated, and was therefore undifferentiated, it was a revenue receipt

Question 8

Company received a grant to enable it to keep people in employment. As no capital or revenue purpose was designated, and was therefore undifferentiated, it was a revenue receipt

Answer 8

Ryan v Crabtree Denims Ltd

Question 9

Watson v Samson Bros

Answer 9

Farmers received subsidy to replace or restore grassland damaged by sea floods. Found to be capital as contributed to the creation or restoration of a capital asset. The fact that some of the payment covered lost profits was irrelevant as that was not the purpose of the payment

Question 10

Farmers received subsidy to replace or restore grassland damaged by sea floods. Found to be capital as contributed to the creation or restoration of a capital asset. The fact that some of the payment covered lost profits was irrelevant as that was not the purpose of the payment

Answer 10

Watson v Samson Bros

Question 11

British Commonwealth International Newsfilm Agency v Mahany

Answer 11

Provided a newsfilm service to Rank Ltd and BBC, they paid annual payments to cover half its trade deficits. Found to be revenue as the purpose was to supplement receipts.

Question 12

Provided a newsfilm service to Rank Ltd and BBC, they paid annual payments to cover half its trade deficits. Found to be revenue as the purpose was to supplement receipts.

Answer 12

British Commonwealth International Newsfilm Agency v Mahany

Question 13

Knight v Calder Grove Estates

Answer 13

Company bought land off a farmer for £2k, so that it could extract coal from it. Agreed to sell it back to him for £500. They claimed both amounts as revenue on the grounds that the coal was circulating capital. Courts held it to be capital; it was a land purchase, an enduring asset, and the fact that the adventure was only temporary was irrelevant.

Question 14

Company bought land off a farmer for £2k, so that it could extract coal from it. Agreed to sell it back to him for £500. They claimed both amounts as revenue on the grounds that the coal was circulating capital. Courts held it to be capital; it was a land purchase, an enduring asset, and the fact that the adventure was only temporary was irrelevant.

Answer 14

Knight v Calder Grove Estates

Question 15

Coltness Iron Co v Black

Answer 15

Mining business who tried claiming cost of sinking pits as a revenue expense. Judge found that set up costs of mining, includingacquisition of and obtaining access to sites and minerals, were capital.

Question 16

Mining business who tried claiming cost of sinking pits as a revenue expense. Judge found that set up costs of mining, includingacquisition of and obtaining access to sites and minerals, were capital.

Answer 16

Coltness Iron Co v Black

Question 17

Golden Horseshoe (New) Ltd v Thurgood

Answer 17

Purchased residue of gold mining which they re-treated and sold on. Courts agreed the costs were revenue, because the residue had already been ‘won’ from the soil, and so the money was akin to that spent on stock in trade

Question 18

Purchased residue of gold mining which they re-treated and sold on. Courts agreed the costs were revenue, because the residue had already been ‘won’ from the soil, and so the money was akin to that spent on stock in trade

Answer 18

Golden Horseshoe (New) Ltd v Thurgood

Question 19

Rogers v Longsdon

Answer 19

Farmer sold the right to remove minerals from land which contained waste material from a former leadworks. Buyer had to disturb soil, trees and grass to gain access. Courts held that as the minerals had once again become part of the land, the cost of the land was capital

Question 20

Farmer sold the right to remove minerals from land which contained waste material from a former leadworks. Buyer had to disturb soil, trees and grass to gain access. Courts held that as the minerals had once again become part of the land, the cost of the land was capital

Answer 20

Rogers v Longsdon

Question 21

CIR v Pilcher

Answer 21

Fruit grower bought the freehold to an orchard, which including trees bearing ripe fruit. He claimed the cost of the fruit as a revenue expense, based on him buying stock in trade. Courts held that as what he had actually bought was the capital asset that was the orchard, it was a capital expense. FOLLOW THE FACTS - had the contract been written differently, he could have treated it differently, but in reality the whole amount was capital

Question 22

Fruit grower bought the freehold to an orchard, which including trees bearing ripe fruit. He claimed the cost of the fruit as a revenue expense, based on him buying stock in trade. Courts held that as what he had actually bought was the capital asset that was the orchard, it was a capital expense. FOLLOW THE FACTS - had the contract been written differently, he could have treated it differently, but in reality the whole amount was capital

Answer 22

CIR v Pilcher

Question 23

Vallambrosa Rubber Co Ltd v Farmer

Answer 23

Owned a rubber plantation, of which only 1/7 could produce rubber. Whole plantation was tended and weeded, and this was all allowed as a revenue expense despite 6/7 of the plantation not contributing to the profit. Company also built infrastructure (roads, drains etc), which was held to be capital expenditure as it was incurred once and for all and created an enduring benefit of the trade

Question 24

Owned a rubber plantation, of which only 1/7 could produce rubber. Whole plantation was tended and weeded, and this was all allowed as a revenue expense despite 6/7 of the plantation not contributing to the profit. Company also built infrastructure (roads, drains etc), which was held to be capital expenditure as it was incurred once and for all and created an enduring benefit of the trade

Answer 24

Vallambrosa Rubber Co Ltd v Farmer

Question 25

General Reversionary & Investment Co Ltd v Hancock

Answer 25

Purchased an annuity to take over the regular pension payments to a former employee, with his full knowledge and agreement. Courts agreed the lump sum payment was a revenue expense as whilst the method of payment had changed, its character had not

Question 26

Purchased an annuity to take over the regular pension payments to a former employee, with his full knowledge and agreement. Courts agreed the lump sum payment was a revenue expense as whilst the method of payment had changed, its character had not

Answer 26

General Reversionary & Investment Co Ltd v Hancock

Question 27

Morgan Crucible Co Ltd v CIR

Answer 27

Purchased an annuity from an insurance company, which paid out the same amounts as the company then paid to its former employees as pensions. The employees knew nothing of the arrangement and would have had no recourse against the insurance company had the payments stopped. Courts held lump sum paid for the annuity was capital as an identifiable asset had been gained which did not remove a revenue obligation, but rather allowed them to meet it ina different way.

Question 28

Purchased an annuity from an insurance company, which paid out the same amounts as the company then paid to its former employees as pensions. The employees knew nothing of the arrangement and would have had no recourse against the insurance company had the payments stopped. Courts held lump sum paid for the annuity was capital as an identifiable asset had been gained which did not remove a revenue obligation, but rather allowed them to meet it ina different way.

Answer 28

Morgan Crucible Co Ltd v CIR

Question 29

Atherton v British Insulated and Helsby Cables Ltd

Answer 29

Paid lump sum to set up a trust fund to pay for staff pensions. Fund itself was not an asset due to it being an independent trust. However, the judge found that the payment had brought into existence an enduring benefit of the trade in that it created a contented staff.

Question 30

Paid lump sum to set up a trust fund to pay for staff pensions. Fund itself was not an asset due to it being an independent trust. However, the judge found that the payment had brought into existence an enduring benefit of the trade in that it created a contented staff.

Answer 30

Atherton v British Insulated and Helsby Cables Ltd

Question 31

BP Australia Ltd v Australia Commissioners of Taxation

Answer 31

Offered lump sum payments to petrol stations in return for their agreement to buy only BP petrol. Payments held to be revenue as they obtained a trading advantage; securing orders for petrol in the face of increasing competition, in a manner which became part of the normal process of selling petrol.

Question 32

Offered lump sum payments to petrol stations in return for their agreement to buy only BP petrol. Payments held to be revenue as they obtained a trading advantage; securing orders for petrol in the face of increasing competition, in a manner which became part of the normal process of selling petrol.

Answer 32

BP Australia Ltd v Australia Commissioners of Taxation

Question 33

Commissioners of Taxes v N’Changa Consolidated Copper Mines Ltd

Answer 33

One copper mine paid to cease production, in order to help stabilise the global copper market. Lump sums paid by other group companies as ‘compensation’ were held to be revenue in nature, as they were costs incidental to production and sale of copper.

Question 34

One copper mine paid to cease production, in order to help stabilise the global copper market. Lump sums paid by other group companies as ‘compensation’ were held to be revenue in nature, as they were costs incidental to production and sale of copper.

Answer 34

Commissioners of Taxes v N’Changa Consolidated Copper Mines Ltd

Question 35

Strick v Regent Oil Co Ltd

Answer 35

Company paid lump sums to petrol retailers to lease their premises, then sub-let them back. Sub-let agreement included conditions re exclusive purchase and sale of petrol. Lump sum payments found to be capital as although they gained a trading advantage, they did so via the acquisition of a capital asset - an interest in land - which they could enforce that advantage.

Question 36

Company paid lump sums to petrol retailers to lease their premises, then sub-let them back. Sub-let agreement included conditions re exclusive purchase and sale of petrol. Lump sum payments found to be capital as although they gained a trading advantage, they did so via the acquisition of a capital asset - an interest in land - which they could enforce that advantage.

Answer 36

Strick v Regent Oil Co Ltd

Question 37

Walker v The Joint Credit Card Company

Answer 37

Paid £75k to a rival company for it to cease trading. Claimed it was revenue as no enduring benefit was gained due to the rival company being insolvent. Courts held the payment was capital as they got the benefit of being the only Interbank agent in the UK, and stronger and more enduring goodwill after losing an unscrupulous rival.

Question 38

Paid £75k to a rival company for it to cease trading. Claimed it was revenue as no enduring benefit was gained due to the rival company being insolvent. Courts held the payment was capital as they got the benefit of being the only Interbank agent in the UK, and stronger and more enduring goodwill after losing an unscrupulous rival.

Answer 38

Walker v The Joint Credit Card Company