© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
A10. Existing concepts in legislation
Trade
- Meaning of trade does not vary depending on context
"[Counsel for the taxpayer] argued that the provisions of s.592(3) must be construed in such a way as to provide a generous measure of relief for pension schemes, since it cannot have been Parliament's intention to afford relief only to schemes which undertook very occasional sub-underwriting, and to deprive very large pension schemes of any relief.
The judge was right to view this submission with disfavour. It is unprofitable to speculate as to what view Parliament took, when this provision was first introduced by the Finance Act 1971, as to how the Case I / Case VI dividing line would work in practice, whether for small, medium-sized or large pension schemes. Even if the answer to that question could be known, it could hardly justify, on grounds of an allegedly purposive construction, the attribution of a special meaning to the expression `trade' (which does not appear in s.592(3)). In Craven v White [1989] AC 398, 442 Parker LJ observed,
"In this limited sense the purpose does not appear to be of any assistance in the present appeals for the detailed and elaborate provisions of the Finance Act 1965 make it clear that the purpose was to tax some people and not others in respect of certain transactions and not others, and one can only determine which people and which transactions by looking at the words of the sections."
The provisions of s.592(3) are not detailed or elaborate, but the case-law on Case I of Schedule D is extensive, and it is that, rather than any supposedly purposive construction of s.592(3), which must be the guide." (Trustees of BT Pension Schemes v. Clark [2000] EWCA Civ 55, Robert Walker LJ)
Partnership law
- Tax statute applicable to partners intended to follow partnership legislation concepts
"[72]...Moreover, by virtue of the ordinary rule applicable in respect of partnerships, the relevant rights would exist during that period since, absent any other agreement, "[a]ll the partners are entitled to share equally in the ... profits of the business": section 24(1) of the Partnership Act 1890. It is a fair inference that section 850 was drafted with this background in mind. The Explanatory Notes available in Parliament when ITTOIA was a Bill confirm that this part of ITTOIA was drafted in the light of the 1890 Act regime: paras 1706–1709.
[73] This indicates that by using the expression "to share in the profits" in section 850(2) the drafter intended to follow the 1890 Act regarding what is meant by sharing in partnership profits. A number of features of the 1890 Act regime are relevant..." (HMRC v. HFFX LLP [2026] UKSC 17)
Trusts law
- Questions not answered by statute (e.g. number of trusts) answered by general law of trusts
"[35] In Rysaffe Trustee Co (CI) v IRC [2002] EWHC 1114 (Ch), [2002] STC 872, Park J made the important point, with which I respectfully agree, that the provisions of the 1984 Act relating to settlements are, in the absence of special provision, for the most part left to be interpreted in accordance with the general understanding of trust practitioners: see his judgment at [18] to [21]. The particular issue in that case was whether the settlor had made five separate discretionary settlements by executing five separate trust instruments, or whether he should be treated as having made a single settlement..." (Barclays Wealth Trustees (Jersey) Limited v. HMRC [2017] EWCA Civ 1512)
"[13] Section 43(2) supplies the definition of "settlement" to be applied in answering each of these questions. It should be noted that s 43 does not specifically address a numerical question: what is the number of relevant settlements existing in a particular inheritance tax situation? In the absence of specific statutory provisions the answer to the numerical question is to be found in the general law of trusts." (CIR v. Rysaffe Trustee Company (CI) Limited [2003] EWCA Civ 356, Mummery, Schiemann, Dyson LJJ)
Contract law
- Terms with corresponding common law concepts normally refer to that concept
"[139] This authority, like Morris v Baron and British and Beningtons, shows that the common intention of the parties governs the nature of the contractual arrangements between them. If a statutory regime then has to be applied, it is applied to the state of the contractual relations between them as determined under the general law in accordance with their common intention. Morris v Baron, British and Beningtons and Stead v Dawber illustrate the sort of three-stage analysis we have referred to above, which is different from that contended for by HMRC." (R (oao Cobalt Data Centre 2 LLP) v. HMRC [2024] UKSC 40)
"[23] Unlike some other relational arrangements including agency, the basis in law of employment is necessarily contractual. Rooted in the common law, it depends on the existence of a contract between employer and employee. For many years, some commentators have thought that it would be better based on the relationship itself (see, for example, BA Hepple: Restructuring Employment Rights (1986) 15 ILJ 69) but it has "obdurately persisted" in being based on the individual contract of employment (see Paul Davies and Mark Freedland: Changing Perspectives Upon the Employment Relationship in British Labour Law, Chap 6 in The Future of Labour Law (2004), ed. Catherine Barnard and others, at p 130).
...
[26] As noted above, it is the common law concept of employment that is applicable to the tax and National Insurance legislation relevant to this appeal." (Professional Game Match Officials Ltd v. HMRC [2024] UKSC 29)
- But context and purpose may indicate distinct statutory standard
"[125] The Variation Issue arises only on the footing, contrary to our opinion, that the phrase "incurred under a contract entered into [etc]" in section 298(1)(b) refers to the general law of contract and does not import any distinct statutory standard of its own.
...
[150] We revert briefly at this point to the section 298 Issue. The difficulties and uncertainties involved in applying the general common law as regards treatment of a change in contractual relations as a variation or a replacement of an original contract are further reasons why it is not plausible to think that the legislative regime as regards what happens in the second 10 year period was supposed to operate solely by reference to common law theory. That would make this tax legislation too uncertain in its effect and would improperly elevate taxpayer choice as to how it should operate above implementation of the policy purpose behind the 10 year time limit." (R (oao Cobalt Data Centre 2 LLP) v. HMRC [2024] UKSC 40)