SPC00585
CAPITAL GAINS – ALLOWABLE LOSS – Appellants claimed loss relief for irrecoverable loan against assessed capital gains – Appellants purportedly loaned their company monies to purchase goodwill from the partnership -Appellants maintained in evidence that the goodwill was gifted – no finding of fact by special commissioner in previous appeal that a loan was created – Appellants not adduced sufficient evidence of the existence of the loan – Appeal dismissed.

THE SPECIAL COMMISSIONERS

	PETER COLLEY 	Appellants
NICHOLAS SIMON HILLBERG

	- and -

	HER MAJESTY’S REVENUE and CUSTOMS	Respondents

			Special Commissioner: MICHAEL TILDESLEY OBE	 

Sitting in public in Cardiff on 17 October 2006, further written representations received 21 November 2006

John Brooks Counsel instructed by Carston Chartered Accountants for the Appellants

Colin Williams HM Inspector of Taxes for the Respondents

© CROWN COPYRIGHT 2007

DECISION
The Appeal
1.	The Appellants were appealing against closure notices issued dated 22 August 2005 issued by Mr Willett, HM Inspector of Taxes, refusing the Appellants’ claim for loss relief for the year ended 5 April 2000.
2.	 Mr Colley claimed a capital loss of £100,000, whilst Mr Hillberg’s claim was for £125,000. The loss relief was to be set off against the capital gains included in the Appellants’ respective self assessments for 1999/2000.
The Background
3.	The Appellants had been in partnership in the fashion retail clothing business. On 1 September 1999 the Appellants transferred their partnership business to a limited company, Hacker Limited, which acquired the goodwill of the partnership valued at £250,000. The Appellants maintained, however, that the goodwill attached to the partnership business was gifted to Hacker Limited pursuant to section 165 of the Taxation of Chargeable Gains Act (TCGA) 1992.
4.	On 1 August 2002 Mr Willett issued amendments to the Appellants’ self assessments for 1999/2000. The amendment for Mr Colley showed that £51,536 was due for tax and National Insurance contributions, whilst in Mr Hillberg’s case the amount due was £54,211. The amendments were based on the Inspector’s finding that the Appellants had made capital gains on the transfer of the partnership goodwill to Hacker Limited.
5.	On 8 August 2002 the Appellants’ appealed against the amendments to their self assessments with the appeal being heard by Dr David Williams, special commissioner, on 21 and 22 March 2005. 
6.	Dr Williams dismissed their appeals with the result that the Appellants’ claim for gift relief under section 165 TCGA 1992 had failed. Dr Williams’ decision was released on 7 June 2005.
7.	 Following Dr Williams’ decision, on 17 June 2005 Mr Willett wrote to the Appellants advising them that they would be liable for penalties for not reporting the disposal of the partnership goodwill. He also enclosed a calculation showing the amount of tax and national insurance contributions due.
8.	On 29 June 2005 Carston, the Appellants’ accountants, responded to Mr Willett’s letter of 17 June 2005 by submitting a formal claim under section 2(2) TCGA 1992 in respect of the Appellants’ loss on their loan to Hacker Limited. The representatives enclosed amended capital gains pages for the Appellants 1999/2000 tax returns.
9.	On 7 July 2005 Mr Willett gave notice to the Appellants that he was enquiring into their claim for capital loss. Further he requested additional information about the claim to be supplied by 19 August 2006. 
10.	On 22 August 2005 Mr Willett closed his enquiry into the Appellants’ claim, concluding that there was no capital loss to be deducted under section 2(2) of TCGA 1992 from the capital gain included in the Appellants’ self assessment returns for 1999/2000.
11.	On 23 August 2005 Mr Willett received the Appellants’ response dated 17 August 2005 to his request for further information dated 7 July 2005. Mr Willett advised the Appellants of their rights of Appeal.
12.	On 31 August 2005 the Appellants gave notice of Appeal against the closure notice on 22 August 2005.
The Issues to be Determined
13.	The parties agreed the following issues:
(1)	Whether, and to what extent, any debt due to the Appellants that arose as a result of their sale of goodwill to a limited company, Hacker Limited became irrecoverable in 1999/2000.
(2)	Whether any part of a debt due to the Appellants, that arose out of their sale of goodwill to Hacker Limited, that became irrecoverable in consequence of the loan, of the arrangements of which the loan forms part or of an act or omission of the lender so that relief would be precluded by section 253(12) TCGA 1992.
(3)	Whether any loss is to be deducted under section 2(2) TCGA 1992 from the capital gains included in each Appellant’s self assessment for 1999/2000.
14.	The Appellants’ case was derived from Dr William’s decision denying their claim for gift relief under section 165 TCGA 1992. They were of the view that Dr Williams had held that the transfer of goodwill from their previous partnership to Hacker Limited had been for consideration which effectively created a debt due to them from Hacker Limited. That debt, according to the Appellants, amounted to a qualifying loan under section 253 TCGA 1992.
15.	At the hearing I expressed reservations about the Appellants’ case which was based on facts allegedly found by Dr Williams rather than facts supported by the Appellants’ evidence. The Appellants were still maintaining before me that the transfer of goodwill was a gift pursuant to section 165 TCGA 1992. 
16.	 At the end of hearing I directed that the parties provide me with written representations by 14 November 2006 on the following matters:
(1)	Do the parties accept that I am bound by the findings of fact of Dr David Williams, Special Commissioner, in his decision involving the Appellants released on 7 June 2005 that there was a transfer of goodwill from the Appellants to Hacker Limited for consideration?
(2)	Do the parties accept that Dr Williams found in paragraph 37 of his decision that the Appellants in their capacity of directors loaned Hacker Limited the monies necessary to purchase the goodwill from the partnership, as evidenced by the credit against the entry of directors’ loans accounts in the original 2000 accounts for Hacker Limited?
(3)	If the parties do not accept that Dr Williams made a finding on whether a loan was created between Hacker Limited and its directors, how am I as a tribunal of fact expected to resolve the facts on this issue.
The Evidence
17.	 I received evidence from the Appellants and their accountant, Kenneth Munn FCA of Carston Chartered Accountants. David Willett, HM Inspector of Taxes gave evidence for the Respondents.
18.	The parties provided an agreed statement of facts and a bundle of documents. The parties adopted the background facts as set out in Dr Williams’ decision released 7 June 2005.
The Background Facts
19.	On 1 September 1999 the Appellants transferred their partnership business to Hacker Limited which started trading that day with share capital of 100 £1 issued ordinary shares. The Appellants were the two directors of Hacker Limited with Mr Colley holding 60 shares and Mr Hillberg 40 shares. Hacker Limited was a close company in the control of Mr Colley. The Appellants have produced no documentation setting out the precise terms of the transfer of the partnership business.
20.	On 9 March 2001 the Respondents received the tax return for Hacker Limited which was accompanied by a director’s report and financial statements for the year to 31 August 2000 and signed by Mr Colley in his capacity as company secretary. Under Note 6 to the accounts (intangible fixed assets) goodwill of £250,000 was “brought introduced” for 2000 with no equivalent sum in the 1999 accounts. Of that £250,000, £12,500 was amortised during the year, the balance of £237,500 being carried forward. Note 9 to the accounts (creditors - amounts falling due after one year) recorded that the balance in the director’s loan account stood at £207,221 for 2000, the equivalent figure for 1999 being nil. This reflected a credit to that account during the year of £250,000.
21.	On 2 May 2001, Shepherd Hallett, the then accountants for the Appellants, informed the Respondents that the goodwill was acquired from the partnership business. The Appellants valued the goodwill at £250,000, twice the maintainable profits.
22.	On 24 August 2001 the Respondents opened an enquiry into the Appellants’ self assessment returns for 1999/2000 and in particular the goodwill transferred to Hacker Limited. Shepherd Hallett responded to the enquiry, stating  that
“Our client (each Appellant) sold his share of goodwill ……. to Hacker Limited for £125,000 which was credited to his director’s loan account”.
23.	Shepherd Hallett advised the Respondents that the sale proceeds of £125,000 for each Appellant were offset by claims for retirement relief leaving a nil chargeable gain.
24.	On 7 December 2001 the Respondents advised Shepherd Hallett that the Appellants were not eligible for retirement relief. They did not meet the age or the ill health requirements for retirement relief.
25.	On 1 February 2002 Shepherd Hallett replied to the Respondents noting their observations on retirement relief, and then proceeding to make a formal claim for roll-over relief under section 162 of TCGA 1992 in respect of the chargeable gain arising from the disposal of goodwill by the Appellants.
26.	On 25 February 2002 the Respondents rejected the Appellants’ claim for roll-over relief because the partnership had not transferred all its assets and liabilities as a going concern to the company in exchange for its shares. 
27.	On 28 February 2002 Shepherd Hallett responded:
“The goodwill was gifted to Hacker Limited by our clients (the Appellants) under the provisions of section 165 TCGA 1992.
No consideration has been received by our clients (the Appellants) in respect of the transfer of goodwill and there has been no credit to our clients directors loan account in Hacker Limited in respect of the goodwill. The accounts of Hacker Limited for the year ended 31 August will be restated to that effect”.
28.	On 26 March 2002 the Appellants served the amended accounts for Hacker Limited for the year ended 31 August 2000. The accompanying letter stated that the original accounts for that year contained an error in that the goodwill was reflected in the balance sheet. The Appellants supplied no board minutes of Hacker Limited or any other document explaining the reasons for restating the accounts.
29.	 Following the dismissal of their Appeal by Dr Williams, special commissioner, the Appellants submitted a capital loss claim in respect of their loans to Hacker Limited. On 7 July 2005 the Respondents requested the following information about the claim:
(1)	A note of the statutory provision under which the loss was being claimed or confirmation that the claim was under section 253 TCGA 1992.
(2)	Copies of any documentation or minutes of meetings etc detailing with the loan.
(3)	A note of any steps taken by the Appellants to recover the loan.
(4)	A brief explanation of the circumstances showing why it was now considered that the loan gave rise to a loss on 1 September 1999, which was the first day  on which the company began trading.
(5)	Copies of any evidence held in support of the Appellant’s claim that the principal of the loan had become irrecoverable by 1 September 1999.
30.	On 17 August 2005 Carston , the Appellants’ accountants, responded to the Respondents’ request for further information:
(1)	The loss was being claimed under section 253 TCGA 1992.
(2)	There were no board meetings detailing the loan.
(3)	It was not possible for the Appellants to recover the loan as the accounts for Hacker Limited have been restated with the effect that no balance was due to the Appellants.
(4)	The accounts of Hacker Limited have been restated with effect from 1 September 1999 and as a consequence the loss arose on this date.
(5)	Hacker Limited has submitted five years accounts to both Companies House and the Inland Revenue since commencement of trade. None of these sets of accounts acknowledge a debt to the Appellants, and as a consequence the loan was irrecoverable.
Dr David Williams’ Decision released 7 June 2005
31.	 The Appellants presented their Appeal to Dr Williams, special commissioner, on the basis that there was no consideration for the transfer of goodwill from the partnership to Hacker Limited. The goodwill was gifted pursuant to section 165 TCGA 1992.  Dr Williams was not persuaded on the balance of probabilities by the Appellants’ arguments.  He decided that the Respondents’ amendment to the Appellants’ self assessment for 1999/2000 stood good in accordance with section 50(6) of the Taxes Management Act 1970. Further he held that the Appellants’ claim under sections 162 and 165 TCGA and for retirement relief had failed.
32.	His reasons for dismissing the Appellants’ Appeal are found in paragraphs 36 to 40 of his decision released on 7 June 2005.
33.	In paragraph 37 Dr Williams concluded that no clear decision was taken by the partners about how the transfer of goodwill would take place. They accepted the arrangements made for them.
34.	In paragraph 38 Dr Williams set out his findings on those arrangements:
“What were those arrangements?  The only documentation dating before the tax dispute crystallised consists of the original set of accounts and the accompanying directors’ report, the self assessment returns, and the letters to and from the Inspector and colleagues. These all point in one direction. Those advising the Appellants advised that the transfer of goodwill was to be taken as at market value  - the amount of which is not now in dispute. It was taken as £250,000. It was presented at the time as the valuation of the Appellants. That sum was shown as an intangible fixed asset. This was balanced by adding a credit of £207,221 to the director’s loan account, as against a debit of £100 in the previous year. The credit was shown as falling due after one year. If that is correct  - and it was not only prepared but also signed as correct in 2001 – then Mr Colley would also be correct in saying that he received no actual cash from the transfer itself. It would be reflected in the existence of credit on the loan account and the value of the shares held in Hacker. This is consistent with the original claim that the Appellants had made a gain on the transfer but were seeking to discharge the tax liability by reference to retirement relief. If there had been no gain, as is now contended, why was retirement relief claimed, however, mistaken the facts about the claimants’ ages (as against the transaction causing the gains) that claim might have been? I can see no persuasive explanation for that”.
35.	In paragraphs 38 & 40 Dr Williams considered the status of Hacker’s original and amended accounts for 1999/2000:
“ …… the revision of the accounts took place only after queries had been raised about the earlier accounts by the Inspector. This is not persuasive of an error that, as was contended for the Appellants, arose from accounting considerations at the time of the transfer rather than tax considerations that emerged later. Nor is that contention consistent with the earlier mistake made about the retirement relief claim. Nor was I offered any evidence  for (from my italics) the Appellants to explain how that mistake came to be made by them or their advisers”.
“The fact that the original accounts of Hacker were replaced by other accounts does not remove those earlier accounts from the evidence. Accounts cannot just be rewritten at whim. It has to be shown that there was a valid reason for restating the accounts before the revised accounts displace the earlier accounts. I am not satisfied that there is a sound reason for regarding the original accounts as needing replacement so far as those accounts are relevant to these appeals. Accordingly I do not accept the revised accounts have displaced the original accounts in these appeals. There is therefore no sound evidence to lead me to question the basis of fact on which the Inspector has approached the self-assessments of either Appellant. Any changes made in those accounts were the result of later considerations or other reasons”.
The Appellants’ Evidence
36.	The Appellants operated two businesses: Hacker Limited which was a clothes retailer and Jubilee Motors which repaired motor vehicles including panel beating and paint sprays. The Appellants invested their own money in the setting up of Hacker Limited. At one stage the Appellants mortgaged their private homes to raise capital of £20,000 each to fund the company. 
37.	Mr Colley accepted that Hacker Limited generally made a trading profit from 1999 to 2006.  The dividends recorded in the company accounts represented the wage structure for the Appellants. Mr Colley confirmed that he had received no payment from Hacker Limited for the partnership goodwill.
38.	The Appellants concentrated their efforts on the day-to-day running of their businesses leaving their accountants to deal with tax returns and end of year accounts. The Appellants were advised by their accountants that the original set of accounts for 1999/2000 prepared for Hacker Limited was inaccurate as they showed an acquisition of goodwill from the partnership business. As a result of their accountants’ advice, revised accounts for 1999/2000 were prepared deleting reference to the acquisition of goodwill.
39.	The Appellants interpreted Dr William’s decision as meaning  that  on 1 September 1999 they  loaned  Hacker Limited the monies to purchase the goodwill of the partnership. Both Appellants, however, conceded that prior to the release of Dr William’s decision, they believed that the goodwill had been gifted to Hacker Limited with the resultant capital gain held over. Moreover at the hearing Mr Colley confirmed on oath that the goodwill had been gifted to the company, and that no loan arrangement existed between himself and Hacker Limited in respect of the transfer of goodwill.
40.	Mr Munn acknowledged that the acquisition of goodwill was recorded in error in the original accounts for 1999/2000 for Hacker Limited. Mr Munn corrected the error by removing the goodwill in the revised accounts, which were filed with the Respondents and Companies House.  The Inspector of Taxes dealing with Hacker Limited accepted the revised accounts. The Inspector of Taxes handling the Appellants’ tax returns, however, relied on the original 1999/2000 accounts in opposing the Appellants’ appeal before Dr Williams.
41.	The accounts for Hacker Limited for 2001 through to 2005 made no reference to the acquisition of goodwill from the partnership. The accounts showed that the directors’ loan accounts for each year were overdrawn which was opposite to the position in the original 1999/2000 accounts. Mr Munn explained that the directors’ loan entry in the company’s accounts was an accounting device to capture the transactions between the directors and the company during the years in question. 
42.	 The directors had no intention of amending the revised 1999/2000 accounts and the subsequent accounts for the years ending 2001 through to 2005 to show the acquisition of goodwill and the purported loan from the directors to the company 
43.	Mr Munn considered that the effect of Dr William’s decision was to create a debt to the Appellants on 1 September 1999.
44.	Mr Munn stated that the bank statements for Hacker Limited as at 1 September 1999 revealed nil balances. On 31 August 2000 there was an improvement in the balances but after taking uncleared cheques into account there was an overdraft of £29,095 and other creditors of £112,039.
45.	The Appellants and Mr Munn concluded that Hacker Limited did not have the funds available as at 1 September 1999 to repay the loan created by Dr Williams’ decision.
The Respondents’ Evidence
46.	Mr Willett was satisfied that the Appellants did not make a loan representing the value of the transferred goodwill to Hacker Limited. He would have expected some documentation confirming the existence of loan, such as documents setting out the repayment terms and board minutes ratifying the loan arrangements. He gave the Appellants the opportunity to produce documents evidencing the existence of the loan but none could be supplied.
47.	Mr Willett considered that a contractual debt was not the same as a loan. An entry in a directors’ loan account simply showed the end result of a transaction. The entry was not evidence of an existence of a loan.
48.	Mr Willett analysed the accounts of Hacker Limited for the years ending 2000 to 2004. He concluded from his analysis that the company made substantial profits in each of the five years. The company paid dividends totalling £228,772 in the four years ended 31 August 2004.  
The Law
49.	Section 2 TCGA 1992 enables a taxpayer to deduct allowable capital losses accruing in a year of assessment from chargeable gains accruing in that year of assessment.
50.	Section 253 TCGA 1992 sets out the requirements by which a trader can secure relief for irrecoverable loans by claiming allowable losses against chargeable gains.
51.	Section 253 only applies to qualifying loans which are defined by section 253(1) as:
1)	In this section a qualifying loan means a loan in the case of which –
a)	the money lent is used by the borrower wholly for the purposes of a trade carried on by him, not being a trade which consists of or includes the lending of money, and
b)	the borrower is resident in the United Kingdom, and
c)	the borrower ‘s debt is not a debt on security as defined in section 132; 
and for the purposes of paragraph a) above money used by the borrower for setting up a trade  which is subsequently carried on by him shall be treated as used for the purposes of that trade.
52.	 Section 253(3) establishes the conditions for loss claims on qualifying loans:
Where a person who has made a qualifying loan makes a claim and at that time –
a)	any outstanding amount of the principal of the loan has become irrecoverable, and
b)	the claimant has not assigned his right to recover that amount, and
c)	the claimant and the borrower were not each other’s spouses, or companies in the same group, when the loan was made or at any subsequent time,
then to the extent that that amount is not an amount which, in the case of the claimant, falls to be brought into account as a debit given for the purposes of Chapter 11 of Part IV of the Finance Act 1996 (loan relationships) this Act shall have effect as if an allowable loss equal to that amount had accrued to the claimant {at the time of the claim or (subject to subsection (3A) below) any earlier time specified in the claim]
53.	The earlier time specified in Section 253(3A) for a loss claim in respect of capital gains is not more than two years before the beginning of the year of assessment in which the claim is made.  
54.	Section 253(12)  excludes loss claims arising from loans which have become irrecoverable in consequence of the terms of the loan, of any arrangements of which the loan forms part, or of any act or omission by the lender.
Appellants’ Submissions
55.	 The Appellants’ case was that an allowable capital loss arose from the transfer of the partnership goodwill to Hacker Limited which could be set off against the chargeable gains in their 1999/2000 self assessment return. 
56.	The Appellant’s contended that the debt owed to the Appellants from Hacker Limited was a qualifying loan within the meaning of section 253 TCGA 1992. The loan became irrecoverable on the 1 September 1999, the date when Hacker Limited started trading, and did not become irrecoverable as a result of the terms of the loan, of any arrangements of which the loan forms part or of any act or omission by the lender.
57.	The factual basis for the Appellants’ contentions derived not from evidence adduced by them but on their interpretation of Dr Williams’ decision released on 7 June 2005. The Appellants still maintained in their evidence before me that they gifted the goodwill to Hacker Limited. However, they considered that their evidence had been overtaken by Dr Williams’ finding that the goodwill had been transferred for consideration. Thus creating a debt between Hacker Limited and the Appellants. The Appellants asserted that the debt was, therefore, a loan, albeit not on a formal basis, and as it had been used by Hacker Limited for the purposes of its trade it was a qualifying loan.
58.	The Appellants did not recognise the existence of the loan until after the release of Dr Williams’ decision on 7 June 2005. According to the Appellants their lack of awareness of the loan meant that there were no formal terms for the loan which resulted in the loan becoming immediately repayable on 1 September 1999, the day when the purported loan was created and the first day of trading for Hacker Limited when it had a nil balance in its bank. Further the Appellants could not be held responsible for the irrecoverability of the loan on 1 September 1999 because they were not aware of its existence at that date. 
59.	The Appellant’s lack of knowledge of the loan prevented them from submitting a claim for allowable loss until after the existence of the loan was revealed to them by Dr Williams on 7 June 2005. Thus they contended that 29 June 2005 was the earliest time practicable to make their claim for an allowable loss. Further  the Appellants maintained that by adopting a purposive construction of section 253(3) and 3(A)  of TCGA 1991 it was possible for an allowable loss claim  made on 29 June 2005 to relate back to the 1999/2000 year of assessment in order for the loss to be set off against the chargeable gains arising in that year.
Respondents’ Submissions
60.	The Respondents considered that the Appellants’ arguments were flawed in fact and in law.  The Respondents submitted that the correct approach to be taken by me was to decide whether the Appellants have adduced sufficient evidence to satisfy me on the balance of probabilities that the decision appealed against was incorrect. 
61.	The Respondents contended that I was not bound by Dr William’s finding of fact that there was a transfer of goodwill for consideration, which followed from a line of authorities based on the Privy Council decision in Caffoor v Commissioners of Income Tax Colombo (1961 2 All ER 436). Moreover there was no evidence before me, and no finding by Dr Williams that there was any loan by the Appellants to Hacker Limited to enable the purchase of goodwill from the partnership. In the Respondents’ view the evidence indicated that the consideration paid for the goodwill was a debt owed to the Appellants which represented unpaid purchase money rather than a loan. 
62.	 Even if there was a qualifying loan the Appellants failed to meet the   requirements of section 253 TCGA 1992.  The Respondents contended that the Appellants produced no evidence to demonstrate that the loan was irrecoverable at the date of its inception on 1 September 1999. The Appellant’s suggestion that Hacker Limited did not have the funds to repay  the loan as at 1 September 1999 if they had demanded payment, was, in the Respondents’ view, a too simplistic and incorrect understanding of the meaning of irrecoverable within section 253. According to the Respondents, the proper question in determining whether a loan has become irrecoverable was whether the borrower can afford to service the loan. In the present Appeal Hacker Limited was profitable throughout and able to pay significant dividends. As such it was more than able to service the loan, in which case the loan was not irrecoverable. 
63.	 Similarly even if the loan was irrecoverable, it was due to the actions or omissions of the Appellants. Hacker Limited was a close company under the control of the Appellants. It was the Appellants who decided to pay themselves substantial dividends from the company’s income as opposed to discharging the loan due to them.
64.	Finally the Respondents disagreed with the purposive construction placed by the Appellants on the wording of section 253(3) and 3(A). In the Respondents’ view the Appellants’ construction was too wide and unsupported by evidence or authority. The effect of the Appellants’ construction was that it would be possible to refer back a loss claim indefinitely which made nonsense of the time restrictions placed on loss claims by section 253(3) and 3(A). The Respondents considered that the wording of the disputed section was clear and unambiguous. The Appellants’ loss claim was made in 2005/2006, the earliest date to which the claim could be referred back was no more than two years from 6 April 2005. Thus even if an allowable loss did accrue to the Appellants, then it did so no earlier than 6 April 2003, and cannot be relieved in 1999/2000.
Reasons for my decision
65.	In order for the Appellants to establish that they have an allowable loss claim for 1999/2000 they must first adduce evidence to satisfy me on the balance of probabilities that there was a qualifying loan between themselves and Hacker Limited which met the requirements of section 253 TCGA 1992.  
66.	The Appellants’ evidence was that they did not loan Hacker Limited the monies to purchase the goodwill from the partnership. They gifted the goodwill to the company.  The Appellants have stated that the original 1999/2000 accounts for Hacker Limited which showed that the directors received consideration in their loan account was incorrect. According to the Appellants the correct position was as stated in their revised accounts for 1999/2000 and the accounts for the subsequent years which showed no transfer of goodwill for consideration. The Appellants produced no documents setting out the terms of the loan, and no board minutes of Hacker Limited recording the existence of a loan.
67.	The Appellants’ case was based upon their interpretation of Dr Williams’ decision released on 7 June 2005. The Appellants stated that Dr Williams found as fact that the Appellants had transferred the partnership goodwill for consideration, which thereby created a debt to them from the company and that the debt was in fact a loan. In the Appeal before me the Appellants relied upon this apparent finding of fact by Dr Williams to mount their case, even though their direct evidence contradicted the very existence of the loan.
68.	  I am satisfied that Dr Williams did not make a finding that a loan was created between the Appellants and the company in connection with the transfer of partnership goodwill.  Dr Williams’ decision to dismiss the Appellants’ first Appeal was not dependent upon a finding of fact that a loan relationship existed between the Appellant and Hacker Limited. Further it was not part of either the Appellants’ or the Respondents’ cases before Dr Williams that a loan existed between the Appellants and the company. The Appellants themselves acknowledged before me that they were not aware of the loan until after the release of Dr Williams decision on 7 June 2005. Thus there was no evidence before Dr Williams upon which he could have been a finding that a loan existed.
69.	The Appellants were entitled to advance contentions in the alternative but as Megarry J as he then was said in Reeves v Evans, Boyce and Northcott Syndicate (1971) 48 TC 495:
70.	
“Now of course it is always open to a litigant to advance contentions in the alternative. A good contention is not bad merely because it has a number of fellows that in greater or less degree are inconsistent with it. Nevertheless, inconsistencies may affect weight. If the inconsistency is purely factual, it may tend to mutual self - destruction. It would be a rare motorist who would tender evidence to show not only that at the moment of impact he was ten miles away but also that at that moment he was driving the car with the utmost circumspection”. 
71.	  The comments of Megarry J exposed the implausibility of the Appellants’ case. On the one hand they were denying the very existence of the loan, and on the other hand relying on their interpretation of Dr Williams’ decision which they say created a loan relationship between themselves and Hacker Limited. The inconsistency between these two conflicting positions is so manifest that it results in the self destruction of the Appellants’ case.
72.	I find that the Appellants have produced no evidence to substantiate the creation of a loan between the Appellants and Hacker Limited arising from the transfer of partnership goodwill to Hacker Limited on 1 September 1999. Further I am satisfied that Dr Williams did not make a finding of fact in his decision released on 7 June 2005 that such a loan existed.
Decision
73.	I was asked by the parties to make a determination on three specific questions dealing with the Appellants’ claim for allowable loss in the year 1999/2000. However, before I could decide those questions it was necessary for me to be satisfied that on 1 September 1999 a loan was created between the Appellants and Hacker Limited to enable the company to purchase the partnership goodwill. The Appellants failed to adduce sufficient evidence of the creation of the loan to persuade me on the balance of probabilities that such a loan existed. In those circumstances I dismiss the Appellants’ Appeal and uphold the Respondents’ refusal of the Appellants’ claim for loss relief in the sum of £100,000 for Mr Colley and £125,000 for Mr Hillberg for the year of assessment 1999/2000.
74.	I was not asked to make a determination on whether gift relief under section 165 TCGA 1992 applied to the transfer of partnership goodwill to Hacker Limited, which in any event was the subject matter of the Appeal dealt with by Dr Williams.
75.	I am grateful to the parties’ representatives for providing such interesting skeleton arguments on the legal requirements of section 253 TCGA 1992 and the application of res judicata to proceedings before the Commissioners. However, my findings in this case about the non-existence of the loan and Dr Williams’ decision meant that it was unnecessary for me to determine the many legal points advanced in the respective arguments.  

                 

MICHAEL TILDESLEY OBE
           SPECIAL COMMISSIONER
     RELEASE DATE: 22 January 2007

LON/