Spc00689

CORPORATION TAX –Availability of carried forward trading losses under section 343 ICTA 1988 – Appellant acquired a garage business via a series of transactions and hive downs – Appellant claimed the benefit of the trading losses of the garage – the success of its claim depended upon whether the first company in the transactional chain carried on the garage trade – question of fact – satisfied that it did not – Appellant not entitled to the losses – Appeal dismissed   

SPECIAL COMMISSIONERS

	BARKERS OF MALTON LIMITED  	Appellant

	- and -

	HER MAJESTY’S REVENUE and CUSTOMS	Respondents

			Special Commissioner: MICHAEL TILDESLEY OBE	 

Sitting in public in London on 10 & 11 April 2008

James Henderson counsel for the Appellant 

David Ewart QC , counsel instructed by the  Solicitor for HM Revenue & Customs, for the Respondents

© CROWN COPYRIGHT 2008

DECISION
The Appeal
1.	The Appellant was appealing against assessments for corporation tax for the periods to 31 December 1996 and 1997.
2.	The Appeal concerned the availability of carried forward losses under section 343 of the Income and Corporation Taxes Act 1988 (ICTA). The Appellant claimed the benefit of trading losses which accrued to another company called Haws Garage Limited.  The broad sequence of events was that between 9.00am and 10.30am on 13 January 1995 Haws Garage Limited transferred its trade to Haws of York  Limited which then sold its trade with trading assets and liabilities to the Appellant. The sole issue in this Appeal was whether Haws of York Limited carried on the trade in question, which was a question of fact. If Haws of York Limited carried on the trade in question, the Appeal succeeds; if it did not carry on the trade, the Appeal fails. The parties were content for a decision in principle.
The Legislation
3.	The relevant provisions of section 343 of ICTA were as follows:
(1) Where, on a company (the predecessor) ceasing to carry on a trade, another company (the successor) begins to carry it on, and –
(a)    on or at any time within two years after that event the trade or an interest amounting to not less than a three-fourths share in it belongs to the same persons as the trade or such an interest belonged to at some time within a year before that event; and
 (b)    the trade is not, within the period taken for the comparison under paragraph (a) above, carried on otherwise than by a company which is within the charge to tax in respect of it;
then the Corporation Tax Acts shall have effect subject to subsections (2) to      (6) below.
 (3) Subject to subsection (4) below and to any claim made by the predecessor under section 393A(1), the successor shall be entitled to relief under section 393(1), as for a loss sustained by the successor in carrying on the trade, for any amount which the predecessor would have been entitled to relief if it had continued to carry on the trade.
The Evidence
4.	I heard evidence for the Appellant from
(1)	David Plummer who was a chartered accountant and property developer. He was a director of Erinminster Limited, a property company, which was interested in purchasing the site owned and occupied by Haws Garage Limited but not its trade. Mr Plummer gave evidence on the series of transactions which occurred on 13 January 1995, and the reasons for them.
(2)	Anthony Wash who at the material time was the service director of Haws Garage Limited. He also gave evidence on the transactions of 13 January 1995, and the business of Haws Garage Limited.
5.	The Appellant also submitted in evidence a signed statement of Geoffrey Beecroft dated 7 August 2000.  At the material time Mr Beecroft was a director of the Appellant and Barkers (Beechwood) Limited. Sadly Mr Beecroft has since died. The Respondents did not object to the admission of Mr Beecroft’s statement  but contended that the  weight to be attached to its contents would depend upon whether the evidence of Mr Plummer and Mr Wash  came up to proof.
6.	A bundle of documents was received in evidence.
The Facts
7.	In the Autumn of 1994 Mr Plummer became interested in a site at Lowther Street in York which was owned and occupied at the time by Haws Garage Limited. The site was large, ripe for redevelopment as residential flats, and attracting interest from other property developers. 
8.	Mr Plummer was aware that Haws Garage Limited was in financial difficulties, which started in 1991 when it lost the franchise to sell Citroen cars leaving Haws Garage with car repairs and the sale of second-hand cars.  In 1994 Midland Bank Trust Company Limited, one of its major shareholders, put pressure on the company by threatening to withdraw its overdraft facility. The directors of Haws Garage Limited, however, were reluctant to sell the Lowther Street site unless it could be combined with the sale of the business. The directors did not wish to be left with a failing business stripped of its only significant asset.
9.	Mr Plummer realised that the only way he could acquire the Lowther Street site was to buy the Haws Garage business. However, he was only prepared to do this if he could separate out the Lowther Street property from the Haws Garage trade, so that the two could be independently disposed of.  
10.	Mr Plummer contemplated the following options for the separation of the garage business from the property, which were:
(1)	The sale of the garage business to the existing management, Mr Ankers and Mr Wash. A private investor was prepared to acquire the controlling share of the business in order to assist the management buy-out.
(2)	The sale of the business to the Barkers (Beechwood) group which owned Citroen and Peugeot dealerships in York. The Haws garage business could be used to sell second-hand cars acquired in part-exchange for new Citroen and Peugeot cars.
(3)	The closure of the garage business.
11.	On 28 October 2004 Mr Plummer in his capacity as director of Alderney Consultancy Limited agreed with Mr Tichener, company secretary of Haws Garage Limited, to purchase the entire share capital of Haws Garage Limited for £215,000 subject to contract. Mr Plummer indicated that Alderney Consultancy Limited would ensure as far as possible the continued employment of staff. In this regard Alderney Consultancy Limited proposed that the garage business would transfer to a new subsidiary company in which the current managers would hold in total a 45 per cent shareholding. On 21 December 1994 Mr Plummer put in a revised offer of £195,000 subject to contract following disclosure of the estimated value of the net assets of Haws Garage Limited. At some stage in the negotiations, Erinminster Limited, replaced Alderney Consultancy Limited as the purchaser of the share capital of Haws Garage Limited. 
12.	On 11 January 1995 Mr Plummer invited Mr Beecroft, in his capacity as director and majority shareholder of Barkers (Beechwood) Limited to attend meetings on 13 January 1995 to discuss the proposed purchase of Haws Garage Limited. Mr Beecroft was prepared to consider buying the business of Haws Garage Limited if Mr Plummer secured the freehold in the Lowther Street site.
13.	On 12 January 1995 Mr Plummer on behalf of Erinminster Limited wrote to the directors of Haws Garage Limited informing them that it wished to vary the Agreement for Sale, namely that the business assets and liabilities of Haws Garage Limited must be transferred to Haws of York Limited, a newly formed subsidiary, prior to completion of the share purchase which was to take place the following day on 13 January 1995. The letter did not mention that Haws Garage Limited would continue to trade as the undisclosed agent of Haws of York Limited.
14.	 On 13 January 1995 the companies involved in the dealings with Haws Garage Limited held meetings at the Lowther Street premises with a view to concluding the various purchases. The minutes of the  various meetings recorded that  
(1)	At 9.00am on 13 January 1995 the board of directors of Haws Garage Limited resolved with effect from start of business on 13 January 1995 to transfer ownership of the business, trading assets and trading liabilities of Haws Garage (exclusive of the freehold property and related borrowings) to its  new subsidiary, Haws of York Limited. 
(2)	 At 9.01am on 13 January 1995 the board of directors of Haws of York Limited acknowledged that it had acquired the business, trading assets and trading liabilities of Haws Garage.  It was resolved that Haws Garage should continue the trade as the undisclosed agent of Haws of York Limited. 
(3)	At 9.30am on 13 January 1995 the board of directors of Erinminster Limited resolved to purchase for the sum of £195,000 the entirety of the issued share capital of Haws Garage Limited which owned Haws of York Limited carrying on the trade of car dealers and repairers from the premises at Lowther Street  
(4)	At 9.30am on 13 January 1995 the board of directors of Haws Garage Limited acknowledged that the entire issued share capital of Haws Garage Limited had been acquired by Erinminster Limited.  The company secretary was instructed to issue new share certificates. A resolution was also passed to appoint new directors.
(5)	At 10.00am on 13 January 1995 the board of directors of Haws Garage  Limited resolved to sell for the sum of £2 the entire issued share capital of Haws of York Limited to Barkers (Beechwood) Limited with immediate effect.
(6)	At 10.00am on 13 January 1995 the board of directors of Barkers (Beechwood) Limited resolved to purchase for the sum of £2 the entire issued share capital of Haws of York Limited. 
(7)	At 10.01am on 13 January 1995 the board of directors of Haws of York Limited acknowledged that the entire issued share capital of Haws of York Limited had been acquired by Barkers (Beechwood) Limited from Haws Garage Limited.  The company secretary was instructed to issue new share certificates.
(8)	At 10.30am on 13 January 1995 the board of directors of Haws of York Limited resolved to sell its trade together with all trading assets and liabilities to the Appellant with immediate effect. 
(9)	At 10.30am on 13 January 1995 the Appellant’s board of directors resolved to acquire the assets and liabilities of Haws York Limited and its trade as a car dealer and repairer with immediate effect.  It was also resolved that Haws Garage should continue to run the trade as undisclosed agent on the Appellant’s behalf.
15.	Mr Plummer stated that the minutes were typed up by his secretary, and signed the Monday following the various board meetings on the Friday. Mr Plummer accepted that the references in the minutes to minutes of the previous meetings were read, approved and signed as a correct record did not happen in the majority of the meetings held on 13 January 1995 because minutes of the previous meetings had not been prepared for signature. Mr Plummer could not recall precisely what occurred in the periods between the meetings. He agreed that the time recorded for the meetings might not be exact, but maintained that the sequence of the meetings as recorded was correct.
16.	 Mr Plummer believed that Mr Beecroft arrived at the Lowther Street premises between 9.30am and 10.00am. They held a meeting between themselves at around 10.00am to decide whether to go ahead with the purchase of the share capital of Haws of York Limited. Mr Beecroft stated in his statement that Mr Plummer did not ask him to commit to the purchase of the share capital in advance of their meeting on 13 January 1995.  Mr Beecroft was of the view that the business of Haws of York Limited was worth acquiring if it could be purchased for a nominal amount with the assets balancing the liabilities. His meeting with Mr Plummer on 13 January 1995 took several minutes after which they decided to proceed with the purchase of the share capital of Haws of York Limited. 
17.	Throughout the duration of the various board meetings, the garage business   carried on as usual, mechanics were working in the rear building, with about four cars for sale in the showroom. No transactions, however, were completed during the period of about 90 minutes when Haws of York Limited owned the business assets. No customers attended the premises during this period. The servicing of the vehicles which took place on 13 January 1995 was pre-booked.
18.	On 16 November 1996 Mr Plummer submitted a nil corporation tax return for Haws of York Limited for the period 7 December 1994 to 6 December 1995. He added the words to the return that the company had not traded. Mr Plummer now considered his insertion of the additional words to the return was a mistake for which he apologised. He explained that what he really meant by his statement was that Haws of York Limited did not make any profits.  He accepted, however, that the return was submitted prior to the current dispute with the Respondents.
19.	Mr Wash stated in evidence that he and his fellow director, Mr Ankers, decided not to proceed with the management buy out on the morning of 13 January 1995 prior to the board meeting of Haws Garage Limited at 9.00am. Their investor withdrew his financial backing for the buy out. Mr Plummer stated that he was not aware of their decision not to proceed with the management buy out. Mr Plummer was in attendance at the board meeting of Haws Garage Limited at 9.00 am. He took no part in the board meeting.
20.	Mr Wash agreed that his recollection of the events on 13 January 1995 as recorded in his witness statement was based on the documents rather than from memory. However, he recalled that he followed the brief given to him by Midland Bank Trust Limited on behalf of the shareholders of Haws Garage Limited which was to sell the shareholding to Mr Plummer’s company. In this respect he followed the instructions of Mr Plummer’s letter of 12 January 1995 regarding the hive down of the business to Haws of York Limited. Mr Wash accepted that Mr Plummer’s offer was the only option on the table.
21.	Mr Wash could not remember who produced the minutes of the various board meetings on 13 January 1995. The meetings happened in the sequence recorded. There were no precise reasons for the gaps between the meetings. Mr Wash had never met Mr Beecroft before the 13 January 1995. Mr Wash held no shares in Haws Garage Limited.  Mr Wash indicated that he was required to report back to Midland Bank Trust Limited on the outcomes from the meetings held on 13 January 1995. Mr Wash stated that the business expenses incurred during the period that Haws of York Limited owned the business assets were apportioned between Haws Garage Limited and Barkers (Moulton) Limited. There were no separate accounts kept for Haws of York Limited. 
Consideration
22.	In order for the Appellant to succeed to the trading losses incurred by Haws Garage Limited it must satisfy three conditions as laid down by section 343 of ICTA 1988, namely:
(1)	There has been no change of ownership in the trade, namely the person who carried on the trade following the company reconstruction was the same person who owned the trade before it ceased. Ownership within the meaning of section 343 ICTA 1988 equated with beneficial ownership with a 75 per cent share sufficient.  
(2)	The companies carrying on the trade should be within the charge to corporation tax.
(3)	The successor company must carry on the trade in question.
23.	The parties acknowledged that the companies involved in this Appeal were within the charge to corporation tax. Further they agreed that the no change in ownership condition was met. Haws Garage Limited beneficially owned Haws of York Limited at the time when it transferred the trade to Haws of York Limited. Barkers (Beechwood) Limited beneficially owned both Haws of York Limited and the Appellant at the time when the Appellant acquired the trade from Haws of York Limited. The Respondents accepted that there was no prior agreement by Haws Garage Limited to sell Haws of York Limited to the Appellant when Haws of York Limited was under its ownership. The Respondents, however, disagreed with the Appellant’s assertion that the sale of Haws of York Limited to the Appellant was problematical and one of three options being contemplated on 13 January 1995. In their view of the facts, the sale to the Appellant was by far the most likely outcome of the proceedings conducted on 13 January 1995.
24.	The dispute concerned the trading condition. The Appellant claimed the trading losses of Haws of York Limited on the transfer of the trade from Haws of York Limited to it. These trading losses had been incurred by Haws Garage Limited. Thus the Appellant could only claim the benefit of the losses if Haws of York Limited began to carry on the trade which was originally owned and carried on by Haws Garages between 9.00am and 10.30am on 13 January 1995. 
25.	The Appellant submitted that section 343 of ICTA 1988 did not require the trading to take any particular form or to be of specific duration. It mattered not whether Hays of York Limited carried on the trading for one minute or several years. The fact that it traded for only one hour and thirty minutes was not determinative of the disputed issue. The oral and documentary evidence proved that the trade of Haws Garage Limited was transferred to Haws of York Limited at 9.00am on 13 January 1995.  Further the minutes recorded that Haws Garage  should continue the trade as the undisclosed agents of Haws of York Limited.  The Appellant pointed out that there were no strict formalities for the establishment of an agency relationship. In its view the minutes of the meeting coupled with the witness testimony were sufficient evidence of such a relationship. Also under section 343 of ICTA 1988 Haws of York Limited was not obliged to present itself to the outside world as carrying on the trade.  
26.	The Appellant contended that the creation of the agency relationship did away with the need for Haws of York Limited to put its business straightaway on a more formal footing which was why it did not open bank accounts for the trade and take steps to change stationery and the contracts of employment of the staff engaged in the garage.  Moreover the garage trade continued to operate throughout the 13 January 1995. The mechanics did not down their tools whilst the various meetings took place on that day.  The reality was that on 13 January 1995 it was business as usual at the garage, and that only Haws of York Limited was in  a position to  carry on the trade  during the period from 9.00am to 10.30am.
27.	Finally the Appellant pointed out that the arrangements of the 13 January 1995 were not pursued with any tax planning motive in mind. They were done because Mr Plummer wished to segregate the trade from the property because he did not want to be saddled with a loss making enterprise. 
28.	The Respondents contended that section 343 required Haws of York Limited to carry on the trade of Haws Garage Limited. In their view the reference in the legislation to carrying on the trade must be construed purposively in the sense that the trade was carried on in a way which could result in profits or losses being realised so as to be recognised for tax purposes.  The Respondents considered that mere ownership of business assets did not constitute carrying on the trade. There must be trading which ultimately was a question of fact rather than law.
29.	The Respondents acknowledged that the events were now thirteen years old, which would affect the adequacy of the witnesses’ recollections of those events. The Respondents contended that the minutes of the various meetings were not a wholly accurate account of what happened on 13 January 1995, and should be treated with caution. The Respondents accepted that the sequence of events as painted by the minutes was broadly correct but the contents of those minutes were suspect. The Respondents pointed out that that it was impossible for the participants at the meetings to approve minutes which had not yet been prepared. Further the reference in the minutes of the board meeting of the Haws of York Limited to the agency arrangement with Haws Garage was not supported by the evidence. Mr Wash was instructed by Midland Bank Trustees to follow the requirements of Mr Plummer’s letter of 12 January 1995 which did not mention the supposed agency arrangement.
30.	The Respondents accepted that there was no prior agreement by Haws Garage Limited to sell Haws of York Limited to the Appellant. However, they disagreed with the Appellant’s assertion that at the time the parties commenced negotiations on 13 January 1995 there was a range of options still on the table for the potential destination of the Haws Garage business. The Respondents relied on Mr Wash’s evidence that the management buy out had been ruled out of contention by the time the first board  meeting  convened at 9.00am on 13 January 1995. In addition Mr Plummer in his evidence and in correspondence indicated that the closure of the business was not a viable option. The reality according to the Respondents was that on the 13 January 1995 the parties expected that the business would be sold onto the Appellant. In those circumstances the parties were not contemplating that Haws of York Limited would carry on the trade for the short period pending the conclusion of the various transactions.
31.	 In the Respondents’ view the words carrying on a trade as used in the legislation envisaged that the successor company would engage in activities connected with the trade. During the period in question Haws of York Limited did nothing. It did not incur any expenditure and receipts. No transactions were entered into by Haws of York Limited. Further it was highly unlikely that Haws of York Limited would be liable to third parties in the ninety minutes that it owned the trade.  Haws of York Limited was not the occupier of the premises, and not the employer of the staff. Haws of York Limited had not assumed the contracts of employment of the staff who worked in the garage. Haws of York Limited was not liable under contract for the servicing of the vehicles taking place on 13 January 1995 because they had been pre-booked with Haws Garage Limited.
32.	 The evidence showed that the trading expenditure for the 13 January 1995 was apportioned between Haws Garage Limited and the Appellant which according to the Respondents reflected the truth of the arrangements that Haws of York Limited was not carrying on the trade. Mr Plummer confirmed this state of affairs with his declaration on the corporation tax return for Haws of York Limited.
33.	The Respondents submitted that the evidence was one way, namely that the assets and liabilities of Haws Garage business passed through Haws of York Limited to the Appellant which carried on the trade.
34.	The dispute between the parties was one of fact with the burden of proof on the balance of probabilities resting on the Appellant.  The Appellant’s case depended upon the fact that the garage continued with its business whilst the various transactions took place on the 13 January 1995, and whether the evidence of Mr Plummer and Mr Wash came up to proof on the detail of the transactions and the events surrounding them. 
35.	Mr Henderson for the Appellant objected strongly to Mr Ewart QC challenging the truth of the agency arrangement between Haws of York Limited and Haws Garages Limited in his closing speech. According to Mr Henderson, Mr Ewart QC did not put direct questions to either witness about the agency arrangements, in which case I was obliged to accept the evidence in chief of the existence of the agency. Mr Ewart QC responded that the Respondents’ statement of case in reply at paragraph 7 clearly stated that they did not admit truth of the contents of the minutes of the meeting which recorded the creation of the agency. Further he decided in his cross-examination to ask questions which in his view went generally to the accuracy of the minutes, and by implication the existence of the agency. I consider that the Appellant was on the notice from the Respondents’ statement of case that the agency arrangement was not accepted. In my view Mr Ewart QC was entitled to use his judgment about the appropriate way to advance the Respondents’ case with his cross-examination. Finally the documents relied on by the Appellant were not consistent about the existence of the agency, in particular there was no mention of it in Mr Plummer’s letter of 12 January 1995.  In these circumstances I hold that I am not bound by the evidence in chief on agency, and that it was a disputed matter which required a finding from me. 
36.	I turn first to the credibility of the witnesses and the reliability of their evidence. I was not impressed with the credibility of Mr Plummer, in particular with his explanation about the corporation tax return for Haws of York Limited. He suggested that what he really meant by his statement on the return that Haws of York did not trade was that it did not make any profits. His explanation made no sense, he had already entered on the return in two separate places that the trading profits of Haws of York Limited were nil. There was no requirement on the form for Mr Plummer to explain why the profits were nil. Mr Plummer should have been familiar with the requirements of a corporation tax return and aware that he was not obliged to give an explanation for nil profits from his experience as a qualified chartered accountant and a director of several companies. I find that the most obvious explanation for Mr Plummer’s insertion of the additional words was that they accurately reflected his understanding of the situation, namely that Haws of York Limited did not trade.
37.	The Appellant’s case relied upon Mr Plummer’s evidence about the problematical nature of the sale of the garage business to the Appellant, in particular that it was one of three options being considered on the 13 January 1995. One of those options was the closure of the business, which according to Mr Plummer’s evidence had effectively been ruled out well before the negotiations commenced on 13 January 1995. Mr Plummer accepted in evidence that he was not in the business of making people redundant which was confirmed in his letter on behalf of Alderney Consultancy of 28 October 1994 that they would ensure as far as possible the continued employment of the existing staff.  
38.	The second option was the management buy out which according to Mr Wash’s   evidence had been quashed before the first board meeting on 13 January 1995. I did not believe Mr Plummer’s statement that he was unaware on 13 January 1995 of the decision by Mr Wash and Mr Ankers not to proceed with the management buy out. It was clear from the evidence that Mr Plummer was orchestrating the deal, and instructing Mr Wash on the steps to take, which in my view made it highly improbable that he did not know about the current state of play with the buy out.   
39.	I find Mr Plummer’s evidence about the three options still being on the table by the time the meetings began on 13 January 1995 as unreliable. I agree with the Respondents’ assessment of the evidence that at the commencement of the various transactions on the 13 January 1995 the parties involved knew that the sale of the garage business to the Appellant was by far the most likely outcome. 
40.	 Mr Wash in his evidence in chief asserted that Haws Garage Limited would continue to trade as the undisclosed agent for Haws of York Limited. However when   cross-examined he accepted that he did not have a good recollection of the events on the 13 January 1995. Mr Wash relied on the documents for the detail in his witness statement rather than upon his memory. He explained under cross examination that the Midland Bank Trust Limited, the major shareholder of Haws Garage Limited, had instructed him and Mr Ankers to sell the shares to Mr Plummer’s company and comply with Mr Plummer’s instructions in his letter of 12 January 1995. Mr Wash was obliged to report the outcome of the dealings on the 13 January 1995 to Midland Bank Trust Limited. The role of Midland Bank Trust Limited in the events of the 13 January 1995 was not mentioned in the witness statements of Mr Wash and Mr Plummer admitted in evidence in chief.  The picture painted by Mr Wash in cross examination was that he and Mr Ankers had no discretion about the decisions to be taken on the 13 January 1995, and that they were required to follow the script agreed between Midland Bank Trust Limited and Mr Plummer. A key part of the script was Mr Plummer’s letter of 12 January 1995 which required Mr Wash and Mr Ankers to transfer the business assets and liabilities of Haws Garage Limited to Haws of York Limited. The letter, however, did not stipulate that Haws Garage Limited would continue to trade as the undisclosed agent for Haws of York Limited. The Appellant in its opening placed weight on the importance of this letter. I consider the omission from the letter about the purported agency arrangements significant. Mr Wash had no independent recollection of the agency agreement.  
41.	The Appellant contended that such agency arrangements were normal commercial practice.  Haws Garage Limited had itself traded in the name of Haws of York several years prior to the 13 January 1995, and that after that date the Appellant continued to trade for several years under the name of Haws Garage. However, I consider its contention was too general and did not carry weight in determining whether the board of directors of Haws of York Limited resolved at 9.01am on 13 January 1995 that Haws Garage should continue the trade as the undisclosed agent of Haws of York Limited. I am not persuaded on balance by the evidence which related directly to the disputed fact that the said agency arrangement was made.
42.	  The Appellant emphasised that the structure and sequence of the transactions on 13 January 1995 were carried out for a valid commercial reason which was to separate the trade from the property. According to the Appellant the arrangements were not set up by Mr Plummer to gain a tax advantage. The Appellant placed great store on the underlying rationale for the transactions, stating that it would not have appealed if it had been a pre-ordained tax scheme. I consider the Appellant’s argument cuts both ways. If as the Appellant asserts the  transactions were not set up for the purposes of securing a tax advantage it may be that it did not pay sufficient attention to the requirements of section 343 of ICTA 1988 which effectively was the case ran by the Respondents rather than a direct attack on the bona fides of the transactions.
43.	 The Appellant relied on the fact that the garage employees continued with their jobs as usual throughout the relevant period on the 13 January 1995 as evidence that trading was being done. According to the Appellant, someone was responsible for carrying out that trade, and that someone had to be Haws of York Limited because at the material time it owned the garage business. I consider that the strength of the Appellant’s proposition depended upon whether the facts of the agency arrangement and the uncertainty surrounding the sale to the Appellant came up to proof. From the Appellant’s perspective the existence of the agency was critical, as it explained why Haws of York Limited assumed no formal trappings of carrying on a trade. Equally as important was the apparent uncertainty about the proposed sale of the trade to the Appellant which minimised adverse inferences about  the shortness of the period that Haws of York Limited purported to trade by raising the possibility that it would have to trade for a longer period if the sale fell through.  On these two critical areas I was not satisfied for the reasons set out in the above paragraphs that the Appellant had proved them on the balance of probabilities. In which case I am not persuaded that the mere fact that the employees continued with their jobs was sufficient on its own to establish on probabilities that Haws of York Limited carried on the trade. 
44.	 I agree with the Respondents’ submission that mere ownership of the trade by Haws of York Limited did not meet the requirements of section 343 ICTA 1988. In order for the Appellant to claim the benefit of the trading losses I had to be satisfied that Haws of York Limited carried on the trade during that ninety minute period. I have already concluded that on balance the Appellant has failed to satisfy me of that fact. 
45.	My conclusion is given added force when examined against the whole evidence.  The short duration of the ownership of the trade by Haws of York Limited together with the absence of any negotiations about the terms of its acquisition by Barker (Beechwood) Ltd added to the sense of inevitability of the eventual sale to the Appellant and generated a perception that the parties did not expect Haws of York Limited to carry on the trade for so short a time period. Next, no evidence of any trading activity undertaken by Haws of York Limited. It incurred no expenditure and no receipts, and did not enter into transactions during the ninety minute period. Finally there was the evidence of the intentions of the parties. Mr Plummer inserted an unsolicited entry on the tax return declaring that Haws of York Limited had not traded. According to Mr Wash the expenditure incurred during the ownership of the trade by Haws of York Limited was apportioned between Haws Garage Limited and the Appellant in their respective accounts. Having regard to all the circumstances I find that Haws of York Limited did not carry on the garage trade acquired from Haws Garage Limited.
Decision
46.	I hold that Haws of York Limited did not carry on the trade of the garage business within the meaning of section 343 ICTA 1988. I decide that the Appellant was not entitled to the benefit of the trading losses accrued by Haws Garage Limited. I, therefore, dismiss the Appeal in principle. I give leave to the parties to reinstate the Appeal before me if there is a dispute on the quantum of the assessments. 

MICHAEL TILDESLEY OBE
              SPECIAL COMMISSIONER
           RELEASE DATE: 10 June 2008

LON/