The claimant, which was entitled by virtue ICTA 1988, s. 232(3) to tax credits in respect of qualifying distributions, as an arm of the Japanese Government, was not entitled to repayment supplement under s. 824 of the 1988 Act.

Facts

The claimants were successors to the original claimant, Japan Post. It was not resident in the UK and, as an arm of the Japanese Government, was entitled to sovereign immunity and so was not liable to pay any UK tax. In the tax years 1997–98 and 1998–99 the original claimant received dividends from UK resident companies. By virtue of ICTA 1988, s. 232(3), the claimant was brought within the scope of s. 231(1) and so was entitled to tax credits in respect of the dividends paid to it. But, since the claimant was exempt from payment of income tax it was entitled to be paid the tax credits. It had been paid some, but not all, of those credits.

The claimant accepted that it was not an individual and so, if s. 824 was limited to individuals, it could not be entitled to the supplement. It submitted that the ‘necessary modifications’ required by s. 824(2) meant that, instead of referring to particular repayments, s. 824(1) should read: ‘Subject to the provisions of this section, a payment of the whole or part of a tax credit shall be increased ’ The Revenue submitted that the necessary modifications required by s. 824(2) meant that the subsection would read: ‘. .. a payment made of any of the following namely. .. any tax credit paid to an individual in a year of assessment’.

Issue

Whether on the true construction of ICTA 1988, s. 824 the claimant was entitled to repayment supplement.

Decision

Collins J (dismissing the claim) said that, as enacted, s. 824 applied only to UK resident individuals. The section was almost immediately amended to add surtax payments and, by means of a new subs. (1A), to vary the rate of interest applicable to a particular period. In 1994, the self-assessment system was introduced. Section 59A was inserted into the Taxes Management Act 1970 to bring that into force. That required amendment to s. 824 to cover excess payments on account and payments of surcharges in respect of failures to pay on account (TMA 1970, s. 59C). As was apparent, the amendment removed subs. (1A) but omitted to change the plurals in s. 824(2). That did not affect its construction. Section 824 was not limited to individuals. So much was clear both from its heading ‘Repayment supplements: individuals and others’ and from s. 824(1)(a). The heading might, however, have had regard to s. 824(9) relating to trustees of a settlement or personal representatives. It was concerned with income tax and so related only to those persons who were liable to pay income tax. Section 824 as originally enacted and as amended in 1988 was clearly limited to individuals. While s. 232 extended the right to receive tax credits to some non-UK residents, it did not in s. 232(3) indicate that they should be treated as if they were individuals. They were merely given the right to receive a credit which was to be calculated on the basis set out in s. 231(1).

Since in its 1988 form the section was not concerned with payments made on account but with tax paid, it was deliberately limited to income tax paid by individuals. When the section was amended in 1994, a distinction was drawn between payments on account, which were not limited in s. 824(1)(a) to individuals, and payments of tax which were (s. 824(1)(b)). Whatever the reason, that distinction was there and the question was whether the amendments put the claimant into the shoes of a payer on account ((1)(a)) or of a payer of tax ((1)(b)). Since in its 1988 version the right was limited to individuals and s. 232(3) did not state that those such as the claimant should be treated as individuals for the purpose of tax credits, there would not have been an entitlement to the supplement under s. 824. Thus, the claim had to be based on the argument that in its present form, the section did extend to the claimant in the way submitted. The modifications suggested by the claimant would, if correct, have entitled such as the claimant to the supplement even though Parliament had limited the right to individuals in respect of repayments. It was difficult to see that it would, absent express words, have been appropriate to extend it in the way submitted.

There was no reason to believe that the addition of s. 824(1)(a) to cover payments on account was intended to or did confer on those such as the claimant an entitlement to the supplement.

Queen's Bench Division (Administrative Court).
Judgment delivered 4 July 2008.