Care home owners must pay £308k tax bill

Care home owners must pay £308k tax bill
Peninsula Logo

Peninsula Team, Peninsula Team

(Last updated )

The owners of a care home have lost an appeal at the Upper Tribunal over the amount of capital gains tax due on the sale of the business.

The appellants, Michelle McEnroe and Miranda Newman, were sole shareholders in Kingly Care Partnership Limited, holding one ordinary share each.

On 25 October 2013 they entered into a share sale and purchase agreement agreeing to sell the shares to Active Assistance Finance Limited. The agreed price was £8m, subject to a working capital adjustment and an earn out.

At completion, the amount required to redeem a loan owed by the company to Allied Irish Bank (GB) was £1,080,990.68. On completion, this amount was settled by the buyer’s solicitors.

The buyers’ solicitors transferred £6,918,121.06 to the appellants’ solicitors on 28 October 2013.

After the appellants’ solicitors had deducted professional fees for the sale, the appellants each received £3,337,835.44. A further £145,045 was paid on 3 February 2014, after the buyer and the appellants reconciled the working capital adjustment.

In their self assessment tax returns, the appellants each showed the consideration received for the disposal of the shares in the company as one half of £6.9m (plus the working capital adjustment and the earn out received later).

HMRC opened an enquiry into the appellants’ tax returns and issued closure notices stating that the consideration should be one half of £8m, plus the earn out. This means that McEnroe and Newman owed HMRC up to £308,000 in capital gains tax.

The appellants lost an appeal at the First Tier Tribunal against the closure notices, which disputed whether the consideration for the shares was £8m, or £8m less the AIB debt. They argued that they never received £8m as the £1.1m moved directly from the account of the buyer’s solicitors to the bank to settle the debt, resulting in a gain of £6.9m.

Try Brainbox for free today

When AI meets 40 years of Peninsula expertise... you get instant, expert answers to your HR and Health & Safety questions

At the Upper Tribunal, the judges rejected the appellants’ argument that the First Tier Tribunal (FTT) had erred in law in failing to consider the application of clause 3.3 about a working capital adjustment in the completion accounts when construing the terms of the sale agreement.

It said that ‘the appellants’ case amounts to a disguised attack on the FTT's findings of fact’.

It also rejected the appellants’ lawyer David Whiscombe’s submission that ‘indebtedness automatically arose between the company and the buyer as a consequence of double entry bookkeeping’.

Whiscombe argued that the factual findings reached by the FTT were inconsistent with the abbreviated financial statements of the company for the period ended 31 March 2014 (which included as comparable figures an unaudited balance sheet as at 25 October 2013).

These showed current assets of £748,616 and liabilities of £1,562,231. On the basis of these accounts, current assets less liabilities was a negative amount of £813,615.

The Upper Tribunal said ‘that there was no reason for the FTT to need to consider the possibility of there having been an adjustment to the consideration under the terms of clause 3.3 of the sale and purchase agreement.

‘In these circumstances, we find that the FTT made no error of law in its decision that the appellants had not discharged their burden of proof to displace HMRC’s closure notice.’

 The appeal was dismissed.

For information on wages, visit BrAInbox today where you can find answers to questions like What does it mean for my night workers when the clocks go back in October?

Related articles

  • workplace injury


    Council fined after school technician’s severed finger incident

    A local authority responsible for a school has been sentenced following an incident where a technician’s finger was severed by a circular saw.

    Peninsula TeamPeninsula Team
    • Health & Safety
  • People looking at report


    HMRC worker wins harassment case over ‘hostile’ office

    An HMRC customer service worker has won a case at the employment tribunal over a complaint of harassment with judges finding work environment was ‘hostile and intimidating’

    Peninsula TeamPeninsula Team
    • Pay & Benefits
  • People working in construction


    HSE annual fatality stats show rises in Construction and falls from height

    The Health and Safety Executive (HSE) has published its annual statistics on work-related fatal injuries, which show 138 workers killed in 2023/4 because of work-related accidents. This represents a rise from 2022/3, which saw 136 fatal injuries to workers. On average, the number has varied between 130-150 in the last decade.

    Peninsula Team Peninsula Team
    • Health & Safety
Back to resource hub

Try Brainbox for free today

When AI meets 40 years of Peninsula expertise... you get instant, expert answers to your HR and Health & Safety questions

Sign up to our newsletter

Get the latest news & tips that matter most to your business in our monthly newsletter.