Economic Reality

    August 2013
    The recent case of Russell Baker v HMRC [2013] UKFTT 394 TC raises some interesting issues. On the face of it, everything seemed reasonably straightforward – but not for long.

    Mr Baker received a payment of £120,000 from his company, which was intended to be a purchase by the company of its own shares.  Unfortunately, quite a lot went wrong with the arrangements. The statutory conditions for a lawful purchase of a company’s own shares were not satisfied; for example, there were insuffcient distributable profits and it was generally in breach of some relevant parts of the Companies Act 1985. In addition, the shares had not been held for the necessary period for the desired tax treatment. It seemed clear that the transaction was void, but HMRC took the view that, even so, this £120,000 should be taxed as a distribution.

    This article was first published in Tax Journal on 30 August 2013.