In the case of The Commissioners for His Majesty’s Revenue and Customs v Peter Gould [2024] HMRC sought to overturn a ruling by the First-tier Tribunal (FTT) that no UK tax was payable on a dividend of £20 million paid to Peter Gould (PG).
On 31 March 2016 the board of Regis (Group) Holdings Limited (the company) resolved to pay an interim dividend of £40 million, of which, for tax planning purposes, £20 million was paid to one shareholder (NG) on 5 April 2016 and £20 million was paid to PG on 16 December 2016. The shares held by PG and the other shareholder were of the same class. PG elected to delay receipt of his dividend payment, partly due to difficulties in opening a bank account in Jamaica but also to be able to claim non-resident status for UK tax purposes for the tax year 2016-2017 and to avoid tax on the dividend.
A dividend is subject to income tax in the hands of a shareholder when it becomes due and payable. The FTT held that the interim dividend paid to PG was not due and payable until it was actually paid, even though NG had already received his interim dividend payment. This enabled PG to avoid paying UK tax on the dividend. HMRC appealed.
The Upper Tribunal (UT) disagreed with the FTT and held that once the company had declared and paid the dividend to NG, a dividend was due and payable to PG at the same time (i.e. at a time when PG was still UK resident). The company's articles of association were in the form of Table A and article 104 required shareholders holding the same class of shares to be treated equally.
HMRC argued that, as NG had been paid the interim dividend on 5 April 2016, PG had an enforceable debt against the company from that date under either Article 104 of Table A 1985 (which provides that, except as otherwise provided by the rights attached to shares, all dividends shall be declared and paid according to the amounts paid up on the shares on which the dividend is paid) or general principles requiring shareholders to be treated equally. Consequently, HMRC argued that the dividend should be treated as being due and payable on 5 April 2016 and that PG was liable to pay tax on the dividend in the tax year 2015-2016.
The UT did not however overturn the ruling of the FTT. The UT confirmed that: (a) the FTT had been entitled to find that there was an informal oral agreement between the shareholders to vary the company’s articles to permit an interim dividend to be paid to NG without at the same time creating a debt to PG; and (b) alternatively, that PG had waived his right to the dividend prior to the directors resolving to pay the interim dividend. Consequently, PG's dividend was not due and payable to him until the tax year 2016-2017 when he was non-UK tax resident and outside the scope of tax on the dividend.
If you have any queries concerning dividend payments and would like advice, please contact our tax specialists.
