A recent Upper Tribunal case examined whether a sole trader operating a skip hire business was entitled to Income Tax relief on irrecoverable loans made to a company. The company was owned by the sole trader’s father. HMRC had rejected the claim for Income Tax relief on the basis that the loans were capital investments and were not wholly and exclusively laid out for the purposes of trade.
The sole trader appealed this decision to the First-tier Tribunal (FTT) where his appeal was dismissed. The sole trader was then granted permission to appeal the FTT’s decision to the Upper Tribunal. In an unusual turn of events the Upper Tribunal agreed that the appeal should be remitted to the FTT for a re-hearing by a different panel. That re-hearing took place in April 2016 more than 2 years after the original hearing and the sole trader' appeal was once again dismissed.
The Upper Tribunal finally heard the taxpayer's appeal earlier this year. The Upper Tribunal examined a number of factors relating to the decisions of the FTT. The Upper Tribunal found that the sole trader was unable to satisfy the burden of proof as to the existence or amount of the loans in question and whether the loans were capital or revenue in nature and made wholly and exclusively for the purposes of his skip hire business.
Further, on the basis that the loans were capital in nature. any associated losses should be considered a capital loss. The sole trader's contention that the loan was intended to ensure that the company could continue to provide him with essential business facilities was rejected. The Upper Tribunal dismissed the taxpayer's appeal.