Tribunal adopts a literal interpretation of the provisions in allowing the taxpayer's appeal

11 December 2014

In Philip Shirley v HMRC, [1] the First-tier Tribunal (Tax Chamber) (FTT) concluded that a provision in a statute rewritten as part of the Tax Law Rewrite Project should be literally interpreted as the wording in question was clear and unambiguous.


Philip Shirley (the taxpayer) was resident in the UK for tax purposes at all relevant times. He was also the life tenant of two overseas trusts that held shares in foreign companies. He claimed tax credits on the dividend income received from shares owned by the trust in companies resident in various territories and distributed by the trusts to the taxpayer for tax years 2005/06, 2007/08 and 2008/09. The total tax credits in dispute amounted to the relatively small sum of £413.23, but it appears that both parties considered the principle to be worth resolving before the FTT.

The issue was whether the taxpayer should be treated as if he had paid tax on the distributions (section 399 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA)). This in turn depended on whether section 399 could apply to dividends received from non-UK resident companies, as contended for by the taxpayer.

HMRC contended that Parliament would not have intended section 399 to apply to non-UK resident companies. HMRC argued that section 399 had the limited role of providing a tax credit where the individual was not UK resident, but the company was.  HMRC further argued that this was the position under the antecedent legislation contained in the Income and Corporation Taxes Act 1988 (ICTA), and that Parliament did not intend to change the law in enacting ITTOIA, which is a rewrite of ICTA.

FTT's decision

The FTT adopted a literal interpretation of section 399 and allowed the taxpayer's appeal.

The FTT said that reference to the previous legislation was not permitted unless the rewrite statute is so ambiguous that a literal interpretation would lead to anomalies or absurdities[2]. The FTT rejected HMRC's contention that previous legislation could be considered where the interpretation of the rewrite legislation would lead to injustice or absurdity. HMRC had argued that it was absurd that UK residents eligible under section 399 should enjoy a lower tax rate than those entitled to a credit under section 397 (as grossing up under section 399 only applies to non-UK residents). In the view of the FTT, as section 399 was not ambiguous it must be given a literal interpretation


This case provides helpful guidance on the correct interpretation of rewrite legislation enacted as a consequence of the Tax Law Rewrite Project.

A literal reading will apply even when the tax result differs from that which would have been produced under the previous statutory provisions, and notwithstanding that there is evidence to suggest that this was not Parliament's intention.

If the FTT is correct, it would appear that when interpreting rewrite legislation, reference to the previous legislation is only permitted if the rewrite legislation is ambiguous.

This blog was written by Nick Allan.

[1] [2014] UKFTT 1023.

[2] Eclipse Film Partners (No. 35) LLP v HMRC [2013] UKUT 0639 (TCC).

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