Good v Commissioners of HM Revenue and Customs

Factual and Procedural Background

This appeal arises from the dismissal by the Upper Tribunal of an appeal by the Plaintiff against discovery assessments issued by the Revenue for the tax years 2010/11, 2011/12, and 2012/13, totaling approximately £180,000. The assessments concerned income tax due on certain "Minimum Annual Payments" ("MAPs") arising from a film rights exploitation scheme ("the Scheme") in which the Plaintiff participated.

The Scheme, designed by Company A, involved the Plaintiff acquiring film distribution rights with financing primarily provided by a loan from a lender affiliated with Company A. The Plaintiff contributed a minority portion of the purchase price, with the remainder funded by a loan repayable over six years, secured by rights in the film assets.

The Plaintiff entered into several contracts including a Loan Agreement, a Distribution Agreement entitling him to MAPs and potential variable "Defined Proceeds," a Security Assignment assigning rights to the lender as security, and a Direction instructing payments to the lender until loan repayment in full.

The Plaintiff initially claimed trading losses and sideways loss relief but later accepted he was not carrying on a trade and no longer pursued those claims. The Revenue issued discovery assessments on the basis that the MAPs constituted taxable income to which the Plaintiff was entitled, regardless of other ineffective aspects of the Scheme.

The Plaintiff appealed the assessments on procedural and substantive grounds, including the validity of the assessments, the nature of the Scheme as a non-trade business, entitlement to the MAPs under the relevant legislation, and deductibility of loan interest. Both the First Tier Tribunal and the Upper Tribunal dismissed the Plaintiff’s appeals on all grounds. The sole remaining issue on this appeal concerns whether the Plaintiff is liable for income tax on the MAPs under sections 609 and 611 of the Income Tax (Trading and Other Income) Act 2005 ("ITTOIA").

Legal Issues Presented

1. Whether the Plaintiff was "entitled to" the MAPs within the meaning of section 611 ITTOIA, given the assignment of rights to the lender.
2. Whether the Security Assignment operated to alienate all interest in the MAPs from the Plaintiff, affecting entitlement.
3. Whether the Plaintiff obtained a real benefit from the MAPs or whether the Scheme constituted a composite transaction negating entitlement.
4. Whether the MAPs constituted income "from" the business of exploiting films within section 609 ITTOIA.

Arguments of the Parties

Appellant's Arguments

• The Upper Tribunal erred in law by concluding the Plaintiff was entitled to the MAPs despite having assigned his rights to the lender.
• The Security Assignment constituted a valid, irrevocable assignment that alienated all rights in the MAPs from the Plaintiff.
• The Plaintiff did not derive any real benefit from the MAPs; the Scheme’s composite nature meant no entitlement arose.
• The MAPs were not income from the film exploitation business as they were always intended for the lender; only the Defined Proceeds could qualify, but none were paid.
• “Entitled to” should be interpreted narrowly to mean legal ownership or belonging, which the Plaintiff no longer had after assignment.

Respondent's Arguments

• The Upper Tribunal was correct to hold that the Plaintiff was entitled to the MAPs despite the assignment, as entitlement includes deriving a real benefit from the income.
• The assignment and security arrangements did not divest the Plaintiff of entitlement because the MAPs were used to discharge his loan obligations, providing a tangible benefit.
• The statutory phrase “receiving or entitled to” encompasses multiple persons and does not require beneficial ownership in a strict legal sense.
• Precedents on beneficial ownership are helpful but not determinative; the focus is on the reality of benefit and rights under the transaction.
• The MAPs were income from the non-trade business of exploiting films, as they formed part of the consideration under the Distribution Agreement.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court applied a purposive and realistic approach to the interpretation of sections 609 and 611 ITTOIA, guided by the Ramsay principle and recent authority in Khan. The Court distinguished the concept of "entitled to" from beneficial ownership and held that entitlement under s 611 is a question of ordinary meaning, focusing on the commercial reality rather than strict legal title.

The Court examined the contractual arrangements, particularly the Security Assignment and Direction, and concluded these did not divest the Plaintiff of entitlement to the MAPs. Although the Plaintiff assigned rights to the lender as security, the assignment was conditional and did not constitute a valid statutory assignment under section 136 of the Law of Property Act 1925. The Plaintiff retained legal title and a right of reversion upon loan repayment.

Further, the Plaintiff derived a real and enduring benefit from the MAPs as they were applied to discharge his loan interest obligations, consistent with the principle that entitlement includes benefiting from income even if it is paid to a third party. The Court rejected the Plaintiff’s argument that the Scheme’s composite nature negated entitlement, affirming that the relevant focus is on the particular transaction giving rise to the income.

Regarding the nature of the income under s 609, the Court agreed with the Upper Tribunal that the MAPs constituted income from the non-trade film exploitation business because they formed part of the consideration under the Distribution Agreement. The fixed nature of the MAPs did not exclude them from being income from the business.

Holding and Implications

The appeal is dismissed.

The Court held that the Plaintiff was entitled to the MAPs for the purposes of s 611 ITTOIA and that the MAPs were income from the non-trade film exploitation business under s 609 ITTOIA. The Court found that the Security Assignment and related documents did not divest the Plaintiff of entitlement to the MAPs because the assignment was conditional and the Plaintiff derived a real benefit from the MAPs through discharge of loan obligations.

The direct effect of this decision is that the Plaintiff remains liable for income tax on the MAPs, amounting to approximately £180,000 for the years considered. The decision does not establish a new legal precedent beyond confirming the application of existing principles on entitlement and statutory interpretation in the context of film exploitation tax schemes.