Atkins and others (Appellants) v Commissioners for His Majesty's Revenue and Customs (Respondent)

Hearing listed

Case summary
Linked cases
Appeal
Change log

Case summary

Case ID

UKSC/2024/0123

Parties

Appellant(s)

(1) Stephan Atkins

(2) Yuri Bedny

(3) Paul Bereza

(4) Alexander Gerko

(5) Philip Howson

(6) Renat Khabibullin

(7) Joshua Leahy

(8) Jacob Metcalfe

(9) Alex Migita

(10) Dmitry Shakin

(11) Andonis Sakatis

(12) Christopher Shucksmith

(13) Evgeny Tanhilevich

Respondent(s)

Commissioners for His Majesty's Revenue and Customs

Issue

(1) Does section 850 of the Income Tax (Trading and Other Income) Act 2005 (“ITTOIA”) apply to profits retained by a corporate member of a limited liability partnership and subsequently reallocated to individual members of that partnership pursuant to an incentivisation and deferral arrangement? (2) If the answer to (1) is no, are the profits allocated by a corporate member of a limited liability partnership to its individual members under an incentivisation and deferral arrangement chargeable income tax, either (A) as miscellaneous income under section 687 ITTOIA; or (B) as sales of occupation income under the Income Tax Act 2007 (“ITA”)?

Facts

This appeal concerns the taxation of profits made by a limited liability partnership retained by a corporate member of that partnership and then reallocated to individual members under an incentivisation and deferral arrangement. HFFX LLP was a partnership operating within an investment management business known as GSA. HFFX LLP was a mixed partnership in the sense that its members comprised both individual members, who designed and implemented software used by GSA funds for high-frequency foreign exchange trading, as well as two corporate members, one of which was GSA Member Limited (“GSAM”). Under HFFX LLP’s incentivisation and deferral arrangement, a portion of the individual members’ remuneration was retained by GSAM and invested in GSA funds according to recommendations made by the managing member. Over the course of three years, GSAM sold those investments, contributed the net proceeds to HFFX LLP as “Special Capital” which was reallocated to individual members, who were able to withdraw it. The intended tax analysis was that GSAM would be taxed at corporation tax rates on the amounts it retained and that the subsequent reallocation of Special Capital would not give rise to tax for the individual members. HMRC made a number of assessments contending that the amounts allocated to GSAM by HFFX LLP should have been treated as allocated to individual members under section 850 ITTOIA (“Issue 1”), or, in the alterative, that amounts of Special Capital received by individual members from GSAM should have been taxed as miscellaneous income under section 687 ITTOIA (“Issue 2A”) or as sales of occupational income under ITA (“Issue 2B”). HFFX LLP and its individual members challenged those assessments before the First-tier Tribunal, which found for HFFX LLP on Issue 1 but in favour of HMRC on Issues 2A and 2B. The Upper Tribunal and Court of Appeal upheld that decision, although the Court of Appeal declined to express a view on Issue 2B. HMRC now appeals to the Supreme Court on Issue 1, and the individual members appeal on Issue 2.