In John Boulting v HMRC [2025] TC09673, the First Tier Tribunal (FTT) found that a Purchase of Own Shares (POS) was carried out wholly or mainly for the purpose of benefiting a company’s trade.
Mr Boulting (JB) owned 50 B shares in a company, PSC, the holding company of STG, which carried on a training business.
- In 2013, it was decided that JB would retire as a director of PSC, allowing his son Mark (MB) to take forward a new management strategy.
- This followed disputes at board level, primarily over the investment in fixed assets and how key management decisions should be made. Younger board members wanted more input and a change in approach.
- By November 2013, MB felt he could not run the business long-term whilst JB retained majority control.
- In February 2014, PSC was Valued at £34m.
- It was acknowledged that PSC’s cash reserves of £5m would limit the consideration payable to JB, meaning that JB would sell some shares for £5m, with the exact number being calculated from a valuation of the business.
- The balance of JB’s shares would be Gifted to MB, other than four, which would be retained to gift to JB’s grandchildren.
- HMRC granted clearance with respect to the proposed Purchase of Own Shares (POS) in March 2014.
- In the subsequent months, it became clear that the company was performing better than expected.
- Discussions with potential third-party purchasers indicated a higher valuation multiple might apply, with PSC’s value being higher than previously calculated.
- A revised valuation of PSC to £73m was produced in September 2014.
- On 7 October 2014, a price of £600,000 per share was agreed between PSC and JB, for eight shares. This represented approximately a 20% reduction from the most recent valuation.
- HMRC granted Clearance in October 2014, stating that s.1033 CTA 2010 would apply.
- The clearance application included the information required by Statement of Practice 2/82, including that the purchase was:
- To be made wholly or mainly for the purpose of benefiting the trade carried on by the company.
- Not part of a scheme enabling JB to avoid tax or to participate in the profits of the company without receiving a dividend.
- The clearance application included the information required by Statement of Practice 2/82, including that the purchase was:
- After a gift of 38 shares to MB, the POS took place in January 2015, with eight of JB’s shares being purchased by PSC for £4.8m.
- HMRC opened an enquiry into JB’s 2014-15 tax return in October 2016. Three years later, a Closure notice was issued treating the POS as being subject to Income Tax, rather than Capital Gains Tax (CGT). HMRC’s position was that:
- The clearance was void as the share value used was materially greater than the market value. As this had not been disclosed in the clearance application, the clearance was not binding.
- The purchase was not necessary to benefit the trade: the business was already profitable and growing, and there was no clear evidence that the purchase was essential to unlock investment or resolve deadlock.
- Because the share price paid was excessive, it followed that it could not be regarded as a payment whose whole or main purpose was to benefit PSC’s trade. It was instead to remunerate JB for his historic investment and risk in the business.
- JB Appealed to the First Tier Tribunal (FTT).
The FTT found that:
- JB’s exit was for the benefit of the trade.
- The group’s business was being hindered by disputes at the board level. STG’s profitability was not sustainable without the investment that was being blocked by JB.
- Although the business had done well in 2014, profits had dropped in 2015 and 2016. Because the business had been able to invest following the POS in 2015, profits had recovered again in 2017.
- HMRC were wrong to contend that the POS should be considered separately from the gift of shares to MB, and that the question was whether the sum payable for JB’s eight B shares was paid mainly or wholly for the purposes of benefitting the trade.
- All of the circumstances of the purchase needed to be considered, including why the company purchased the shares, not necessarily why it paid £4.8m for them.
- The POS did not need to achieve the trade benefit purpose in isolation.
- All the statutory test required was that the purpose of the purchase was to benefit the trade of the company.
- There was nothing that precluded the trade benefit purpose from being achieved by the POS in conjunction with one or more other actions.
- The purpose of the POS for the company was not to remunerate JB for his historic investment.
- The only extent to which PSC considered any aspect of return on investment for JB was in being aware of his motivations.
- JB was not going to give all his shares away and neither MB nor PSC could buy all of JB’s shares.
- JB would not have gifted shares to MB without the share purchase also taking place.
- It followed that without the POS, JB would not have retired from the business and relinquished control, and PSC knew this.
- The company’s purpose in undertaking the POS was to secure JB’s exit, benefitting the trade by resolving management-level disputes and enabling investment.
- Whilst the POS did not achieve JB's exit in isolation, it was a prerequisite for the rest of the arrangements to take place.
- The only extent to which PSC considered any aspect of return on investment for JB was in being aware of his motivations.
- The purpose of the POS was not the extraction of cash reserves. While it was an effect, it was not the purpose.
- The share price agreed was not intended by PSC to provide any non-trade benefit.
- The price was arrived at following negotiations, and the board believed that this was the price required to obtain JB’s agreement to sell his shares.
The appeal was allowed.
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