An individual (JG) subscribed for ordinary shares in a close company. The subscription price was payable in four instalments, as set out in a shareholders agreement. JG did not subsequently pay the instalments.
HMRC considered that JG was a participator, who had incurred a debt to the company on entering into the shareholders agreement, and assessed the company to tax under ICTA 1988, s 419 (now CTA 2010, s 455). The company appealed.
The First-tier Tribunal (FTT) addressed a number of arguments put forward on the company's behalf. One such argument was that JG had not incurred a ‘debt’ to the company (under the extended meaning of ‘loan’ within the relevant legislation) by subscribing for the shares under the terms of the shareholders agreement.
The FTT considered that the liability of JG was to honour an investment promise; it was not a liability to repay monies
