In HMRC v A V Lomas and others [2017] EWCA Civ 2124 (19 December 2017), the Court of Appeal found that statutory interest was yearly interest for the purpose of ITA 2007 s 874.
The administration of Lehman Brothers had begun in September 2008. Contrary to initial expectations, the administration had resulted in a substantial surplus (estimated to be between £6.6bn and £7.8bn) available for distribution to creditors.
The issue was whether the statutory interest payable on the debt (under the Insolvency Rules 1986 rule 2.88(7) and then the Insolvency Rules 2016 rule 14.23(7)) was yearly interest within the meaning of ITA 2007 s 874, so that the joint administrators were required to deduct basic rate income tax from the payments and to account for the tax to HMRC.
The court found that it was not open to the administrators, in the light of the decision in Riches v Westminster Bank [1947] AC 390, to contend that statutory interest is not interest for the purposes of s 874. This decision determined that the fact that the interest is payable from the date of judgment and is calculated retrospectively is irrelevant when deciding whether interest is yearly interest. Instead, the House of Lords had concentrated on the duration of the liability if looked at hypothetically at the start of the period to which it related. In this respect, the court found that it would be wrong to treat statutory interest as a short term liability. The obligation of the administrators to pay interest on the proved debts: was unlimited in point of time under rule 2.88(7) (now rule 14.23(7)); was calculated by reference to a per annum rate of interest; and contemplated a period of administration which could in many cases last over a prolonged period of time and had, in fact, endured for a number of years in this case. It did therefore satisfy the definition of yearly interest in Bebb v Bunny (1854) 1 K & J 216, in that it was payable from year to year whilst accruing from day to day.
Why it matters: This was a unanimous decision by the Court of Appeal, which covered over two centuries of legislation and case law on yearly interest and concluded that statutory interest can be yearly interest, based on the duration of the liability. Yet, the High Court had found that statutory interest is not yearly interest on the basis that it is of ‘a very different nature from that payable on contractual debts, judgment debts or other analogous debts’. The amount payable by way of statutory interest was estimated to be in the region of £5bn. This decision may therefore be appealed.
In HMRC v A V Lomas and others [2017] EWCA Civ 2124 (19 December 2017), the Court of Appeal found that statutory interest was yearly interest for the purpose of ITA 2007 s 874.
The administration of Lehman Brothers had begun in September 2008. Contrary to initial expectations, the administration had resulted in a substantial surplus (estimated to be between £6.6bn and £7.8bn) available for distribution to creditors.
The issue was whether the statutory interest payable on the debt (under the Insolvency Rules 1986 rule 2.88(7) and then the Insolvency Rules 2016 rule 14.23(7)) was yearly interest within the meaning of ITA 2007 s 874, so that the joint administrators were required to deduct basic rate income tax from the payments and to account for the tax to HMRC.
The court found that it was not open to the administrators, in the light of the decision in Riches v Westminster Bank [1947] AC 390, to contend that statutory interest is not interest for the purposes of s 874. This decision determined that the fact that the interest is payable from the date of judgment and is calculated retrospectively is irrelevant when deciding whether interest is yearly interest. Instead, the House of Lords had concentrated on the duration of the liability if looked at hypothetically at the start of the period to which it related. In this respect, the court found that it would be wrong to treat statutory interest as a short term liability. The obligation of the administrators to pay interest on the proved debts: was unlimited in point of time under rule 2.88(7) (now rule 14.23(7)); was calculated by reference to a per annum rate of interest; and contemplated a period of administration which could in many cases last over a prolonged period of time and had, in fact, endured for a number of years in this case. It did therefore satisfy the definition of yearly interest in Bebb v Bunny (1854) 1 K & J 216, in that it was payable from year to year whilst accruing from day to day.
Why it matters: This was a unanimous decision by the Court of Appeal, which covered over two centuries of legislation and case law on yearly interest and concluded that statutory interest can be yearly interest, based on the duration of the liability. Yet, the High Court had found that statutory interest is not yearly interest on the basis that it is of ‘a very different nature from that payable on contractual debts, judgment debts or other analogous debts’. The amount payable by way of statutory interest was estimated to be in the region of £5bn. This decision may therefore be appealed.
