Tribunal allows appeal and finds that payments made by a charity were repayments of a loan

In Newpier Charity Ltd v HMRC [2026] UKFTT 00321 (TC), the First-tier Tribunal (FTT) considered whether payments made by Newpier Charity Ltd (Newpier) were repayments of a loan and determined that they were and that they were not non-charitable expenditure, for the purposes of section 496(1)(d), Corporation Tax Act 2010 (CTA), and set aside HMRC's closure notices.

Background

Newpier is a charitable company and in the accounting period ended 30 June 1988, obtained a bank loan from Citibank NA (Citibank) in the sum of £11,630,967, which was secured against Newpier's investment in listed shares and guaranteed by Joyana Holdings Ltd (JHL).

In July 1990, Citibank demanded immediate repayment of the loan which was financed by Newpier disposing of certain of its investments and the shortfall was paid by JHL, as guarantor. 

As JHL contributed to settling Newpier's loan debt, it acquired subrogation rights against Newpier to the extent of the shortfall. This amounted to £5,359,254 plus interest. This debt was later assigned to Joyanna (1992) Ltd and subsequently Ambertown International Ltd (Ambertown). 

Between 2011 and 2019, Newpier repaid the debt. This was reflected in its ledgers by creditor balance reductions and payments and treated as loan repayments in its ledgers. 

In June 2019, HMRC opened an enquiry into the year ended 30 June 2017 and in March 2021, it opened an enquiry into the year ended 30 June 2019. Following a successful application to the FTT by Newpier in February 2022, HMRC was directed to close its enquiries. 

In November 2022, HMRC issued closure notices amending Newpier's tax returns to bring into charge payments totalling £821,000 (in relation to the year ended 30 June 2017) and £291,559 (in relation to the year ended 30 June 2019). HMRC argued: (1) that Newpier had failed to prove that Ambertown held the benefit of the loan; and (2) if it did establish that Ambertown held the benefit of the loan, Newpier needed to establish that, for each payment made to a third party, it was made at Ambertown's request, and it had failed to do so. 

Newpier appealed the closure notices to the FTT arguing that the payments were excluded from being non-charitable expenditure as they were for the purposes of a repayment of a loan (in whole or part) by a charitable company, in accordance with section 498(2)(c), CTA 2010. 

FTT decision 

The appeal was allowed. 

The key issues for the FTT to determine were whether:

1. Ambertown was the creditor to whom Newpier's loan was owed, so that payments made were lawfully capable of discharging that debt; and
2. the payments in 2017 and 2019 were in fact repayments of that loan. 

The FTT found that Ambertown was indeed the creditor to whom Newpier's loan was owed, so that the payments made were lawfully capable of discharging that debt. The FTT commented that the question in issue was not whether Newpier had produced every document but whether on the totality of evidence before it, it was more likely than not that Ambertown was Newpier's creditor in the relevant years.

The FTT concluded that the payments were repayments of the loan.  HMRC's position, which required Newpier to establish that each payment was made to the relevant third party following a specific request from Ambertown, set the bar too high. It only needed to be established that both Ambertown and Newpier had a common understanding that each payment be treated as a repayment of the loan. Accordingly, as the payments were repayments of a loan, they were excluded from "expenditure" by section 498(2)(c), CTA 2010, and could not constitute non-charitable expenditure under section 496(1)(d), CTA 2010. 

Comment

This decision is a timely reminder of the FTT's approach to evidence and confirms that the burden of proof (which is generally on the taxpayer) requires the taxpayer to provide evidence which establishes, on the balance of probabilities, its case. Newpier was not required to meet the high evidential threshold argued for by HMRC in this case.

Businesses should ensure that accurate and comprehensive records are kept in relation to business transactions in order to evidence the approach taken in the event of an HMRC enquiry.

This case also illustrates that lengthy HMRC enquiries can, in appropriate circumstances (such as in this instance), be brought to a timely conclusion by a taxpayer exercising its statutory right to apply to the FTT for a direction that HMRC issues a closure notice within a specified period of time.

The decision can be viewed here.