Wizardry couldn’t help Rupert Grint win an appeal
In a recent income tax tribunal HMRC showed its powers were powerful enough to overcome an appeal by Rupert Grint (the actor who played Ron Weasley in the Harry Potter films) against an earlier decision (2016) of the first-tier tribunal. This decision had also dismissed a previous challenge to amendments made to his tax returns for the years ended 2010 and 2011.
The tribunal focused on the concept of what a basis period was for income tax purposes. In the 2009/10 tax year, when it was known that a new higher rate of tax would come into effect the following year, Rupert changed his accounting date from 31 July to 5 April to advance his tax liability on eight months’ worth of profit into the 2009/10 year. Because of the new higher rate of tax in the following tax year, this would be to his advantage.
The case is genuinely interesting because of its detailed considerations of accounting periods and the relationship with basis periods. A further factor was the existence of different sets of accounts covering different periods.
One area explored worthy of a further read is the basis periods and comment on the legislation and Parliament’s intent. The conclusion reached was ‘With some reluctance therefore, we will determine this appeal by resolving the grounds of appeal as put forward by Mr Grint and argued by the parties'. Two key extracts reproduced below preceding the conclusion are:
'An alternative reading of the statutory provisions
At the start of the hearing of the appeal we raised with Mr Soares, appearing for Mr Grint, an alternative reading of section 216 and 217 which appeared to us more likely to reflect what Parliament had intended to achieve, if not what it had in fact achieved, by the provisions as drafted. That was that the “18 month test” was imposed to restrict to 18 months the length of the basis period that could arise on a change of accounting date by operation of section 216(3).
‘We saw the difficulties in construing section 217(3) as achieving this. The conditions for satisfying the 18 month test in subsection (3) do not refer to the “basis period” but to the “period of account”. That term is defined in section 989 ITA not by reference to the period brought into tax but by reference to the accounts drawn up by the business ending on the “accounting date”.
'Further, although the description of the 18 month test in subsection (3) explains when the period of 18 months ends, unhelpfully it does not say when the period begins. One might expect it to refer back to section 216(3) so as to set the start date for the 18 month period in section 217(3) as being the date “immediately after the end of the basis period for the previous tax year” referred to in section 216(3). That would mean that Mr Grint would fail the 18 month test not because he drew up the Long Accounts but because he was trying to have a basis period for the tax year 2009/10 which ran from 1 August 2008 to 5 April 2010, longer than 18 months.’