UK: Tribunal finds dividend unlawful in stamp duty land tax case

Earlier this month, in Vardy Properties (Teeside) Ltd. v HMRC [2012] UKFTT 564, the First-Tier Tribunal (Tax Chamber) considered, amongst other things, the lawfulness of a dividend under sections 263 ("Certain distributions prohibited") and 270 ("Distribution to be justified by reference to company's accounts") of the Companies Act 1985 (now sections 830 and 836 of Companies Act 2006). The dividend had been declared during the company's first accounting reference period. As such, under section 270(4), the relevant accounts (termed "initial accounts") for the purposes of justifying the distribution were those necessary to enable a reasonable judgment to be made as to the amounts of the company's (a) profits, losses, assets and liabilities; (b) certain provisions including depreciation; and (c) share capital and reserves. At issue was whether the company had produced accounts which met this requirement. The Tribunal held that it had not and stated (at para. [63]):

We consider that section 270 CA85, properly interpreted in context, requires the production of an identifiable contemporaneous single document which records the required items under section 270(2) CA85. The degree of detail and formality of that document may vary, depending on the context, but a single document is, in our view, required in all cases. We draw a clear distinction between a company's accounting records (which will be used in preparation of accounts) and its accounts (which are compiled from those records, on the basis of judgments made by the directors)."