Commissioners for HMRC v Joint Administrators of Lehman Brothers International

[2019] UKSC 12

UKSC 2018/0013
Commissioners for Her Majesty’s Revenue and Customs (Respondent) v Joint Administrators of Lehman Brothers International (Europe) (In Administration) (Appellants)
On appeal from the Court of Appeal Civil Division (England and Wales)

The Appellants are the administrators (“the Administrators”) of Lehman Brothers International (Europe) (“LBIE”). LBIE went into administration on 15 September 2008. There is a substantial surplus in the administration. The Insolvency Rules require interest to be paid to creditors from any surplus in an administration (“statutory interest”).

The Administrators sought judicial direction on whether statutory interest, when paid, will rank as “yearly interest” for the purposes of s874 of the Income Tax Act 2007. If it does, the Administrators will be required, subject to specific statutory exemptions, to deduct basic rate income tax from the payments made and account for the same to HMRC. If the interest is not “yearly interest,” no such obligation will exist and payments will be made gross.

Hildyard J concluded that statutory interest does not constitute “yearly interest.” He considered that the purely statutory entitlement to interest in this case was distinct from any of the cases where a payment or a commitment to pay interest had been determined to be in the nature of “yearly interest.” In addition, there was no element of recurrence in this case, which was a requisite characteristic of “yearly interest.” Upon HMRC’s appeal, the Court of Appeal reversed the decision of Hildyard J, holding that statutory interest is yearly interest.

The issue is:

Whether statutory interest constitutes “yearly interest” for the purposes of section 874(1) of the Income Tax Act 2007.

The Supreme Court dismisses the appeal.

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