Judges have ruled in HMRC’s favour in two tax appeals in connection with fashion designer Jasper Conran’s designer glasses partnership.

In HMRC v Jasper Alexander Thirlby Conran & JC Vision Ltd v HMRC [2023] UKUT 00166 (TCC), the Upper Tribunal has ruled on two appeals centring on income and corporation tax in connection with Mr Conran’s branded eyewear. Both appeals were launched in response to decisions by the First-tier Tax Tribunal (FTT).

Background to the tax appeals

In 2007 Jasper Conran expanded his design range into designer glasses, and Jasper Conran Optical LLP (JCO) was formed, with Mr Conran as majority owner.

JCO entered into a licensing agreement with Specsavers for the design, manufacture and sale of Jasper Conran-branded spectacle frames.

Then, in 2008, the optical business was transferred into JC Vision Ltd (JCV) for £8.25m, which Mr Conran treated as a capital gain (on which he was able to claim entrepreneur’s relief).

JCV treated the £8.25m as consideration and ‘amortised’ that expense, claiming intangibles relief.

But HMRC’s view was that the open market value of the assets transferred was only £1 because use of the Jasper Conran trademark was specifically not transferred under the agreement. So, no intangibles relief arose.

HMRC also considered the £8.25m Mr Conran received was a distribution chargeable to income tax.

JCV appealed the HMRC amendments to its corporation tax assessment, and Mr Conran appealed HMRC’s revisions to his self-assessment.

The two appeals were heard together by the FTT.

The First-tier Tax Tribunal’s ruling

The FTT rejected JCV’s argument that the market value of the business was £8.25m, agreeing with HMRC that the valuation was £1. It also rejected JCV’s alternative arguments, based on the intangibles relief legislation, that £8.25m was nevertheless the relevant figure for the purposes of such relief. The FTT therefore dismissed JCV’s appeal.

As regards Mr Conran, the FTT considered he received the £8.25m in his capacity as partner in the LLP he controlled, rather than as a shareholder. The sum was therefore not “in respect of shares” as HMRC had maintained. It thus allowed Mr Conran’s appeal (in relation to the distribution).

Following the FTT’s rulings, both JCV and HMRC appealed to the Upper Tribunal (UT).

The Upper Tribunal’s decision

The Upper Tribunal considered all arguments, and concluded by throwing out JCV’s appeal and allowing HMRC’s appeal, meaning a victory all-round for HMRC.

The UT upheld the amendments to JCV’s corporation tax self-assessments and to Mr Conran’s income tax self-assessment in HMRC’s favour.

Our thoughts on the Jasper Conran tax case

This case shows the importance of taking care when undertaking any kind of corporate reorganisation.

While it may seem attractive to use complex methods to get around income tax rules, it’s always important to take a step back and consider whether there’s any loss of value within the corporate structure. If there is, could HMRC classify this loss of value as a distribution?

Income tax will always be HMRC’s go-to position. The more complicated the structuring, the more likely the taxpayer and HMRC will disagree on the approach.

This case is a prime example of this. We’re therefore big believers in keeping things simple whenever possible.

Specialist UK tax advice

Our team of professional tax consultants are experienced in all areas of UK tax, including income tax and corporation tax. Call us today on 07813 434195 or email stephanie.churchill@churchilltaxation.co.uk

Steph Churchill

Stephanie Churchill

Managing director & co-owner of Churchill Taxation