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Girvan v Orange Personal Communication Services Ltd (Chancery Division) 3 April 1998

Interest. Whether or not “income arising”. Receivability without receipt.

The taxpayer opened two deposit accounts with Barclays Bank plc on 12 March 1990, and deposited substantial amounts in them. The accounts were the bank’s standard business deposit accounts, providing for interest to be paid quarterly in arrear. The bank subsequently agreed to vary the standard terms and conditions, agreeing at the taxpayer’s behest to “roll up” the interest until January 1993, or the earlier date of closure of the accounts.

The Revenue contended that income arose to the taxpayer as the interest accrued quarterly; the taxpayer contended that no income arose until the date of payment.

Held: The interest was not “income arising” until paid to the taxpayer, i.e. credited to an account in the taxpayer’s name. The taxpayer could not be said to have received the interest merely by virtue of the fact that it had directed the bank what to do with it: the direction given to the bank was given at a time before the first quarter’s interest had become payable, i.e. it was a direction in respect of a prospectively due debt, and not of a sum of money which had already accrued to the taxpayer. The Ramsay principle, as explained by Lord Steyn in IRC v McGuckian [1997] STC 908, was not applicable to this genuine arrangement between the parties, even though effected for tax reasons.

David Goldberg QC appeared for the taxpayer