The appellants, Michelle McEnroe and Miranda Newman, were sole shareholders in Kingly Care Partnership Limited, holding one ordinary share each.

On 25 October 2013 they entered into a share sale and purchase agreement agreeing to sell the shares to Active Assistance Finance Limited. The agreed price was £8m, subject to a working capital adjustment and an earn out.

At completion, the amount required to redeem a loan owed by the company to Allied Irish Bank (GB) was £1,080,990.68. On completion, this amount was settled by the buyer’s solicitors.

The buyers’ solicitors transferred £6,918,121.06 to the appellants’ solicitors on 28 October 2013.

After the appellants’ solicitors had deducted professional fees for the sale, the appellants each received £3,337,835.44. A further £145,045 was paid on 3 February 2014, after the buyer and the appellants reconciled the working capital adjustment.

In their self assessment tax returns, the appellants each showed the consideration received for the disposal of the shares in the company as one half of £6.9m (plus the working capital adjustment and the earn out received later).

HMRC opened an enquiry into the appellants’ tax returns and issued closure notices stating that the consideration should be one half of £8m, plus the earn out. This means that McEnroe and Newman owed HMRC up to £308,000 in capital gains tax.

The appellants lost an appeal at the First Tier Tribunal against the closure notices, which disputed whether the consideration for the shares was £8m, or £8m less the AIB debt. They argued that they never received £8m as the £1.1m moved directly from the account of the buyer’s solicitors to the bank to settle the debt, resulting in a gain of £6.9m.

At the Upper Tribunal, the judges rejected the appellants’ argument that the First Tier Tribunal (FTT) had erred in law in failing to consider the application of clause 3.3 about a working capital adjustment in the completion accounts when construing the terms of the sale agreement.

It said that ‘the appellants’ case amounts to a disguised attack on the FTT’s findings of fact’.

It also rejected the appellants’ lawyer David Whiscombe’s submission that ‘indebtedness automatically arose between the company and the buyer as a consequence of double entry bookkeeping’.

Whiscombe argued that the factual findings reached by the FTT were inconsistent with the abbreviated financial statements of the company for the period ended 31 March 2014 (which included as comparable figures an unaudited balance sheet as at 25 October 2013).

These showed current assets of £748,616 and liabilities of £1,562,231. On the basis of these accounts, current assets less liabilities was a negative amount of £813,615.

The Upper Tribunal said ‘that there was no reason for the FTT to need to consider the possibility of there having been an adjustment to the consideration under the terms of clause 3.3 of the sale and purchase agreement.

‘In these circumstances, we find that the FTT made no error of law in its decision that the appellants had not discharged their burden of proof to displace HMRC’s closure notice.’