Genuine payment and carry-forward finality: circular refinancing interest stayed deductible, but a year-specific agreement did not bind later years.

The statutory word "paid" in the charge-on-income rules was given its ordinary legal meaning of discharge of the debt, so interest met by a genuine circular refinancing arrangement remained deductible even though the structure was pre-ordained and tax-motivated. The purposive Ramsay approach did not justify rewriting the language to deny effect to a real payment. Separately, a section 54 agreement fixed the taxpayer's liability for the year agreed, but it did not conclusively determine charges on income available for carry forward into later accounting periods, which remained subject to the separate statutory machinery.

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Issues: (i) Whether interest paid through a circular refinancing arrangement was "paid" and therefore deductible as charges on income under section 338 of the Income and Corporation Taxes Act 1988; (ii) whether an agreement under section 54 of the Taxes Management Act 1970 for one year bound the Crown as to charges on income available for carry forward to later accounting periods.

Issue (i): Whether interest paid through a circular refinancing arrangement was "paid" and therefore deductible as charges on income under section 338 of the Income and Corporation Taxes Act 1988.

Analysis: The statutory language required payment in its ordinary legal sense, namely discharge of the debt. The transactions were found to be genuine and not sham. Although the arrangement was pre-ordained and tax-motivated, the relevant concept in section 338 was not a commercial notion of loss or gain but the fact of payment. The Ramsay approach did not justify rewriting "paid" so as to exclude a real discharge of interest merely because the funds used came from the lender itself and the arrangement produced a tax advantage.

Conclusion: The interest was paid within the meaning of section 338 and was allowable as a charge on income. This issue was decided in favour of the assessee.

Issue (ii): Whether an agreement under section 54 of the Taxes Management Act 1970 for one year bound the Crown as to charges on income available for carry forward to later accounting periods.

Analysis: The finality produced by section 54 attached to the assessment or appeal for the year in question and to the amount chargeable for that period. It did not extend to conclusively fixing reliefs or carry-forward amounts for later years, because those later assessments were governed by the separate machinery of the Taxes Acts. The carry-forward position therefore remained open for subsequent periods.

Conclusion: The section 54 agreement did not bind the Crown as to carry-forward charges on income for later accounting periods. This issue was decided in favour of the Revenue.

Final Conclusion: The appeal failed and the taxpayer's deduction claim succeeded, while the cross-appeal on the reach of the section 54 agreement also failed.

Ratio Decidendi: The Ramsay approach is a tool of purposive statutory construction and does not permit a court to deny effect to a genuine payment that satisfies the ordinary legal meaning of the statutory words; a section 54 agreement determines only the liability for the year to which it relates unless the statute expressly extends its finality further.

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