Supreme Court rules in favour of HMRC in tax avoidance case

Accountants who try to exploit tax legislation might want to think again after the Supreme Court came down on the side of HMRC recently.

In 2008, the Court of Appeal ruled in favour of Tower MCashback, but HMRC subsequently appealed this decision. The Revenue accused Tower MCashback of artificially paying too much for software rights and recycling the money to repay a bank loan.

The software development partnership claimed first year capital allowances on the software which were offset against the firm’s other income leaving a minimum tax bill for the partnership.

The Court of Appeal said this was acceptable because the software had definitely been purchased and the practice was in line with capital allowance legislation.

The Supreme Court took a different view of the matter saying it had to think about the reality of the situation and consider the actual expenditure on the software.

A partner at McGrigors, Jason Roberts, explained that the courts adopt the “Ramsay” approach which centres on transactions used solely for tax avoidance purposes. HMRC approach Ramsay as an antibiotic which negates all types of tax planning but it is the Revenue’s responsibility to ensure tax regulations do not contain loopholes.

Iain Scoon, one of the tax partners at the London office of law firm Shearman & Sterling, said the Supreme Court had now reintroduced uncertainty into the interpretation and application on tax avoidance law.

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