Supreme Court clamps down on innovative tax planning schemes - Mazars - United Kingdom
Supreme Court clamps down on innovative tax planning schemes
The Supreme Court’s judgement in the Tower MCashback case leaves those who used this type of tax scheme out of pocket.
16/05/2011
The participants in the Tower MCashback scheme paid the promoters a total amount of £7.5m. The scheme was structured in such a way that this payment allowed the taxpayers to make a claim they had actually spent a total of £27.5m on acquiring rights to computer software.
The lower court said they were due full tax relief and they could expect tax repayments of £11m from HMRC – more in tax repayments than the cash they invested.
The Supreme Court has overruled the lower court. The court restricted the participants’ tax deduction to the £7.5m they invested – but no more.
It is expected HMRC will be using this decision to deny tax relief in other schemes which have sought to deliver more tax relief than the genuine underlying economic expenditure.
Many past claims for tax relief will be affected by this decision. Unlike changes in the law through the annual Finance Act which only apply to future transactions, a court decision sets out what the law has always been. Tim Davies, head of tax at Mazars, commented: "it’s vital that anyone with outstanding claims for tax relief from tax geared schemes take professional advice. The Tower MCashback principle may not necessarily apply, but we can expect HMRC to try and extend it as far as possible."
HMRC have been struggling to counter a growing number of innovative tax planning structures and recently asked an independent group to consider the viability of introducing a general anti-avoidance rule. This decision in favour of HMRC may mean they will not need to press as hard to legislate a general anti-avoidance rule.
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