HMRC wins challenge over Next’s “artificial” tax avoidance scheme

HMRC has won its challenge against high street retailer Next over an "artificial" tax avoidance structure.

 

The First-Tier Tribunal (FTT) has ruled in favour of the government, which brought the case against Next Brand, part of the wider group. 

 

The FTT found the scheme, known as a rate-booster, allowed the business to artificially move money around the group in order to claim tax relief on overseas profits. 

 

This is the second rate-booster case to reach the FTT after the tribunal ruled against P&O in 2013, who appealed and a decision is awaited.

 

HMRC’s director general of business tax Jim Harra said: “This case shows how HMRC takes effective action against big businesses that try to avoid paying tax through convoluted, artificial avoidance schemes. 

 

“HMRC expects all businesses to steer well clear of such schemes.”

 

A Next spokesman said: “The disputed amount, as jointly agreed between HMRC and Next, was £22.4m. This case sought to reclaim tax which had already been paid by Next, tax that would not be payable under current legislation. 

 

“The claim was for £22.4m (of the £1.3bn corporation tax  that Next has paid over the last ten years) and it should be taken in that context.” 

 

HMRC said there were a further 20 cases awaiting this and the P&O decision, with a total value of £130m in tax. 

 

Around 70 rate-boosters have already been conceded by companies rather than go to court, generating more than £500m in tax for HMRC's coffers.

 

Legal changes in 2005 and 2009 mean rate-booster schemes are no longer possible or attractive.