In Julian and Beryl Massey t/a Hilden Park Partnership v HMRC [2015] UKUT 405 (28 July 2015), the UT found that arrangements implemented by a partnership were abusive.
The partnership, which ran a golf course, had transferred its golf business to two companies. It had retained the golf course and let it to the two companies, which paid rent. The appellants contended that the partnership was now making exempt supplies of land, while the two companies were making exempt supplies of sport services, as they were non-profit making bodies. HMRC argued that the arrangements were abusive.
The UT observed that the companies had obtained a tax advantage; they had not charged VAT on their services. That advantage had been passed on to the partnership in the form of rent; and, being considerably higher than market rent, this had been a covert distribution of profits. The fact that the scheme had failed, as the companies had turned out to be profit making, had not affected the tax advantage accruing to the appellants. Furthermore, the insolvency of the companies was irrelevant, in circumstances where any redefinition under the Halifax principles would mean that the services would be treated as supplied by the partnership.
The UT found that the FTT had been right to find that the essential aim of the arrangements had been to obtain a tax advantage, as they had been artificial and inconsistent with normal commercial practice. In particular, the UT accepted the FTT’s findings that the rent charged to the companies had been excessively high, when compared with the rent charged to a third party later on; and that the companies had accepted the rent without negotiating it. The arrangements were therefore abusive and fell to be redefined.
Why it matters: The UT noted (although the issue was academic in this case) that the burden of establishing abuse under the Halifax principle fell on HMRC who must therefore show that a tax advantage was contrary to the VAT directives and that the essential aim of the transactions was to obtain a tax advantage. Additionally, in applying the Halifax principle, the UT referred extensively to the recent Supreme Court’s decision in Pendragon [2015] UKSC 37, noting in particular that it may be necessary both to analyse each transaction in a scheme individually and also to consider the effect of the scheme as a whole when identifying the essential aim of the transactions.
In Julian and Beryl Massey t/a Hilden Park Partnership v HMRC [2015] UKUT 405 (28 July 2015), the UT found that arrangements implemented by a partnership were abusive.
The partnership, which ran a golf course, had transferred its golf business to two companies. It had retained the golf course and let it to the two companies, which paid rent. The appellants contended that the partnership was now making exempt supplies of land, while the two companies were making exempt supplies of sport services, as they were non-profit making bodies. HMRC argued that the arrangements were abusive.
The UT observed that the companies had obtained a tax advantage; they had not charged VAT on their services. That advantage had been passed on to the partnership in the form of rent; and, being considerably higher than market rent, this had been a covert distribution of profits. The fact that the scheme had failed, as the companies had turned out to be profit making, had not affected the tax advantage accruing to the appellants. Furthermore, the insolvency of the companies was irrelevant, in circumstances where any redefinition under the Halifax principles would mean that the services would be treated as supplied by the partnership.
The UT found that the FTT had been right to find that the essential aim of the arrangements had been to obtain a tax advantage, as they had been artificial and inconsistent with normal commercial practice. In particular, the UT accepted the FTT’s findings that the rent charged to the companies had been excessively high, when compared with the rent charged to a third party later on; and that the companies had accepted the rent without negotiating it. The arrangements were therefore abusive and fell to be redefined.
Why it matters: The UT noted (although the issue was academic in this case) that the burden of establishing abuse under the Halifax principle fell on HMRC who must therefore show that a tax advantage was contrary to the VAT directives and that the essential aim of the transactions was to obtain a tax advantage. Additionally, in applying the Halifax principle, the UT referred extensively to the recent Supreme Court’s decision in Pendragon [2015] UKSC 37, noting in particular that it may be necessary both to analyse each transaction in a scheme individually and also to consider the effect of the scheme as a whole when identifying the essential aim of the transactions.
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