Greene King takes tax battle to Court of Appeal

Greene King has confirmed it will take its long-running fight with HMRC over a £21m tax planning scheme, known as Project Sussex, to the Court of Appeal.

In its latest annual report, the brewery and pub group revealed plans to resume the legal battle, though the accounts show it has now made a financial provision to cover a potential defeat.

The first tier tax tribunal first rejected the tax avoidance case back in 2012 and earlier this April the upper tribunal came to the same conclusion.

The group said the case was complex and the later UT decision was unclear on certain elements of the case.

Following the UT tribunal ruling, Treasury minister David Gauke welcomed the decision against the brewer: “The vast majority of taxpayers play by the rules and the government will continue to take action to tackle the minority who seek to avoid their responsibilities. Anyone who gets involved in tax avoidance schemes is playing with fire.”

However the group, famous beer brands like for Old Speckled Hen and Abbot Ale, has now asked for clarification from the Court of Appeal.

Greene King confirmed: “We have been advised that the upper tribunal decision was unclear on certain elements of the case and, therefore, it will now be considered by the court of appeal.”

The tax scheme, which was sold to the group by EY, involved a £300m internal loan between Greene King plc and another member of the same group, Greene King Acquisitions.

In the UT the Revenue argued that the scheme involved artificial transactions.

Greene King has since defended its tax record, saying: “Greene King has been paying its taxes for 215 years and we are a major contributor to the Treasury with a third of our turnover, or £400m, paid to HMRC in various forms of tax, in the last year alone. This is seven times what we pay to our shareholders in dividends.

“Over and above this, we occasionally take specific tax advice from experts, such as EY in this case, about other areas of potential tax paid by Greene King. In this complex case, we have been advised that the Upper Tribunal decision was unclear on certain elements of the case and therefore, it will now be considered by the Court of Appeal.”

Comments
carnmores's picture

this is an interesting case

carnmores | | Permalink

and from a PR point of view very neatly condensed  , a third ot turnover and seven times what they pay the shareholders , and now they dont want us to drink  everyday !  I wonder how much HMG gets from all drinks companies a year, if we all drink as sugggested and the tax revenue goes down.................

ShirleyM's picture

What taxes do they refer to?    2 thanks

ShirleyM | | Permalink

Greene King has since defended its tax record, saying: “Greene King has been paying its taxes for 215 years and we are a major contributor to the Treasury with a third of our turnover, or £400m, paid to HMRC in various forms of tax, in the last year alone. This is seven times what we pay to our shareholders in dividend

Large companies like to confuse the issue by bulking up 'tax paid' with 20% VAT,which is paid by their customers, and PAYE/NI, which is mostly paid by employees. If that is the case here, then they cannot be paying much Corporation tax at all.

I don't understand these schemes. How can a £300m internal loan generate £21m of tax savings without causing a tax liability on the lender? 

carnmores's picture

@Shirley

carnmores | | Permalink

very neatly condensed :-)

johngroganjga's picture

Presumably the tax they say

johngroganjga | | Permalink

Presumably the tax they say they pay includes excise duty - which would be right.  Also it would be reasonable for them to include employer's NI in their figure.  Whether overall this comes to 1/3 of turnover is a different matter.

Reporting the Substance of Transactions    1 thanks

The Limey | | Permalink

ShirleyM wrote:

Greene King has since defended its tax record, saying: “Greene King has been paying its taxes for 215 years and we are a major contributor to the Treasury with a third of our turnover, or £400m, paid to HMRC in various forms of tax, in the last year alone. This is seven times what we pay to our shareholders in dividend

Large companies like to confuse the issue by bulking up 'tax paid' with 20% VAT,which is paid by their customers, and PAYE/NI, which is mostly paid by employees. If that is the case here, then they cannot be paying much Corporation tax at all.

I don't understand these schemes. How can a £300m internal loan generate £21m of tax savings without causing a tax liability on the lender? 

The loan was in the form of preference shares. They attempted to strip the interest element of the preference shares from the capital repayment, and claim that the credit was to share premium (on a straight reading of the Companies Act) rather than accruing to profit or loss, while the interest debit was deductible. They lost on FRS 5 grounds (accounts not UK GAAP compliant). You should take a look at the tribunal reading, it's interesting. EY selling a tax product that relied on particular accounting treatment to an audit client was dodgy at best. The FRC were taking a look at one point (independence). I'm not sure where they ended up at.

stepurhan's picture

Unclear elements

stepurhan | | Permalink

It would seem that "the Upper Tribunal decision was unclear on certain elements of the case", based on the fact that exact phrase appears three times in this report. Exactly what elements are they saying are unclear?

ShirleyM beat me to it on querying the "various forms of tax" claiim. I said much the same when the decision was reported back in April

1984 word play    1 thanks

David Gordon FCCA | | Permalink

 yet again we allow spurious hypocritical psuedo-morality to intervene.

 Stick to the facts.

 David Gauke's comment and implied criticism that the "Vast majority of taxpayers' play by the rules" is unwarranted, and immoral in itself.

 Greene King is what we would call a "Respectable" company. EY are a reputable firm of accountants. They read the rule book, and in this instance the court ruled against their interpretation. So, they pay. End of story.

 This is not immoral, or wrong behaviour. It is why we have tax tribunals to judge cases where the rules are as clear as a foggy night on Dartmoor. The unvarnished truth is, I guesstimate, that many of us peasants at the jobbing end of the profession would really appreciate if we were able to afford EY's help with some of our problems. Green Eyes of the little yellow god are not pretty or called for.

 This has nothing to with "Law". Law is Thou shalt not murder, or Thou shalt not steal.

 Even those two simple statements may give rise to incredibly detailed court cases.

 UK tax rules' abysmal standard of clarity, for example, is what causes a standard text book on Residence and Domicile to come in at four volumes and £248 cost.

 If the rules were written to the degree of clarity that most of us would wish, and that most of us believe is possible, then most of us would be out of pocket.

 Except and unless you wish the profession to really become an adjunct of HMRC;

 Avoidance is the acceptable interpretation of rules as they are writ. Acceptable in this instance means by tax tribunal or courts. It is not a moral issue.

The moral issue is that MPs wilfully continue to approve tax rules they do not understand, and that are written in GCSE "U" grade English.

the taxpayer shall pay, and be entitled to pay,  the minimum tax payable under said rules.

That is it, if you allow in the slightest, HMRC or Government spokespersons to move from that strict interpretation, you are cheating your clients and do yourselves a disservice.

 Further by pandering to this moral/immoral argument you are allowing MPs and HMRC to Evade, not Avoid but Evade, their responsibility for ensuring clarity and equity in tax rules.

 If one of our brethren recommends advice to a client which he sincerely believes is accurate advice, then he is doing his job.

 If, God forbid, he deliberately for gain gives advice he knows to be incorrect; Then it is nothing to do with being an "Accountant" it is to do with being a dishonest person.

If Mr Gauke or his fellow-travellers believe that the taxpayer or the accountant were "Dishonest" then they have a remedy in law, and the financial muscle to take that remedy. If not let them shut-up. Slander or Libel by innuendo is also an evil.

Do some of my po-faced colleagues really enjoy their profession being treated, by those in authority who should know better,  as something found under a cow-pat.

 

 

 

 

One more hypocrite in power    1 thanks

TMR | | Permalink

David Gauke's comments stand as a testimony of what we all face today.

MP's from ALL parties, lie, cheat and line their own pockets, and the endless army of civil servants (they pay) pander to their every whim.

Never a day passes when they don't come out with some comment which makes the man in the street's blood boil over and it's hardly a surprise the vast majority of us have little or indeed no respect for these people.

If they cleaned up their own act, and as David Gordon says made it all far clearer we'd be in a far better position and likely EY wouldn't have even considered some "smart" scheme of avoiding tax. 

If you're going to hang a sign outside your house saying, 'alarm off, door open' don't be surprised to be burgled!  HMG and HMRC have had such signs hanging over them for decades. 

Make it simple, make it clear and make it affordable. Can't be that difficult and then tyhe vast majority of us would all be happy!

 

 

Grey areas and 'unclear elements'

wingco44 | | Permalink

Having myself won a case against HMRC (VAT), when my case went to the upper level Tribunal  I had prior access to a University Law library case index that costs a small fortune to subscribe to and really only Universities can afford.  No chance for the poor layperson or small business.

The Tribunal Judge had never heard of the EU case I uncovered (It involved France incorrectly applying VAT rules against the principles of the EU VAT Directive and it cost France many millions of Euros) and he referred back to their 'policy' dept. where they could only say,"It is a grey area". No it's not grey - it's in black and white and was very clear to me.  HMRC appear to pursue cases that are beyond their ability, knowledge or intellect and waste our money in the process.  And HMRC & HMG ignore basic concepts of EU Directives to raise more tax.

If the Greene King case contained 'unclear elements' perhaps they shouldn't have started the process?  I feel sure EY knew precisely what was permissible avoidance.  Why has avoidance become a dirty word? 

I am slightly biased as I have just returned from staying at a Greene King hotel near Lewes, the Roebuck which served great food, had wonderful service and was cheap for Sussex!

stepurhan's picture

Easy there    2 thanks

stepurhan | | Permalink

David Gordon FCCA wrote:
yet again we allow spurious hypocritical psuedo-morality to intervene.

 Stick to the facts.

My comment neither got into morality, nor strayed from the facts.

By talking about paying "various amounts of tax" without indicating that most of that tax is not actually tax on profits (and in the case of Ees NIC and tax, is actually a deduction from taxable profits) is them stretching the facts. If they wish to use a skewed justification, then it is not moralising to point out the skew in that justification.

And what is unreasonable about asking what points are "unclear". They lost, but in claiming the judgement is unclear, they are presumably saying that they think they should have won. I'd like to know if they genuinely have a case, or if they are hoping to get an argument as baseless as their "various forms of tax" past the appeal court. If the arguments are spurious, then they any appeal on them would needlessly tie up resources that would be better spent elsewhere. Is it moralising to suggest that is a bad thing? If the arguments are in some way sound, then they should be able to appeal. Without knowing what is considered unclear, we cannot tell what it is.

What tax do companies pay

Tomazaan | | Permalink

I admire and respect both Shirley and Stephuhan and welcome their many contributions to this forum.  However on this rare occasion I disagree with both of them about their comments on how much tax a company pays.

Looking at it one way a company pays no tax at all - it has various costs (and this may include payment(s) to HMRC) but all that means is that it pays it staff and its owners less or it charges it customers more.  So it is possible to argue that the only "entities" that bear the cost of tax are individuals.

Looking at it another way, when a company makes a job offer to a person along with a salary, that person knows (or can work out) that they will receive £x and they don't care very much if that means that the company has had to pay £y.  Likewise when a company fixes its prices, it will charge as much as it can for its product.  The consumer does not care that the company is only getting 83% (or thereabouts) of what the consumer is paying.  So again, the company is bearing the cost of the tax.

I don't think it unreasonable for Greene King to draw attention to all the money that it pays to HMRC.  After all if Greene King did not exist, there would be no VAT or excise duty on its sales, no PAYE/ NIC re its employees and no corporation tax.

Greene King versus Stemcor    2 thanks

TMR | | Permalink

I'm sure if these two companies were compared Greene King would be saluted for the contribution they make to the UK economy and rightly so, and not just because they help us drown many a sorrow!  

Stemcor paid less than £163,000 tax on profits of £65 million!!, and we're all familiar with Amazon, Google and Starbucks not to mention Cadbury's.

I'll admit I don't know what proportion of tax Greene King actually do pay on their profits but we all know it matters not one jot what they pay in VAT, paye, nic, or excise duty, it's what Corporate tax they have to pay on their "profits", that's the real issue.

I'm sure it's just  p.r. exercise in an  attempt to justify what is, let's face it, a scheme designed for just one purpose, to reduce their corporate tax bill.

Any reasonable person would look at this and throw it out as has the FTT and UT.

With great respect to EY, if it were this easy to avoid corporate tax it would be an everyday occurrence with every single "Group" in the UK. It doesn't stand up to scrutiny and I'm surprised Greene King paid for the advice, let alone continue to try and challenge it.

Come off it fellas, an internal loan where one party gets the relief for the debit and the other party doesn't have to account for the credit, you're having a laugh. But I don't blame you for trying, only look for something with more chance of ultimate success next time.

Whoever in EY came up with this idea must be laughing all the way to the bank that they could convince an FD of a stock listed company it's worth a try! I assume they've provided for it in their accounts?  

 

 

 

ShirleyM's picture

Smoke & mirrors ...

ShirleyM | | Permalink

... is bound to cause distrust, and it seems there is no shortage of it. If you 'fudge' one set of figures (ie. claiming 1/3 of turnover = tax paid but including the tax paid by others) then it is natural to assume they are fudging other things too.

A truck driver taught me.

David Gordon FCCA | | Permalink

 

 Once upon a time,  a long distance lorry driver taught this callow junior audit clerk an important lesson.

 he said if I charge £100 and the Govrnm't takes £30, then my money is £70 and my (compulsory) partner's take is £30. it don't matter what my partner does with that money, or what you call it. For every pound I can put in my pocket I have to give my partner 8s 7d (Or in modern parlance, 43p)

I thought about it, and and thought about it. I have never been able to fault this simple philosophy. In the real world the man was, is, and always will be correct correct.

I reward my staff for their work with £70 in their pockets. I pay a head tax to HM Government of £30. That money never  belonged to my staff.***  It is a  contractual payment attached to the privilege of being a subject of the Crown,  to help fund those things which we  have democratically agreed are best dealt with by a central management. I will pay whatever the terms of my contract require. I am under no obligation to pay a penny more, nor may I pay a penny less. A similar argument applies to Corporation tax, and,

VAT: The customer pays £120 for the goods, that is it. I will then pay my partner whatever part of that £120 is contractually payable as partner's share.

***If my business defaults, it is my business that is pursued for the debt.

 

 

Compulsory Partners

TMR | | Permalink

A very good anecdote by David Gordon.

There is of course a solution: Divorce the compulsory partner and emigrate!! 

I did. Unfortunately the compulsory partner discovered my location, and has since embarked on talking to other compulsory partners!

I guess to get away from these Compulsory Partners there is of course death ...... oh wait, I just remembered, new IHT laws allow them to dig you and your records up !

And we all were afraid of the Spanish Inquisition!   

Bad luck Green King    1 thanks

AndrewV12 | | Permalink

Looks like Green King has took some naff advice and will have to face the consequences, though i have a feeling 10 - 15 years ago they would have got away with it.