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HMRC victory in £30m anti-avoidance case

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13th May 2011
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The Supreme Court has ruled in favour of HMRC in a tax avoidance case worth £30m.

Software firm MCashback was offering investors rights to a loyalty card payment system, where the Tower MCashback 1 and Tower MCashback 2 ventures were used as part of an avoidance scheme.

Investors provided a quarter of the cost and the remainder was met using loans provided indirectly by the firm. The investors were then able to take advantage of a software-related tax relief to get £40 off their income tax bills for every £25 put in.

The Supreme Court decision found that money borrowed by the taxpayers was not used as expenditure in the acquisition of software rights but “went in a loop back to the lender” to enable the taxpayers to "enable the LLPs to indulge in a tax avoidance scheme".

Seven Supreme Court judges unanimously allowed HMRC’s appeal, which centred on whether expenditure had been "incurred" by four LLPs for the purpose of claims to first-year allowances under the Capital Allowances Act 2001.

Around 200 wealthy investors were involved in the initiative including pop stars and employees of Deutsche Bank.

Deloitte tax adviser Bill Dodwell said of the scheme: "The price paid for the software was just absurd. Investors were never going to repay the loans, either."

The court’s summary concluded that concerns about the valuation of what was being acquired and the commercial soundness of the transactions were relevant.

The decision is expected to see £30m come in to the exchequer in respect of this scheme alone.

Further reading:

Supreme Court judgement in full

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