The concept of prevailing practice was recast in more restrictive terms by when a first tier tribunal turned down an appeal by a company that claimed tax relief on contributions to an employee benefits trust.
The tribunal in Boyer Allen Investment Services v HMRC heard that the company had made payments of more than £27m to an employee trust for several years, and making deductions from its corporation tax due for those amounts.
In July 2005, however, HMRC decided that under s43 of the Finance Act 1989 the EBT payments were not deductible until what it saw as employee emoluments were paid out. Discovery assessments were raised for 2000 and 2001 amounting to nearly £11.5m in tax and accrued interest.
The point of prevailing practice is to prevent HMRC from recovering underpaid tax where tax relief was overclaimed (TMA 1970), explained Anne Fairpo in her 24 September podcast.
“Essentially what tribunal said was that just because HMRC believe a piece of legislation should be interpreted in one way, and practitioners believe the same, that doesn't mean that this is prevailing practice,” Fairpo explained.