Barclays Mercantile Business Finance Ltd v Mawson (HM Inspector of Taxes): HL 25 Nov 2004

The company had paid substantial sums out in establishing a gas pipeline, and claimed those sums against its tax as capital allowances. The transaction involved a sale and leaseback arrangement which the special commissioners had found to be a pre-arranged series created only for a tax advantage, and the judge at first instance agreed saying there had been no up-front finance such as would be usual. The Court of Appeal allowed the taxpayer’s appeal, and the revenue now appealed.
Held: The statutory requirements are in the case of a finance lease concerned entirely with the acts and purposes of the lessor. The arrangements made satisfied the statutory requirements, and the appeal was dismissed.
The House described the general form of tax evasion attempts: ‘structuring transactions in a form which will have the same or nearly the same economic effect as a taxable transaction but which it is hoped will fall outside the terms of the taxing statute. It is characteristic of these composite transactions that they will include elements which have been inserted without any business or commercial purpose but are intended to have the effect of removing the transaction from the scope of the charge.’
Lord Nicholls of Birkenhead removed the interpretation of taxing statutes from its literalist enclave and incorporated it into the modern approach to statutory interpretation which the court otherwise adopts: ‘The essence of the new approach was to give the statutory provision a purposive construction in order to determine the nature of the transaction to which it was intended to apply and then to decide whether the actual transaction (which might involve considering the overall effect of a number of elements intended to operate together) answered to the statutory description. . . [T]he question is always whether the relevant provision of the statute, upon its true construction, applies to the facts as found. As Lord Nicholls of Birkenhead said in MacNiven v Westmoreland Investments Ltd [2003] 1 AC 311, 320, para 8: ‘The paramount question always is one of interpretation of the particular statutory provision and its application to the facts of the case’.’

Lord Nicholls of Birkenhead, Lord Steyn, Lord Hoffmann, Lord Hope of Craighead and Lord Walker of Gestingthorpe
[2004] UKHL 51, [2004] 76 TC 446, [2005] 1 All ER 97, [2005] 1 AC 684, [2005] STC 1, [2004] 3 WLR 1383, [2004] BTC 414, 76 TC 446, [2004] STI 2435, 7 ITL Rep 383, [2004] UKHL TC – 76 – 446
Bailii, House of Lords, Bailii
Capital Allowances Act 1990 24(1)
England and Wales
Appeal fromBarclays Mercantile Business Finance Ltd v Mawson, HM Inspector of Taxes CA 13-Dec-2002
The taxpayer entered into a sale and leaseback arrangement in respect of a gas pipeline, and sought to set off the costs as a capital allowance.
Held: The company’s appeal succeeded: ‘There is nothing in the statute to suggest that ‘up-front . .
CitedW T Ramsay Ltd v Inland Revenue Commissioners HL 12-Mar-1981
The taxpayers used schemes to create allowable losses, and now appealed assessment to tax. The schemes involved a series of transactions none of which were a sham, but which had the effect of cancelling each other out.
Held: If the true nature . .
CitedCommissioners of Inland Revenue v McGuckian HL 21-May-1997
Steps which had been inserted into a commercial transaction, but which had no purpose other than the saving of tax are to be disregarded when assessing the tax effect of the scheme. The modern approach to statutory construction is to have regard to . .
CitedInland Revenue v Burmah Oil Co Ltd HL 1982
A series of circular payments which left the taxpayer company in exactly the same financial position as before was not regarded as giving rise to a ‘loss’ within the meaning of the legislation. The ratio of the Ramsay decision was that a loss which . .
CitedCarreras Group Limited v The Stamp Commissioner PC 1-Apr-2004
PC (Jamaica) The transfer of shares in exchange for a debenture with a view to its redemption a fortnight later was not regarded as an exempt transfer in exchange for the debenture but rather as an exchange for . .
CitedMacNiven (Inspector of Taxes) v Westmoreland Investments Ltd HL 15-Feb-2001
The fact that a payment of interest was made only to create a tax advantage did not prevent its being properly claimed. Interest was paid for the purposes of setting it against tax, when the debt was discharged. A company with substantial losses had . .
CitedFurniss (Inspector of Taxes) v Dawson HL 9-Feb-1983
The transfer of shares to a subsidiary as part of a planned scheme immediately to transfer them to an outside purchaser was regarded as a taxable disposition to the outside purchaser rather than an exempt transfer to a group company. In defined . .
CitedCollector of Stamp Revenue v Arrowtown Assets Ltd 4-Dec-2003
(Hong Kong Final Court of Appeal) The court was asked as to the accounting treatment of interests incurred in the development for the purpose of generating the profits, and therefore whether the relevant Ordinance prohibited the capitalisation of . .
CitedCampbell v Inland Revenue Commissioners SCIT 6-Jul-2004
SCIT INCOME TAX – Anti-Avoidance – Relevant discounted security – Loss on gift to wife – Subscription for security and gift part of scheme to produce loss – Avoidance not the Appellant’s sole purpose in . .
At first instanceBarclays Mercantile Business Finance Ltd v Mawson (Inspector of Taxes) ChD 22-Jul-2002
The taxpayer sought to claim for capital allowances of andpound;91 million for gas pipelines. The claimant had provided the equipment through a leasing scheme.
Held: The leases were unusual, but did not appear to be merely part of a tax . .

Cited by:
CitedHM Revenue and Customs v Salaried Persons Postal Loans Ltd ChD 7-Apr-2006
The company had ceased trading, but rental income was still generated from its former premises. The Revenue sought to include the receipt in calculations of whether the company was entitled to a small company corporation tax rate. The Revenue . .
CitedHarding v Revenue and Customs CA 23-Oct-2008
Lapsed Currency conversion option lost status
The taxpayer appealed his assessment to Capital Gains Tax on his redemption of loan notes arising following the sale of his computer company. He said that they were qualifying corporate bonds. The question was whether a security in which a currency . .
CitedAnnabel’s (Berkeley Square) Ltd and Others v Revenue and Customs CA 7-May-2009
The court considered whether tips paid at a restaurant by means of a credit card or cheque thus becoming the employer’s money could properly count toward the minimum wage when paid on to the employee. The revenue contended that the money received . .
CitedUBS Ag and Another v Revenue and Customs SC 9-Mar-2016
UBS AG devised an employee bonus scheme to take advantage of the provisions of Chapter 2 of the 2003 Act, with the sole purpose other than tax avoidance, and such consequential advantages as would flow from tax avoidance. Several pre-ordained steps . .
CitedRFC 2012 Plc (Formerly The Rangers Football Club Plc) v Advocate General for Scotland SC 5-Jul-2017
The Court was asked whether an employee’s remuneration is taxable as his or her emoluments or earnings when it is paid to a third party in circumstances in which the employee had no prior entitlement to receive it himself or herself.
Held: The . .
CitedProject Blue Ltd v Revenue and Customs SC 13-Jun-2018
The purchaser of land created a sub-sale and leaseback with bank so as to fund the purchase in a manner which would comply with Islamic finance principles. The Court was now asked whether purchaser or the bank were liable for stamp duty land tax on . .

Lists of cited by and citing cases may be incomplete.

Corporation Tax

Leading Case

Updated: 31 October 2021; Ref: scu.219868