A group of companies has lost their appeal at the Court of Appeal (CoA) after a previous ruling against them at the Upper Tribunal (UT). The group, UK Power Networks (UKPN), had held that they were entitled to full consortium relief and had helped HMRC with their enquires. After providing a considerable amount of information to HMRC they requested that HMRC issue them with a closure notice by application to the First-tier Tribunal (FTT). The FTT found for UKPN and requested that HMRC issue a closure notice. HMRC appealed to the UT with the UT finding in favour of HMRC.
Consortium relief applies in situations where a company isn’t a 75% subsidiary of another company but at least 75% of its share capital is owned by other companies and those companies own more than 5% of the share capital. Where these conditions are met then losses can be transferred from the company or to it by members of the consortium. One of the companies within one of the consortium member’s groups had made significant losses and wished to transfer these losses to UKPN to help overall cashflow of the group.
One of HMRC’s concerns related to the ability of UKPN to claim full consortium relief. HMRC held that arrangements were in place to prevent the UKPN controlling the consortium group. The articles of the consortium company had been adjusted to state that resolutions could only be passed if the threshold of 75% was met. UKPN had votes equalling 74.6%, just under the control threshold by the company’s articles. To prevent the trade in sale of losses anti-avoidance provisions are included within the legislation to limit the amount of relief available to 50% of the amount that could be obtained under normal conditions. UKPN held that the change to the articles of the company was not an arrangement.
The CoA disagreed finding the increase in the voting threshold in the company’s articles was an arrangement for the purposes of the anti-avoidance legislation and that HMRC were entitled to continue their investigations into UKPN.
The CoA noted at the end of its judgement that this decision could be a waste of time. Other investigations by HMRC had concluded that it was likely consortium relief would be reduced to zero but these issues were stayed behind the outcome of the case. The CoA noted that the FTT shouldn’t investigate matters of law when considering whether closure notices should be issued unless that investigation can expedite the resolution of matters.
The decision can be found at: Eastern Power Networks Plc & Ors v Revenue And Customs – Find case law (nationalarchives.gov.uk)
This case has helped clarify the meaning of arrangements under the anti-avoidance provisions for consortium relief.
Please contact us if you have any questions on consortium relief or corporation tax. We are experienced with this issue and can help plan the effective use of losses.
