High street retailer Next has been hit with a £22.4m tax bill after a court ruled the firm’s complex tax scheme was artificial tax avoidance.

HM Revenue & Customs (HMRC) successfully challenged Next Brand Ltd, which is part of the well-known Next group, over its use of a tax avoidance structure known as a rate-booster.

The First-Tier Tribunal (FTT) ruled in HMRC’s favour after finding Next’s scheme artificially moved money around the group so they could try and claim tax relief on overseas profits.

HMRC’s Director General of Business Tax Jim Harra said:

This case shows how HMRC takes effective action against big businesses that try to avoid paying tax through convoluted, artificial avoidance schemes. HMRC expects all businesses to steer well clear of such schemes.

This is the second rate-booster case to reach the FTT after the tribunal ruled against P&O in 2013, who appealed and a decision is awaited.

About £130m in tax is at stake across 20 rate-booster cases, which were waiting on the P&O and Next decisions. Around 70 rate-boosters have already been conceded by companies rather than go to court, which has brought in more than £500m in tax.

Rate-booster schemes involve trying to avoid Corporation Tax on foreign profits that are paid back to the UK from a subsidiary.

The UK company receiving these profits gets credit for any foreign tax the subsidiary paid. The rules are designed to prevent companies being taxed twice on the same income and is known as double taxation relief.

Some companies set up artificial arrangements involving complex circular movements of money between companies in the same group so they can claim there has been double taxation.

Through these movements the companies claim far more tax had been paid on the overseas profits than was actually the case.

Legal changes in 2005 and 2009 mean rate-booster schemes are no longer possible or attractive.

No doubt we will see more high profile tax wins by HMRC in the coming months as the government continues its clampdown on corporate tax avoidance.

Sajid Javid set out his priorities for supporting Britain's small businesses last week. Here’s a summary of what he said:

Over the next 5 years, we’ll build on the success of ‘One in, two out’ to put a strict brake on new regulations. For the first time, the actions of regulators will be counted towards achieving the overall £10 billion in cuts.

This will be the first time in modern history that government has successively reduced red tape and continued with reductions in the next parliament.

And business will be our partner…giving us the evidence we need to roll back the state. One crucial aspect of this roll back will be the extension of the rule that is known as Primary Authority.

Primary Authority allows a business to get advice on regulation from a single local council. This advice must then be respected by all other local councils, thus reducing the time and cost to businesses of having to obey multiple masters. When Primary Authority came in, the purpose was to help larger firms trading nationwide. But it was so successful that we opened it to small business in 2013. Today, more than two-thirds of the businesses taking advantage of Primary Authority are small businesses.

It frees them from inconsistent and confusing red tape. It reduces their operational costs, and allows them to focus on expansion.

Thanks to Primary Authority, cheese makers don’t have to display their cheddar on wooden boards in one place and on steel platters in another. Yet only a tiny fraction of small businesses that could benefit are actually doing so. Accordingly, we’re going to simplify Primary Authority itself. 

And we’re going to extend its reach. There’s one more area I wish to cover this morning. It’s a subject that’s exercised me for some time.

There’s a situation familiar to small business owners up and down the country. A letter turns up from a larger customer changing payment terms, or charging them to remain a supplier, and in some cases even deducting that charge on the spot against payment owed.

This pattern of behaviour is an outrage. It’s bullying – pure and simple. In 2008, late payment alone cost British business £19 billion. This year, that’s set to exceed £40 billion. The average amount owed to a small business is more than £30,000. You know as well as I what figures like that can do to the cash flow of small businesses. It’s enough to force a company into insolvency.

We’ve not been blind to these issues.

During the last Parliament, we introduced legislation requiring the UK’s largest companies to report on their payment practices. That’s going to shine a light on poor performance when it comes into effect next April. Recent U-turns show that public scrutiny can make big firms mend their ways. We also strengthened the Prompt Payment Code to introduce a maximum 60 day payment term and promote 30 days as the norm.

Government has rightly been leading by example. We pay our suppliers within 30 days. We’ve brought in measures requiring all public sector contracts to pay out within 30 days, all the way down the supply chain.

Now, we’re going to widen the powers for representative bodies to act on behalf of their members to challenge grossly unfair payment terms. There’ll be a consultation on this later this year. And we will fulfil the manifesto pledge to set up a Small Business Conciliation Service to help small businesses settle their problems with large corporations.

The purpose is to avoid expensive legal costs and maintain business relationships by reaching mutually satisfactory agreements.

This model has worked in Australia. We will explore it, and other models, and find what works best here in the UK.

The first Budget of the new parliament is to be delivered by George Osborne on July 8^th.

Apart from tying up loose ends from the spring Budget the Chancellor will make a number of announcements:

1. His plans for eliminating the UK’s budget deficit and running a surplus by the end of the current parliament.
2. Details of the £12bn cuts in public expenditure he will need to make.
3. Further measures to crack down on tax avoidance.

There may be a few tax “sweeteners” in the summer Budget, but it is more likely that George Osborne will get the painful changes out of the way, and early in the new parliament, leaving tax cuts until later.

Two Directors and a Company Secretary have been jailed for contempt of court relating to a £7.7m VAT fraud, following an investigation by HM Revenue and Customs (HMRC).

A court order appointing a Provisional Liquidator was made by the High Court in March 2014 against Parkwell Investments Ltd, based in Wilmslow, Cheshire. The order removed the company’s officers and appointed a Provisional Liquidator in their place to protect the company’s remaining assets.

The company’s officers then deliberately and knowingly acted in contempt of court by transferring £450,000 out of the reach of the Provisional Liquidator.

The funds are now very unlikely to be recovered, a point which presiding Judge Mr Justice Norris took into consideration when sentencing. He said the company officers’ actions “were an affront to the rule of law and order”.

Amran Munir, Ali Sami Farooq, and Saif Chaudhry were each sentenced to six months’ imprisonment, of which three months is to be served in prison before being granted unconditional release. Unusually, the prison sentence was given in civil, rather than criminal, proceedings.

The individuals initially defended their actions but at the eleventh hour admitted to knowing breaches of the court’s order.

Mr Justice Norris said:

Where company officers seek to thwart a liquidator, a message must be sent to the business community.

Andy Cole CBE, Specialist Investigations Director, HM Revenue and Customs (HMRC), said:

Committing contempt of court to get out of paying your VAT debts just adds insult to injury. We will relentlessly pursue those behind this type of abuse using all the means at our disposal.

Is this a good time to invest if you are in business?

Actual business investment in the UK fell in the last quarter of 2014. This was largely driven by the reduction of investment in North Sea oil and gas exploration as global energy prices continued to fall.

Additionally, smaller businesses may have been waiting to see the outcome of the election.

Should you reconsider investment at this time? Certainly, it’s worth taking advantage of the current 100% write off available to those businesses making qualifying purchases of equipment and commercial vehicles. As mentioned in our other blog posting today, currently HMRC will allow businesses to write of up to £500,000 against their taxable profits. This relief is due to reduce after 31 December 2015.

Certainly, businesses should not let the tax tail wag the dog. Financing capital expenditure also needs to be taken into account. Businesses will be unlikely to spend hard earned liquidity especially if they operate in competitive markets where there is downward pressure on margins.

If you are in need of new plant or equipment planning your investment is critical. We would be delighted to help. Call any time to make an appointment.