HM Revenue and Customs (HMRC) have won a major battle in the Supreme Court which may have severe implications for tax planning exercises. HMRC have persuaded the Court that a tax avoidance scheme, which was based on the wide definitions that apply to the granting of capital allowances, enabled a partnership to claim allowances based on software purchased at an artificially high price.

HMRC claimed that the substance of the transaction was that the price paid for the software was uncommercial and that the ‘Ramsay’ principle (named after a 1981 case on tax avoidance) applied. The Ramsay principle aims to negate tax planning exercises in which the commercial reality of a series of transactions is simply the avoidance of tax.

HMRC will see the Court’s ruling as support for its attack on tax planning exercises which seek to exploit imprecise wording in tax law.

The company that organised the scheme is also reported to be facing legal claims totalling £14 million from former clients.

Click here for information on the disclosure rules that apply to tax avoidance schemes.