Tower MCashback: HMRC wins in Supreme Court

The Supreme Court has allowed HMRC's appeal, and dismissed the taxpayers' cross-appeal, from the Court of Appeal decision in Tower MCashback, concerning eligibility for capital allowances and closure notices limiting the scope and subject matter of appeals (HMRC v Tower MCashback LLP 1 and another [2011] UKSC 19).ree access.)

Please see Legal update, Tower MCashback: HMRC wins in Supreme Court (detailed update) for PLC Tax's detailed update on this decision.

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The Supreme Court (Court) has allowed HMRC's appeal, and dismissed the taxpayers' cross-appeal, against the Court of Appeal decision in Tower MCashback (see Legal update, Court of Appeal holds that closure notice need not set out every HMRC argument (www.practicallaw.com/2-501-4213)), which concerned the extent to which closure notices limit the scope and subject matter of appeals and whether the acquirer of software rights under licence agreements (SLA), funded by non-recourse loans from the software owner, incurred expenditure qualifying for first year capital allowances. The Court held that:

  • HMRC could advance alternative arguments on the capital allowances issue. The Special Commissioners could entertain arguments that played no part in reaching the conclusions set out in the closure notice. However, the scope and subject matter of the appeal would be defined by the conclusions stated in the closure notice and any amendments made to the tax return.

  • All of the consideration provided for in the SLA was not expenditure incurred on the provision of software. Therefore, the Court directed that only 25% of the first year allowances claimed be allowed. The Court considered that the House of Lords decisions in Ensign Tankers (Leasing) Ltd v Stokes [1992] 1 AC 655 and Barclays Mercantile Business Finance Ltd v Mawson [2004] UKHL 51 (see Practice note, Anti-avoidance case law and tax: Direct taxes and stamp duties: BMBF (www.practicallaw.com/3-375-8936)) remained good law. The court's task was to test the facts, realistically viewed, against the statutory test, purposively construed. Entitlement to capital allowances required there to have been real expenditure for the real purpose of acquiring plant or machinery for use in a trade.

For a more detailed update on the Court's decision, see Legal update, Tower MCashback: HMRC wins in Supreme Court (detailed update) (www.practicallaw.com/8-506-0650).

Case: HMRC v Tower MCashback LLP 1 and another [2011] UKSC 19 (www.practicallaw.com/9-506-0579).

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