Arrangements had no commercial purpose

The taxpayers took part in a marketed tax avoidance scheme designed to increase in their expenditure on plant and machinery qualifying for capital allowances. This was effected by a sale and leaseback arrangement with a bank.

HMRC denied the additional capital allowances claimed.

The First-tier Tribunal dismissed the taxpayers’ appeal. It accepted HMRC’s argument that in reality the taxpayer never ceased to own the assets so no additional capital allowances were due.

The Upper Tribunal overturned this decision and HMRC appealed to the Court of Appeal.

Sir Launcelot Henderson who delivered the judgment said the appeal concerned a scheme ‘designed to subvert the basic scheme of the legislation’ that would allow a business to sell assets - on which it was claiming capital allowances – to a bank and reacquire them at no additional cost in a way that would generate fresh allowances.

The judge said: ‘No rational legislature could...