23 March 2020

Cape & Wiseman v HMRC; (FTT)

The First-tier Tribunal released its Decision in Cape Industrial Services Limited & Robert Wiseman and Sons Limited v The Commissioners for Her Majesty’s Revenue and Customs. To see the approved Decision, click here.

David Milne QC and Barbara Belgrano, Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents.

1) The FTT has held that, applying a purposive approach to interpreting legislation, in accordance with the “seminal decision” in Ramsay, a “double-dip leasing scheme”, intended to enable a taxpayer to claim capital allowances twice over on a single amount of expenditure,  did not work.

2) The scheme attempted to exploit a perceived weakness in the interaction between the basic capital allowances provisions for Plant and Machinery and the horrendously complicated “short-term funding lease” and “long- funding lease” regimes. In a nutshell, the scheme required the appellant, which already used the P&M concerned in its trade, and had claimed capital allowances on it in the usual way, to sell it to a bank and immediately lease it back for 3 or 4 weeks with cross-options to buy/sell back to the appellant at the end of the lease.

3) For the scheme to work, the sale of the P&M to the bank had, as a first step, to constitute a “disposal” for capital allowance purposes within the meaning of s61(1)(a) of the CAA, which in turn meant that the Appellant had to “cease to own” the P&M, but the FTT held that, in view of the commercial inevitability of the reacquisition taking place after 3 or 4 weeks, and the continued use of the P&M in the Appellant’s trade in the interim, the Appellant never “disposed of/ceased to own” the P&M within the meaning of s61(1)(a), so the tax avoidance scheme never got off the ground.

4) Interestingly, in its final paragraph, the FTT held that, had the Ramsay approach not applied, the scheme would have “worked” technically.

See para 313:

“The unfortunate result in this case [double allowances] is the result of a gap or glitch in the legislation…No doubt the legislature would not have wanted to produce this result had they considered the interaction of the two sets of rules in this particular scenario. However….unpalatable as it  may be, that is the result which the legislation produces. Such a gap in the legislation can be fixed only by the legislature amending the rules…. and not by the tribunal unduly straining the plain meaning and effect of the relevant provisions”

Maybe, in a few years’ time, the Supreme Court will get a chance to say whether it agrees!

5) The decision of Judge Harriet Morgan is particularly notable for the comprehensive and valuable review, at paras 76 to 278, of Ramsay and all the major cases which have followed and developed it, a virtual textbook on the subject.