The UT has dismissed the LLP’s appeal in this case regarding LLPs and sideways loss relief.
The recent appeal in Acornwood LLP & Ors v HMRC has been dismissed by the Upper Tribunal (UT) which held that the First-tier Tribunal’s (FTT’s) findings were reasonable. The FTT judgment was released in 2014 and received a lot of press coverage at the time, most of it reported under the ‘Icebreaker’ name. The FTT ruled that the LLPs were ‘tax avoidance schemes’ which did not generate the purported trading losses which the partners sought to set off against their other income and so reduce their tax liabilities. We understand that the judgment affects 51 partnerships in total and the tax at stake is £336 million.
What the LLP did is best understood using indicative figures as follows:
The LLP claimed that the £95 it had paid to Shamrock was a revenue expense wholly and exclusively paid for the purposes of the LLP’s trade and as such, the LLP incurred a first year loss of £95. This loss would then be available to the partners to reduce their tax liability on other income and claim a tax refund.
The FTT however found that the monies paid to Shamrock were not wholly and exclusively for the trade due to the ‘circular’ financing employed. As such, the payment to exploit the IP which generated the partnership loss was held by the FTT not to be deductible for tax purposes and so no loss was available to offset.
While the decision of the FTT concerned appeals by both the LLPs on the wholly and exclusively point and by the partners as to whether, if the losses did exist for tax purposes, they could be used to offset their other income, the UT heard only the appeal from the LLPs. There were two main substantive appeal points as follows:
We now wait to see if the LLPs will seek leave to appeal to the Court of Appeal
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