A recent case was heard at the First-Tier Tribunal regarding the conflict between commercial decisions and tax avoidance motives (A Fisher, S Fisher, P Fisher  v HMRC).  It can clearly be seen that legally reducing a tax liability could be a commercially sensible decision, but it was previously assumed that this would not be enough to override the anti-avoidance provisions that apply where there is a tax avoidance motive.

The case in question involved a family bookmaking business, who took the decision to move the business to Gibraltar in the 1999/2000 take year, in order to obtain more favourable treatment regarding betting duties than applied in the UK.

HMRC took issue with this and challenged the, under the anti-avoidance provisions on the transfer of assets abroad.  They raised assessments charging income tax the years 2000/01 to 2007/08 under the rules in force during those years.

The taxpayers appealed claiming that there was no avoidance as they had moved the business to Gibraltar as a commercial decision in order to compete with other bookmakers.  Saving tax was therefore a side effect and not the reason for relocating.

The First-tier Tribunal did not agree, finding that the transfer would not have gone ahead if it were not for the lower betting duty in Gibraltar.  This did not conflict with the decision to move being made for sound commercial reasons, however this did not prevent there being a tax avoidance motive.

The taxpayers made a further argument regarding the EU rights of freedom of establishment and freedom of movement of capital applied, but the tribunal determined that the rules were not relevant for movements between the UK and Gibraltar.  They did, however, apply to one family member who was an Irish national.

The taxpayers also made a claim that HMRC’s assessments were not valid, under the discovery provisions in TMA 1970, s 29, as the tax officer should have been aware of the relevant information as a result of responses to their enquiries.  The tribunal agreed that the conditions for making a discovery assessment were not satisfied for 2005/06 and 2006/07.  The appeals for the remaining years were dismissed.

Whilst the Tribunal confirmed that a tax avoidance motive could also be part of a commercial decision, it is clear that the anti-avoidance provisions are drafted widely enough to catch such situations.  This is because the existence of commercial reasoning does not overrule the fact that there was a tax avoidance motive as well which was inextricably linked.

A recent case (J. Thorne) found in favour of HMRC, so denying a taxpayer’s claim for loss relief.  This was on the grounds that the taxpayer’s loss making business was uncommercial.  The business was described as horse breeding and farming on the Self-Assessment Return, with integrated accounts.
With a first reading of the case it is hard to be unsympathetic to the technical issues raised by HMRC.  In terms of breeding, at much of the key time there were 3 horses in the business, a gelding, a mare over breeding age and an unproven filly.
I suspect many people may query how each of these fitted into  a business model for a breeding programme (as opposed to an interesting hobby or ‘dilettante venture’ as the case puts it).  Hence, ‘uncommercial’ does not seem too much of a surprise as a conclusion.
A second reading though raises questions of whether things could have been improved by better planning.

  1. The ‘farming’ element incorporated what seemed to be a separate strand of business, that of growing asparagus.  This made a loss, because of the slow growth and development of asparagus plants, but it seems to have been acknowledged this element of the loss was commercial.  By that time, it was too late for the taxpayer though, because the question before the Tribunal was based on the integrated claim, showing a single set of loss making results.


  1. Could more have been made of the point that whilst S9 ITTOIA 2005 refers to all farming in the UK by a person representing a single trade, this does not automatically bring in hobby elements, and horse breeding and equestrian events are obviously radically different in nature to growing asparagus.  The Tribunal actually suggests that they may be treated separately in future returns.


  1. The Tribunal found that the fact that asparagus represents a long term crop does not preclude early losses from qualifying as ‘commercial’, available to be offset against general income.  When added to another loss making business strand though it just detracts further from the prospect of commercial profit.  The case evidence though seems to focus on the equestrian side, rather than the asparagus farm.

Of course, if they had won everything then the client would have been happy.  Accountancy advice though is not just about adding up figures, it is thinking what the numbers are to be used for and then working out the most meaningful way of presenting them.