LSS50400 - Example 4: Settling using the correct legislation

In respect of a specific case risk transaction, the case team believes there are two areas of legislation which could apply. One of these areas of legislation would give the customer access to some amount of tax relief (Route A) thereby lowering the Customer’s overall tax bill whereas the other would not (Route B) make the relief available.

Net Revenue Route A - £150m

Net Revenue Route B - £160m

Following further fact finding it becomes increasingly clear that the correct treatment of this transaction would not give rise to any relief (Route B) and stakeholder partners agreed that this would be the correct treatment. The Customer was clear that, should HMRC decide to pursue a treatment which would not entitle them to relief, they would seek to pursue the case to litigation.

In this instance, it is clear that HMRC should not settle for the outcome which would allow the Customer to claim relief. This is not an outcome which a Tribunal would be expected to arrive at nor is it one which HMRC believes is the correct treatment. The correct outcome in this case would result in £160m of yield and is the only possible outcome. Settling for £0 or £150m would not be LSS compliant.

HMRC should issue assessments based on its view of the legislation applicable to the transaction and be prepared to litigate if required. This may need to be subject to local or formal governance arrangements before a decision is made to pursue to litigation.