UK and International Tax news
HMRC and Loan Relationship Enquiries
Thursday 24th July 2025
HMRC are writing to corporate taxpayers where enquiries into loan relationships have been opened and inviting them to consider their tax positions given Court of Appeal decisions in three recent cases.
The CA has recently considered the application of the unalloHMRC are writing to corporate taxpayers where enquiries into loan relationships have been opened and inviting them to consider their tax positions given Court of Appeal decisions in three recent cases.
• BlackRock Holdco 5 LLC v HMRC [2024] EWCA Civ 330
• Kwik-Fit Group Ltd and other companies v HMRC [2024] EWCA Civ 434
• JTI Acquisitions Company (2011) Ltd v HMRC [2024] EWCA Civ 652.
Although the unallowable purpose legislation applies on a case by case basis according to the particular facts, HMRC consider the principles derived from these cases have broad application and are relevant to certain enquiries.
The CA’s decision in each case show the importance of testing the asserted purposes against the evidence, especially contemporaneous documentary evidence.
With regards to BlackRock and JTI, each involved an external acquisition. HMRC emphasise the approach of the Court with the questions of why the taxpayer entered into the loan relationship, and was the main purpose to obtain a tax advantage.
In JTI, Newey LJ followed the reasoning in BlackRock in stating a set of principles to assess, including whose purposes are relevant, and to what extent the wider context is relevant and shows the company’s purpose. In para 51, Newey LJ made six points:
(i) “Even where a company entering into a loan relationship was brought into being to further a wider scheme, the company’s purposes in becoming a party to the relationship are not necessarily those for which it was created or those of the wider scheme
(ii) On the other hand, the context, and in particular the purposes of the wider scheme which the company was intended to advance, may, depending on the facts, bear on the company’s purposes in entering into the loan relationship
(iii) The company will have a “tax avoidance purpose” within the meaning of s.442 CTA 2009 if it is seeking to play its part in a scheme which, to the knowledge of the relevant decision-makers, was designed to secure a tax advantage
(iv) If it can be said that the company wished to go along with such a scheme whatever its purposes might be, it may well be that the company has an unallowable purpose regardless of whether it appreciates that the scheme was designed to secure a tax advantage. It may suffice that those promoting the scheme have that intention
(v) The fact that the decision-makers consider that entering into the loan relationship is in the company’s interests for other reasons does not preclude them from having a “tax advantage purpose; and
(vi) A Tribunal determining whether a company had a “tax avoidance purpose” is not required to adopt a “tunnel-visioned approach looking simply at how the company was proposing to use the money it was borrowing.”
HMRC also refer to the FTT decision in Syngenta Holdings Limited v HMRC [2024] UKFTT 988 (TC), in applying those principles to a wholly internal group transaction.
In their decisions in the above cases, the courts considered all the evidence to reach a realistic view of the purposes of the company entering into a loan relationship. HMRC are taking the same approach in their enquiries. HMRC state they will continue to investigate and challenge cases if they believe the facts, circumstances and evidence shows one of the company’s main purposes for entering into a loan relationship was to avoid paying tax, and all or some of the debits should be attributed on a just and reasonable apportionment to that main tax avoidance purpose.
If you would like more detail on the above, please contact Keith Rushen on 0207 486 2378.
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