New Judgment: HMRC v Tower MCashback LLP1 & Anor  UKSC 19
11 Wednesday May 2011
On appeal from:  EWCA Civ 32
This case raises two issues of tax law. The first (“the procedural issue”) concerns the scope of arguments which the HMRC advanced in a taxpayer’s appeal against a closure notice which the HMRC issues to conclude its enquiry into a tax return. The second issue (“the expenditure issue”) concerns the proper approach to determining whether expenditure had been “incurred” for the purposes of the Capital Allowances Act 2001. The Supreme Court unanimously allowed the HMRC’s appeal and dismissed the LLP’s cross-appeal. In relation to “the procedural issue”, the scope and subject matter of the appeal defined by the conclusions stated in the closure notice. The court stated that there was a public interest in taxpayers paying the correct amount of tax and it is one of the duties of the Commissioners to have regard to that public interest. In relation to “the expenditure issue”, entitlement to capital allowances required there to have been real expenditure for the real purpose of acquiring plant or machinery for use in a trade. The Special Commissioner found that the market value of the software was “materially” low and 60% of the member’s loan was likely to be unpaid and waived at the end of the ten year period. These findings justified the conclusion that the money which the investor members borrowed was not used as expenditure in the acquisition of software rights.