Stagecoach tax avoidance scheme defeated in HMRC challenge

A tax avoidance scheme used by the Stagecoach group in an attempt to cut its tax bill has been held ineffective by the First-tier Tribunal on a challenge by HM Revenue & Customs.

The bus and train operator had tried to reduce its corporation tax liability for 2010-11 by £11m through a complex scheme that involved moving money between companies in the Stagecoach group in an attempt to create a large loss in one company without an equivalent gain in the other companies. 

Ruling against the scheme, the First-tier Tribunal of J Gordon Reid QC and Dr Heidi Poon, sitting in Edinburgh, agreed with the grounds put forward by HMRC, which turned on the proper application of ss 307 and 320 of the Corporation Tax Act 2009. The tribunal held that the debit in question arose from a recapitalisation and was not a loss arising from a loan relationship.

The case was a test one seen as affecting 11 similar cases involving other companies, with total tax at stake of £179m.

HMRC’s director general of business tax, Jim Harra, commented: “This was clear tax avoidance. It was an attempt to manufacture losses to deny the public purse the tax due.

“We will challenge any attempt to abuse the rules to avoid paying what is owed.”

A Stagecoach Group spokesman said: "We believe it is right that we pay our fair share of taxes and we are committed to doing so. The case involved the interpretation of historical and technical issues which are no longer relevant under current legislation, and no additional tax is payable by Stagecoach as a result of the ruling.

"These historic transactions involved Stagecoach investment in its subsidiaries, and the First Tier Tribunal ruling did not challenge the commercial background behind those transactions. The tribunal did not however agree with the tax treatment Stagecoach had adopted and we will take time to consider the findings of the tribunal before deciding on the way forward. Regardless of the outcome, the case does not impact our expectation of profit or our effective tax rate."

Click here to view the tribunal's decision.