Reorganisation had an unallowable purpose

The taxpayer companies were members of the Kwik-Fit group. After being acquired by another business the group’s intra-group debt was reorganised. Under the reorganisation a number of intra-group receivables owed by the taxpayers were assigned to Speedy 1 Ltd a holding company in the group. The interest rates on the amounts owed to Speedy 1 were also increased. Speedy 1 had £48m non-trading loan relationship deficits (NTDs) carried forward from earlier periods which could not be used by other group members. It was anticipated that the NTDs would offset Speedy 1’s interest income while the taxpayers would generate tax relief in respect of their interest liabilities which could either be used by them or surrendered by way of group relief.

HMRC decided the reorganisation triggered the unallowable purpose rule (CTA 2009 s 441) and denied the taxpayers’ claims to tax relief on the interest.

The First-tier...