A High Court judge has ruled against a non-domestic rates avoidance scheme, leaving the property owner liable for thousands of pounds in unpaid tax.
The case concerns three unoccupied office units in a property in Beeston, Leeds. The owner, Isle Investments Ltd, paid a company called Crusader to put in place an arrangement that would allow Isle Investments to avoid non-domestic rates.
In a ruling handed down on 19 February, High Court Judge Mr Justice Fordham ruled that the arrangement was a sham, because its sole purpose was to avoid business rates. His ruling backs a decision made in the magistrates court following a legal challenge from Leeds City Council.
According to the ruling, Crusader leased the units for short, 21-week lets to a succession of newly-created shell companies for £1, leaving the shell companies – not Isle Investments – liable for the tax.
The judge quoted the magistrates court judgment, which said that the “reason new companies entered into each of the 21-week leases was because if the previous incarnation of the company was chased for business rates, it would have put it into administration… they entered into leases knowing that the liability to pay rent was nominal, and with no intention of paying the business rates when demanded.”
In his ruling, Mr Justice Fordham backed the magistrates court judge and rejected all of Isle Investments’ grounds for appeal.
Barrister Bill Hanbury, who represented Leeds City Council, said the ruling is likely to have implications for the future.
“Local authorities are left with responsibility for collection of business rates, so there is going to be massive pressure on them and national government to collect as much as they can when business gets back to normal in the next year,” he said.
In this particular case, “the company running the rates avoidance/mitigation scheme (Isle) used leases which had no commercial reality and were mere pretences”. In Mr Justice Fordham’s view, “The judge below had been entitled to conclude that they were shams.”.
This is at least the the second case relating to business rates avoidance plans to go before the courts in recent months.
In December the Court of Appeal invalidated a scheme that used property guardians to avoid the tax.
Isle Investments Ltd v Leeds City Council
Administrative Court sitting in Leeds (Fordham J) 19 Feb 2021
George Mackenzie (instructed by Town Legal LLP) for the Appellant
William Hanbury (instructed by Leeds Legal Services) for the Respondent
