Iliffe News avoidance scheme spiked by FTT
14 Nov 2012
A multi million pound tax avoidance scheme which claimed to license local newspaper mastheads to avoid tax has been successfully challenged by HMRC in court.
The First-tier Tribunal ruled that subsidiaries of Iliffe News and Media Limited were not entitled to a tax deduction for payments amounting to £51.4m they had made to their parent company to use their own mastheads.
HMRC said that between 2003 and 2005 various trading subsidiaries of Iliffe News and Media Limited - which publishes a number of titles such as Cambridge News and the Harlow Star - assigned unregistered trade marks (mastheads) to the parent company and then licensed them back for a fixed term in return for a lump sum payment.
The group claimed the lump sum fee in the hands of the licensor was within the capital gains regime and claimed that no gain, no loss provisions applied. The trading subsidiaries then claimed that the grant of the licence was a new intangible fixed asset enabling them to claim tax relief on the payments.
The tribunal heard how senior executives at Yattendon - the ultimate owner of INML - had sought to make the highly profitable positions of the subsidiaries (one was the most profitable in the country) more opaque for three reasons. One was to deter rival newspapers from launching free editions to capture a slice of the lucrative advertising spend and make it harder for the National Union of Journalists (NUJ) and editorial staff to press for higher wages when they could see how successful the company's financial position was. The other was the more favourable tax position from the restructure.
In a 2003 email from Tony Morton, Yattendon's finance director from 1993 -2006, to E&Y, which was used in evidence, he wrote: 'What we would like to do is to be able to reduce reported profits in the newspaper subsidiaries, since the levels of profit become common knowledge and could lead to union claims.
'They are also highlighted in a publication called the UK Press Directory, which lists companies by various measures and we are not too happy to come out top of the league on the profit measures. Any adjustment is only worthwhile if it can be significant, just playing at the edges is not a lot of value.'
HMRC believe the tribunal's decision has 'protected' £5.6m and up to £104m in 67 similar cases.
Jim Harra, HMRC's director general for business tax, said: 'This is an important ruling against a marketed avoidance scheme and the latest in a series of successful HMRC challenges to such schemes. We will continue to challenge artificial arrangements such as this in the interests of the vast majority of businesses and people who choose to play by the rules.'
Legislative changes were made in December 2005 in a bid to stop such schemes operating.
The decision was released on 1 November.