Next ended up in court… and lost
Clothing retailer and high street favourite Next has been landed with a £22.4m bill after a court found it had avoided tax.
The company diverted UK profits to offshore subsidiaries to claim tax relief, exploiting a loophole which aims to stop companies being taxed twice on their profits.
It used a rate-booster scheme to avoid corporation tax by exploiting the lower rate of tax paid by the foreign subsidiary, and handing the profits back to the UK company.
Next described the court case as “a technical debate around complex legislation”.
More than £500m has been brought in by HMRC after changing the rules about rate-boosters in 2005 and 2009. Companies using about 70 rate boosters have settled out of court, with only P&O Ferries and Next facing a judge so far.
The court ruled against P&O but the company is appealing the judgment.
HMRC’s director general of business tax, Jim Harra, said: “This case shows how HMRC takes effective action against big businesses that try to avoid paying tax through convoluted, artificial avoidance schemes. HMRC expects all businesses to steer well clear of such schemes.”