The Court of Appeal has ruled that NT Advisors’ latest scheme consists of a series of circular payments designed to generate tax deductions with no genuine commercial purpose, therefore no tax relief is due.

At stake was £143m in a lead case covering 304 investors.

Andrew Chappell is the lead case in the current litigation who has appealed against an amendment made to his self assessment tax return for the year 2005-06. The purpose and effect of the amendment (made by a closure notice dated 1 November 2010) was to disallow a deduction from his total income for that year totalling £303,123. The effect of the deduction (if allowable) would have been to reduce Mr Chappell’s total income from £553,321 to £250,198. On that basis he would have been entitled to claim a repayment of income tax of £131,039.48.

HMRC argued that even if Chappell was otherwise entitled to relief under regulation 2B(3) that relief was limited to higher rate tax relief by virtue of the operation of section 3, Income and Corporation Taxes Act 1988.

This provides: ‘Where a person is required to be assessed and charged with income tax in respect of any property, profits or gains out of which he makes any payment in respect of (a) any annuity or other annual payment (not being interest); or (b) any royalty or other sum in respect of the user of a patent; he shall, in respect of so much of the property, profits or gains as is equal to the payment and may be deducted in computing his total income, be charged at the basic rate’.

In the ruling, Lord Justice Patten, stated: ‘We are not concerned on this appeal with the concept of a payment, legal or otherwise, but with whether the loan transaction in this case was the type of contract contemplated by regulation 2B.’ As such, the appeal was rejected.

This is a long running dispute with Mr Chappell’s case appearing in the First Tier Tribunal in December 2012 ([2013] UKFTT 098 (TC)) which was then appealed in the Upper Tribunal in July 2014 ([2014] UKUT 0344 (TCC)).

HMRC has won a number of cases against NT Advisors and claims to have now protected more than £900m in tax with previous cases including the Working Wheels scheme.

The Working Wheels scheme involved users claiming to be self-employed used car traders and making large tax deductions on finance fees incurred to borrow money to invest in their ‘trade’. This case was dismissed by the First Tier Tribunal in 2014 and was estimated to have resulted in recovery of £290m in unpaid tax.

The latest ruling on NT Advisors, Andrew Chappell v The Commissioners for Her Majesty’s Revenue and Customs Case No: A3/2014/3399 is available here.