The multimillionaire founder of U.K. discount fashion store, Matalan, has won an appeal against the U.K. tax office over an 84 million pound ($110 million) tax bill linked to the sale of his shares.
The April 12 ruling at the First-Tier Tribunal tax court, released April 17, means that John Hargreaves doesn’t have to repay the tax demanded. But the tax office has also been granted permission to appeal the ruling.
The tax bill is for capital gains made by Hargreaves upon the sale in 2000 of 29.3 percent of his holdings. He received 231 million pounds in total when he disposed of his holdings.
Hargreaves moved to Monaco in the same year in March and filed his tax return for 2000-2001 as a nonresident. This wasn’t challenged until 2007, when HMRC issued a “discovery” assessment demanding £84 million pounds in tax. These special tax assessments are issued if the discovery of tax owed is made later than 12 months of a return being filed, the usual period within which the tax office would challenge a filing.
However, an HMRC investigation, involving correspondence with Hargreaves’ advisers PwC, show that tax officials had already discovered the nature of his residency by 2004. But no action was taken against Hargreaves until HMRC issued a demand for tax in 2007.
Hargreaves disputed HMRC’s assessment that he was domiciled in the U.K. and was therefore liable for capital gains tax on the gains made upon the sale of his Matalan holdings.
He lost the the 2014 case to determine his residency, which revealed details of frequent private jet trips to his Lancashire home, in the same county as Matalan’s head office. The court ruling showed that Hargreaves maintained two cars in the U.K., continued to see his U.K. doctor and dentist and had hospital and physiotherapy treatment in the U.K.
Matalan didn’t respond to a request for comment.
Hargreaves’ defense team then centered the case on the timing of the demand from the tax office. They argued that the tax office had the option of making earlier discovery of Hargreaves’ domicile status, but chose not to.
When the U.K. tax office makes a discovery of an issue with a tax return that happened historically, the clock for when they must act on this knowledge starts at the point of discovery of the issue. They then have 18 months to act on this discovery or it is considered “stale.”
HMRC’s tax inspector “cannot have made a discovery on the basis of this additional information which merely strengthened his original view that Mr Hargreaves was non-UK resident and ordinarily resident,” the ruling by Judge John Brooks said.
“This is just one of several challenges recently where HMRC has lost over the issue of staleness of their case, but this one is particularly interesting because of the amount of tax at stake,” said Patricia Mock, tax director at Deloitte.
A spokesperson for HMRC said it is “considering the judgment carefully.”