Balhousie Care Group boss Tony Banks is celebrating a “historic” victory in a £800,000 tax battle with HMRC.
Supreme Court judges sided with the Perth firm in a dispute which has lasted for several years.
The legal dispute centred around Balhousie’s purchase of its Huntly Care Home in 2013.
To finance the acquisition and further developments, it entered into a complex sale-and-leaseback arrangement with Target Healthcare REIT.
Balhousie conveyed the land to Target who immediately granted the land on a long lease back to Balhousie.
Unexpected tax demand
HMRC considered this arrangement involved the disposal of Balhousie Care’s entire interest in the care home.
It imposed a VAT charge in excess of £800,000 as well as a penalty notice.
Meanwhile Balhousie sought a zero VAT allowance permitted for companies involved in the construction or conversion of buildings used for residential purposes.
The dispute has worked its way through several courts.
Balhousie successfully appealed to the First-tier Tribunal. But HMRC’s approach was upheld by the Upper Tribunal and Inner House of the Court of Session.
‘We kept the faith’
The latest ruling was issued this week to the delight of Mr Banks.
He said: “This is not only a historic victory in the legal sense but also for the business community as a whole.
“I am delighted with the unanimous Supreme Court ruling and proud that we kept the faith during what became a lengthy and costly legal process.
“Huge thanks are due to (law firm) Brodies for navigating previously uncharted legal territory.”
Balhousie is also seeking its legal fees and interest payments.
Lucy McCann, litigation partner at Brodies LLP who advised Balhousie, said: “We expect the Supreme Court’s ruling on Balhousie’s case to have a significant impact on the use of sale and leaseback structures.
“It provides clarity that such vehicles can retain a zero rating for VAT, if appropriately structured.
“This decision extends beyond the care home sector and will be welcomed by both business and professional advisers.”
An HMRC spokesperson said: “HMRC is considering the judgement carefully.”