Business Rates Mitigation Schemes – The Court Of Appeal Refuses To 'Pierce The Corporate Veil'

In a decision to be welcomed by ratepayers, the Court of Appeal in Rossendale Borough Council and others v. Hurstwood Properties (A) Limited and others [2019] EWCA Civ 364 has confirmed that certain types of mitigation schemes are not sufficient to pierce the corporate veil and transfer liability for business rates to the beneficiaries of those schemes.

Liability for business rates

National non-domestic rates, commonly known as business rates, are normally charged to the person entitled to legal possession of commercial premises, whether or not that person is in actual occupation. However, if a landlord is neither in occupation nor entitled to possession (i.e. because they have let the premises to a tenant) the liability to pay business rates falls on the occupying tenant.

In those circumstances, the occupying tenant will need to have the benefit of the relevant statutory exemptions if it wishes to mitigate its liability for business rates.

Piercing the corporate veil and the Ramsay principle

The key legal concepts considered in this case are:

the doctrine of "piercing the corporate veil"; and the court's ability to disregard artificially created losses for the purpose of tax avoidance (the principle in Ramsay). Piercing the veil

Although a topic currently disputed by senior members of the judiciary, it is widely accepted that, in very limited circumstances, a court can "pierce the corporate veil", and hold a third party liable where liability would normally fall on the "pierced" company. Those circumstances are:

where the court determines the company is in effect an agent of the third party or a means of deception to disguise the true involvement of the third party as an owner of assets (as per the Supreme Court in Prest v. Petrodel Resources Ltd [2013] UKSC 34); and the "evasion principle" demonstrated in Jones v. Lipman [1962] 1 WLR 832, where a legal right against the person in control of the company exists, independent of that company's involvement, and the company is imposed in the circumstances for the purpose of frustrating enforcement of that legal right. The Supreme Court in Prest was clear that, while the test may apply in other circumstances, this will be extremely rare.

The principle in Ramsay

In the case of WT Ramsay Ltd and others v. Inland Revenue Commissioners and others [1982] A.C. 300, the House of Lords (as it then was) held that, where a transaction:

could be interpreted under the relevant legislation (i.e. giving rise...