Key Takeaways
- In Swiss Centre Limited v HMRC, the Upper Tribunal refused a corporation tax deduction for the £33.5m NAMA-era group payment and dismissed the company’s appeal in full.
- The tribunal required a direct causal connection between the payment and the company’s own loan relationship. A wider group commercial benefit was not enough.
- A payment that settles or reduces another connected company’s debt may be treated as a distribution, not a deductible expense, even where the money goes straight to the lender.
- A guarantee-related payment does not automatically create a deductible loan relationship loss through subrogation or a resulting debt.
- Where a payment serves the wider business rather than the paying company, the unallowable purpose rules can deny any debit that would otherwise arise.
- Findings of fact made by the First-tier Tribunal are very hard to overturn on appeal, so the evidence must be right at the first hearing.
- Our solicitors can assess group-payment records and help prepare or defend an HMRC challenge before the dispute escalates.
- Go Legal is rated Excellent with over 300 five-star reviews and 5/5 on Trustpilot and Google, placing our solicitors among the best-reviewed litigation lawyers in England and Wales.
Why Did the Upper Tribunal Deny Swiss Centre’s £33.5m Corporation Tax Deduction?
The deduction was refused because the payment discharged debts across a wider business rather than arising directly from the paying company’s own loan relationship. In Swiss Centre Limited v The Commissioners for HMRC [2026] UKUT 00227 (TCC), the Upper Tribunal (Tax and Chancery Chamber) dismissed the company’s appeal and left the First-tier Tribunal’s decision in HMRC’s favour intact.
The money went to the National Asset Management Agency (NAMA) from the proceeds of the 2011 sale of the Swiss Centre. The tribunals treated it as value passed to connected, indebted entities, not as a cost of the company that paid it.
The case matters to any company that has paid down a connected business’s debt, obtained a release of security or honoured a guarantee during a restructuring. HMRC and the tribunals will ask whose debt was reduced, why the money was paid and what the documents created at the time actually show.
Background: The NAMA-Era Group Payment Behind the Swiss Centre Dispute
Swiss Centre Limited (SCL) belonged to the “MAR Connection”, a collection of companies and partnerships held by Mr McAleer and Mr Laverty, their families and family trusts. It was run as a single composite business with centralised finance, and the two men made all key strategic decisions.
The MAR Connection bought SCL in 2004, when SCL owned the Swiss Centre, and redeveloped the property. SCL’s immediate parent, Leicester Square Investments Ltd (LSI), borrowed from AIB to fund the development.
By August 2008, the MAR Connection had total assets of just under £1.05 billion and debt of nearly £667 million. After the financial crisis, many of its development entities were worth significantly less than their loans. Lenders began examining how its borrowings and guarantees were interlinked.
In October 2009, LSI and SCL gave a joint and several guarantee of €11,500,000 for borrowing by Lavangna, another MAR Connection company developing land in County Meath. This Lavangna Guarantee was secured by, among other things, a charge over the Swiss Centre.
In December 2009, the Capital Trust was set up as a remuneration trust for SCL’s employees and their families. Those involved believed that SCL had transferred beneficial ownership of the Swiss Centre to it.
NAMA later acquired MAR Connection loans from several banks, including the LSI Facility and the Lavangna Facility. Mr McAleer and Mr Laverty had personally guaranteed £21 million owed to NAMA. There was a real risk that the guarantees would be called and that they would be made bankrupt.
At the time of the sale, the MAR Connection’s borrowings stood at £642 million, of which £351 million had transferred to NAMA. LSI owed £106 million under the facility that financed the Swiss Centre’s development.
NAMA wanted £163 million from the Swiss Centre sale applied to MAR Connection debts. It demanded a legally binding allocation of the surplus before it would consent to the sale.
On 24 November 2011, the Swiss Centre was sold to Al Faisal Holding Ltd for £197.5 million. On the same day, the parties signed the NAMA Deed. SCL, LSI and the Capital Trust agreed that the net proceeds would be applied towards items including:
- £105,279,323.57 under the LSI Facility.
- £1 million of outstanding fees under the LSI Facility.
- €11,500,000 “on account of the repayments under the Lavangna Guarantee”.
The Deed also required £163 million of the proceeds to be paid into solicitors’ escrow for release to NAMA.
Development properties held by other indebted MAR Connection companies were transferred into subsidiaries of Larkmount Ltd, a holding company owned by the Capital Trust. NAMA received more than the properties’ market value but less than the total debt, and released its security over them. The difference between the properties’ value and the amount paid to NAMA was called the “Additional Sum”.
SCL claimed a deduction for the Additional Sum together with the €11.5 million connected with the Lavangna Guarantee, a disputed sum of £33.5 million, in its corporation tax computation for the accounting period ending 31 March 2012. HMRC refused it.
The Issues: What Did the Upper Tribunal Have to Decide?
The central question was whether SCL’s claimed debit arose from its own qualifying loan relationship, or instead reflected debt restructuring across the MAR Connection. That broke down into several questions any company in a similar position would ask.
Why Was the Money Actually Paid?
SCL argued that NAMA’s threat to withhold the DS1, the release of NAMA’s charge over the Swiss Centre, caused the payment. Its witnesses said there had never been an intention to pay the Additional Sum otherwise. SCL said the First-tier Tribunal had downplayed that threat, ignored witness evidence and given inadequate reasons.
HMRC argued that the tribunal had weighed all the evidence. It was entitled to prefer contemporaneous documents and written statements, and to find that the Additional Sum had been under negotiation for months and was paid for several reasons.
Did Paying NAMA Directly Make It SCL’s Own Expense?
SCL argued that the Additional Sum was paid directly to NAMA, so it was SCL’s cost. It also said the Lavangna payment was commercially made under the guarantee, even though the guarantee had never formally been called.
HMRC argued that direct payment was only the mechanism. In substance, value was applied for the indebted entities by reducing their debts.
Did the Additional Sum Qualify as a Loan Relationship Debit?
It was accepted that SCL had a loan relationship with LSI. SCL argued that the Additional Sum fairly represented a loss arising from the grant or release of the charge, or an expense directly incurred because of that related transaction.
HMRC argued that a direct causal connection was required, and that the payment had a wider, inseparable set of causes.
Could the Lavangna Guarantee Payment Create a Loss Through Subrogation?
SCL argued that, by paying the €11.5 million, it stepped into NAMA’s shoes against Lavangna. It relied on Simpson v Smyth [1999] Ch 340 and section 5 of the Mercantile Law Amendment Act 1856. It said this gave it a money debt arising from a lending transaction, and an immediate loss because Lavangna was insolvent.
HMRC argued that SCL had not settled Lavangna’s debt, that no debt arose from a transaction for lending money and that any rights acquired were worthless.
Did the Unallowable Purpose Rules Apply?
HMRC argued in the alternative that any Lavangna debit would be denied because the payment served the wider MAR Connection, not SCL’s own business. SCL said the guarantee served its commercial purposes and any other purpose was merely incidental.
Was the Payment Capital Gains Enhancement Expenditure?
SCL alternatively claimed that £24 million was deductible in calculating its gain on the Swiss Centre under section 38(1)(b) of the Taxation of Chargeable Gains Act 1992. That provision covers expenditure wholly and exclusively incurred on an asset to enhance its value, where the enhancement is reflected in the asset’s state or nature on disposal. It also covers expenditure wholly and exclusively incurred in establishing, preserving or defending title to, or a right over, the asset.
The Decision: Why the Corporation Tax Claim Failed
The Upper Tribunal dismissed SCL’s appeal on every ground. The evidence did not establish a direct, company-specific basis for the deduction, and the challenge to the First-tier Tribunal’s findings was simply disagreement with conclusions it was entitled to reach.
The Findings on Why the Money Was Paid Stood
The First-tier Tribunal had recognised NAMA’s leverage and its threat over the DS1. It nevertheless found that the Additional Sum “had been on the table for some 6 months” and was paid for a range of reasons. These included completing the sale smoothly, dealing with NAMA facilities without full repayment, avoiding enforcement, keeping development properties free of bank security and letting the MAR Connection move on.
It also found that the fear of Al Faisal walking away had become overstated. Exchange had been delayed and Al Faisal was prepared to wait for the NAMA documentation to be finalised. The Upper Tribunal concluded:
“The payment of the Additional Sum was plainly for commercial expediency when considered in the wider context of the transaction, not for reasons of compulsion arising from the Swiss Centre Charge.”
Applying Volpi v Volpi [2022] EWCA Civ 464, the Upper Tribunal asked whether the decision was “one that no reasonable judge could have reached”. It was not. The First-tier Tribunal was entitled to prefer written witness statements and contemporaneous documents over oral evidence that narrowed the stated purposes, and its reasons were adequate.
Paying NAMA Directly Did Not Change the Payment’s Substance
The money was mechanically paid to NAMA, but it was paid on behalf of the indebted entities to reduce their debts, facilitate the purchase and future development of their properties, release charges at a discount to face value and secure the release of personal and cross-guarantees. The tribunal stated:
“Either way, it is patently clear that what was happening was a discharge of debt across the MAR Connection rather than the incurring of costs in respect of the sale of SCL’s single asset.”
The sums were first recorded as loans from SCL to Larkmount subsidiaries or a partnership. However, the relevant entities were insolvent at 31 March 2011, so only amounts equal to the properties’ market values could be shown as loans. The excess, provided without any expectation of repayment, was a gift or distribution in the hands of the indebted entities.
Accounting evidence that assumed a single purpose carried little weight once the tribunal found the purposes were mixed. SCL had also argued only that the whole disputed sum was an expense. It never ran a fallback case that a smaller portion qualified, and permission to raise that point was rightly refused.
No Direct Causal Connection Under Section 307
Part 5 of the Corporation Tax Act 2009 governs how a company’s loan relationship profits and deficits are taxed. Under section 307, amounts recognised under generally accepted accounting practice are generally brought into account, but debits must fairly represent the relevant losses and directly incurred expenses.
SCL argued, relying on Smith and Nephew Overseas Ltd v HMRC [2020] WLR 270, that “fairly represents” should be read broadly in its favour. The Upper Tribunal disagreed. Section 307 requires a causal connection, and an expense under section 307(4) must be incurred directly. The tribunal held:
“It is simply not the law either pursuant to section 307 or GAAP that debits are available if there is a mere connection without more.”
Where several causes are inseparable, a loss cannot be said to arise from one qualifying cause alone. The relevant causes here included repayment of NAMA debt, release of the indebted entities, a debt-free restructuring of the MAR Connection, the release of Mr McAleer’s and Mr Laverty’s personal guarantees and the deal’s origins months before the DS1 issue. SCL might also have obtained the DS1 through a court declaration by paying its own debt.
The charge gave NAMA some leverage, but the predominant factor was the indebted entities’ debts and the wider arrangements that followed. Showing a “real economic loss” to SCL was not enough on its own.
| Case | Principle Applied | Why It Matters |
|---|---|---|
| Union Castle Mail Steamship Co Limited v HMRC [2020] EWCA Civ 547; [2020] STC 974 | A direct causal connection is required, assessed objectively across the total transaction in context. | A company must prove more than a factual link between its payment and a loan relationship. |
| Hexagon Properties Limited v HMRC [2022] UKFTT 137 (TC); [2022] SFTD 901 | Adopted the Union Castle causation approach. | Mixed, inseparable commercial causes can defeat a claim that a loss arose from one qualifying event. |
| Vodafone Cellular & Others v Shaw [1997] 69 TC 376 | The test is to identify the object of the expenditure. | A sale-related payment is judged by what it was objectively incurred to achieve. |
The Lavangna Guarantee Payment Created No Loan Relationship Debit
The facts did not support SCL’s subrogation case. No demand was ever made under the Lavangna Guarantee. The €11.5 million reflected a capital reduction required by the 2009 Lavangna refinancing when the Swiss Centre was sold, and the obligation to pay was made enforceable by the NAMA Deed. The money was paid to Dundrennan Ltd, SCL’s parent, which passed it to NAMA.
On those facts, SCL did not make a payment that caused Lavangna to owe it a debt. Even if a debt existed, it did not arise from a transaction for the lending of money. Because the guarantee was never called, any subrogation right would have been a new and independent equitable right, not one inherited from AIB’s original loan. Any rights against Lavangna were also worthless from the outset.
The Unallowable Purpose Rules Would Have Denied the Debit Anyway
Sections 441 and 442 of the Corporation Tax Act 2009 deny debits attributable to a purpose outside the company’s business or other commercial purposes, on a just and reasonable apportionment. The First-tier Tribunal did not need to decide this point, but the Upper Tribunal accepted HMRC’s alternative case.
SCL and Lavangna were not in the same group, and there was no evidence that the payment served SCL’s own business purposes or that any other purpose was merely incidental.
“The collateral purposes which the FtT found (and which this UT supports) were geared more principally to the support of the wider MAR Connection rather than the furtherance of SCL’s own business purposes.”
The Capital Gains Claim Also Failed
Applying the Vodafone test, the First-tier Tribunal found that the Additional Sum had not been shown to have been incurred wholly and exclusively to enhance the Swiss Centre’s value. That finding stood when the Upper Tribunal dismissed the appeal.
Impact on Stakeholders: Who Is Affected by Swiss Centre v HMRC?
The decision raises the evidential bar for anyone claiming tax relief on a payment that touches connected businesses, guarantees or security releases.
Companies Claiming Loan Relationship Debits
A debit is not available simply because a payment is connected with a loan, a charge or a related transaction. The company must show a causal link and, for an expense, that it was incurred directly. Before claiming, identify the precise obligation that caused the payment and keep evidence tying the debit to that specific loan relationship.
Corporate Groups and Connected Businesses
Paying a creditor directly does not stop the payment being treated as value conferred on the entities whose debts fell. Centralised decision-making makes it harder to prove the paying company’s own purpose. Each company should record its own board’s reasons and expected benefit, rather than relying on group-wide reasoning.
Guarantor Companies
A guarantee-related payment will be tested on whether the guarantee was called, who actually paid, the legal source of the obligation, whether a lending debt arose and whether any resulting rights had value. Document any demand, the payment route, any assignment or subrogation right and the recoverable value before claiming a loss.
Directors and Shareholders
Where a transaction also releases directors’ personal guarantees or props up other businesses they own, that benefit can become a decisive cause that defeats the company’s claim. Directors should identify conflicts between the company’s interests, the wider business and their personal exposure, and record why the transaction serves the paying company itself.
Accountants and Tax Advisers
Accounting treatment follows the facts. An amount labelled a loan may not be one where the recipient is insolvent and repayment is not expected. Expert evidence built on a single-purpose premise may carry little weight. Test claimed loans and expenses against recoverability, actual payment flows and the parties’ documented purposes.
Lenders, Creditors and Restructuring Professionals
Restructuring documents should state clearly which entity’s debt is discharged, who provides the value, whether repayment rights arise and how releases of security and guarantees are allocated. Ambiguity can later be resolved against the taxpayer.
Businesses Appealing Tribunal Decisions
An appeal cannot succeed by asking the Upper Tribunal to reweigh the evidence. The appellant must identify each challenged finding and show it was one no reasonable tribunal could have made. A first-instance decision need not mention every piece of evidence.
How Should Directors Prepare for an HMRC Challenge to a Group Payment Deduction?
Directors should test the transaction against the company that claimed the relief, not the wider group’s commercial story. A useful company-specific review should:
- Identify the company legally obliged to pay, and under which document.
- Map the guarantees, security documents, releases and settlement agreements.
- Identify every debt that was reduced or discharged, and whose it was.
- Trace the payment from source of funds to final recipient, including any parent company or escrow account.
- Establish whether the payer acquired an enforceable recovery right and whether it had genuine value when it arose.
- Review contemporaneous board minutes, emails, tax advice and accounting entries.
- Separate the payer’s purpose from group, shareholder or personal objectives, particularly where directors’ own guarantees were released.
The strongest records are created while the deal is negotiated, not after HMRC asks questions. In Swiss Centre, emails about the DS1 and the months-long negotiations outweighed later witness accounts. Preserve lender demands and releases, escrow and bank records, solvency evidence for each recipient, intercompany loan terms and any tax advice obtained at the time.
If HMRC questions a claimed debit, secure the documents immediately. Then test the accounting treatment against the legal and commercial substance before making detailed representations. An unsupported claim can lead to denied relief, additional tax and significant professional costs, and can expose tensions between directors, shareholders and connected companies whose interests differ.
If HMRC has opened an enquiry into a group payment, our solicitors can review your records and advise on the strength of your position before you respond. Book a free consultation to discuss it.
Frequently Asked Questions
Get Expert Help With Corporation Tax Deduction Disputes
The Swiss Centre decision confirms that a group payment is not a deductible expense simply because the paying company made it. HMRC and the tribunals will examine which company was legally responsible, whose debt was reduced, the payment’s true purpose and the contemporaneous evidence behind the claim. Delaying a careful review can mean denied relief, additional tax and costly litigation.
Go Legal is a London-based commercial litigation law firm acting for individuals, directors, professionals and businesses across England & Wales. Our solicitors can:
- assess group-payment documents, guarantees, security arrangements and accounting records.
- identify the legal payer, the debt discharged, the payment route and the company-specific commercial purpose.
- prepare clear representations in response to an HMRC challenge.
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