Next has been found guilty of using a tax avoidance scheme known as a rate-booster in an attempt to artificially generate £22.4m of tax relief.
The high street retailer had claimed it was taxed twice on profits earned overseas around eight years ago.
However, HMRC rejected the claim and accused Next of using a rate-booster scheme to divert profits made in the UK to foreign subsidiaries to claim tax relief on overseas profits. The First-tier Tribunal has now ruled in favour of HMRC.
It is the second rate-booster case to reach the tribunal, which ruled against P&O Ferries in 2013. P&O appealed and a decision is awaited.
Of the Next ruling, HMRC’s director general of business tax Jim Harra said: “This case shows how HMRC takes effective action against big businesses that try to avoid paying tax through convoluted, artificial avoidance schemes. HMRC expects all businesses to steer well clear of such schemes.”
However, a spokesman for Next said: “This case sought to reclaim tax which had already been paid by Next, tax that would not be payable under current legislation. The claim – which was jointly agreed between Next and HMRC – was for £22.4m of the £1.3bn corporation tax Next has paid over the last 10 years.”
Next has already paid the £22.4m tax bill, there is no hole in its accounts, nor does it owe any more cash to HMRC.
Legal changes in 2005 and 2009 mean rate-booster schemes are no longer possible.
Around 95% of all Next’s profits are earned in the UK and therefore subject to UK tax laws.
Tax avoidance is not illegal in the UK; however it is not deemed to be within the “spirit” of the law.