Recent UK case on the meaning of ‘carrying on a business with a view to profit’ for the purposes of tax legislation

R (on the application of Cobalt Data Centre LLP 2 and Cobalt Data Centre 3 LLP) v HMRC Commissioners: Cobalt Data Centre 2 LLP and Cobalt Data Centre 3 LLP v HMRC Commissioners [2019] UKUT 342 (TCC)

On 4 and 5 April 2011 respectively, two LLPs acquired assets including the developer’s interest under a construction contract to construct data centres within an enterprise zone. They appealed against HMRC’s decision that they were not entitled to enterprise zone allowances (EZAs).

The tribunal held that the LLPs were to be treated as partnerships and thus tax transparent by virtue of s283 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA), because they were carrying on a trade, profession or business with a view to profit.* Although the principal purpose of the LLPs was to obtain the benefit of EZAs for their members, it was sufficient that they had the subsidiary purpose of carrying on business with a view of profit. It was also not necessary that a profit be achieved; an intention to achieve a profit was sufficient. The LLPs were therefore not barred from claimed EZAs because, although the EZA regime had been ended for corporate tax purposes on 1 April 2011, before the LLPs had acquired the relevant interests, it had only been ended for income tax purposes on 6 April 2011, after they had done so. 

* This definition is based on the definition of a partnership which appears in s1 of the Partnership Act 1890 and which is in turn mirrored in the definition of an LLP in s2 of the Limited Liability Partnerships Act 2000.