Tax avoidance schemes are usually the realm of the super-rich and celebrities.

But when the University of Huddersfield got involved in one, the result was financial disaster.

The university has now been left humiliated by three senior judges, who described its bid to save more than £600,000 in VAT as “abusive from the outset”.

It also faces a massive legal bill after years of court hearings.

When the university was asked by the tax authorities to explain what it was up to, “it gave bogus answers”, Lord Justice Lewison told the Court of Appeal.

The Univeristy said it was “surprised and disappointed”.

The university’s dispute with HM Revenue and Customs dates back to 1995 when it bought a derelict mill on the town’s canalside for conversion into lecture rooms and offices.

The project became Canalside East.

Canalside East, University of Huddersfield
Canalside East, University of Huddersfield

On advice from a top accountancy firm, the university entered into complex arrangements designed to save £612,500 in VAT on the project.

The property, known as the East Mill, was leased back and forth between the university and a specially-created trust, staffed by three former university employees.

And a company, which had no assets of its own, was created as a conduit through which contractors were to be paid £3.5 million for their work.

Lord Justice Lewison said the whole structure was controlled by the university and its “sole purpose” was to “facilitate VAT planning”.

The arrangements were “genuine” and “not a sham” and theoretically allowed the university to make a bumper VAT saving, he added.

But HMRC was having none of it, insisting that the whole scheme - whilst “formally valid” - was “an abuse of rights” designed for nothing other than to avoid tax liabilities.

The university insisted that the scheme was a legitimate means of tax planning and the objective was to “defer” VAT payments, rather than avoid them.

The Court of Appeal

What the university wanted was “no more than a cash flow advantage”, argued barrister, Paul Lasok QC.

Ruling on the dispute, Lord Justice Lewison said: “Very regrettably...when the university answered HMRC’s questions about the rationale for the trust it gave bogus answers”.

The scheme was an “artificial attempt” by the university to achieve “an absolute VAT saving” on the project, he added.

The whole leasehold structure was “collapsed” when the university thought it had achieved the VAT saving it sought.

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The judge, sitting with Lord Justice David Richards, concluded: “The scheme was abusive from the outset”.

With its hopes of a big VAT rebate dashed, the university will now also face substantial legal costs bills.

A University spokesman said: “The University has contested this matter over a number of years and following a resounding decision in favour of the University at a previous hearing, we are both surprised and disappointed at this decision by the Court of Appeal. “The University is now considering its position.”