Court of Appeal Ruling Ends 'Box Shifting' Tax Avoidance Scheme in UK

From the outside, the seven-storey building at 2 America Square looks like any other office block in the heart of London’s financial district.

Located about half a mile from Tower Bridge, one might expect it to be a hive of commercial activity, teeming with employees holding important meetings. However, much of the property is home not to staff vying for their next bonus, but to stacks of nondescript black boxes arranged in neat lines.

The building, leased by a Virgin Islands-based company called 48th Street Holdings Ltd, has found itself at the centre of a court case that has finally signalled the end of a tax avoidance scheme believed to have cost local authorities more than £1bn.

For almost two decades, companies in England have been exploiting a legal loophole to avoid paying business rates on unoccupied commercial buildings.

The controversial practice dates back to 2008, when the last Labour government changed business rates rules. This meant occupiers of vacant buildings no longer qualified for a 50% discount on the levy.

However, they were entitled to claim a three-month rate holiday at the end of each tenancy – and the “box shifting” scheme was born.

With commercial property owners facing higher bills, a lucrative “rate mitigation” industry emerged. Historically, this typically involved boxes being moved into the empty space at the end of the three months and back out after just six weeks. The building then became unoccupied again and the clock was reset, allowing the owner to claim another three-month rate-free period.

This cycle continued, designed to cut the rates owed by up to 67%, until a new long-term tenant could be found. It has been costing one London council an estimated £35m a year since the pandemic, when the number of claims for empty property relief doubled.

However, last month a landmark ruling by three court of appeal judges looks to have sounded the death knell for box shifting. They ruled that the scheme “cannot amount to beneficial occupation”.

The case was brought by the City of London Corporation against 48th Street Holding Ltd and a second company, Principled Offsite Logistics Ltd (POLL), which provides “rate mitigation” services.

48th Street paid £27.6m for a lease on the office block in 2019 before it brought in POLL to save £111,475.30 in rates across a series of three-month periods in 2022 and 2023.

POLL describes itself as “the largest and most reliable” provider of “empty business rates mitigation” in the UK and is jointly owned by a Labour councillor from North Hertfordshire.

It claimed by 2021 to have already saved its clients “£500m” in rates and that “every council in the UK now totally recognises Principled as being robust in every way”.

That bold claim followed a significant high court win in 2018, when POLL defeated a challenge from Trafford council. The judge in that case accepted that “the purpose of the occupation is not to store goods; it is, so to speak, to plant the occupier’s flag” and that “the motive … is rates avoidance for the landlord”, but added “the morality of that is neither here nor there”.

When the case against POLL and 48th Street came before the high court last year, Charles Bagot KC, sitting as a deputy high court judge, also ruled against the City of London.

“I agree with POLL that if legislation produces clear tramlines and someone organises themselves to fall within them, then it is not for the court to get involved in moral judgments,” he said. “If the government does not like the position, it can amend it.” He concluded that “the RMS [rate mitigation scheme] is effective”.

However, last month the court of appeal overturned that decision, with Lady Justice Falk ruling: “In my judgment, ‘occupation’ for, in effect, the sake of it, and which has no use, value or benefit other than rate saving, does not amount to occupation for the purpose of the statutory scheme.”

A City of London Corporation spokesperson said: “We welcome the court of appeal’s decision, which represents a significant victory for local authorities across England.

“This landmark ruling closes one of the most widely used tax avoidance schemes in the country and helps safeguard revenues that support essential public services.

“We are proud that the City of London Corporation has led the way nationally in pursuing this case.

“For more than a decade, councils across the country have seen hundreds of millions of pounds of public revenue lost through artificial business rates avoidance schemes and we believe the decision restores fairness, protects money that funds vital local services, and provides greater certainty for councils, ratepayers and property owners alike.”

A government spokesperson said: “We recognise concerns about the misuse of Empty Property Relief, which exists to support genuine property owners between tenants.

“Business rates avoidance is unacceptable and we are taking the necessary action to address this, and make sure that businesses are paying the tax they owe.”

It is unclear what action the government is planning, but there are calls for a general anti-avoidance rule to control the rate mitigation industry.

POLL is not the only business offering box shifting. The same scheme was even used by Public Health England at its future headquarters in Harlow in 2018. The resulting £2.5m dispute with Harlow district council ended up in the high court, where PHE won.

It remains to be seen how councils and their rate mitigation opponents will respond.

One rating expert said that the total cost to councils of box shifting could have topped £1.5bn, and some of that money should now be reclaimed as a deterrent.

Under the terms of POLL’s contracts with clients, its success fees are refundable in the event the scheme fails. The latest accounts show it has just over £500,000 in net assets.

POLL did not respond to a request for comment and its website went down this week, replaced with a message which read: “This account has been suspended”.

The company’s founder, Steven Dawson, died in 2024 and the POLL was acquired in a management buyout by two of its own executives. One of them is a Labour councillor, Sarah Lucas, who, according to her LinkedIn profile, has been POLL’s director of finance since 2018.

Lucas was elected to North Hertfordshire council in 2024, two months after she took 50% ownership of POLL, and she serves as vice-chair of the council’s finance, audit and risk committee.

The Guardian understands that POLL’s application for permission to appeal to the supreme court was refused by the court of appeal this week but an option remains for it to apply to the supreme court directly.

The rules on empty property relief changed in 2024 and buildings now need to be occupied for 13 weeks instead of six in order for the three-month holiday to apply. According to one recent judgment, this makes box shifting schemes “less attractive but still effective”.

There are still a range of variants of rates mitigation on offer. One involves placing Bluetooth boxes in the offices to broadcast adverts. Another uses charitable exhibitions to claim not only empty property relief but also the extra rates relief available for charities.

Some schemes install snail or mushroom farms to claim agricultural reliefs, while others involve opening faith rooms to cut rates.