A High Court judge criticised HMRC’s “confusing” and “inconsistent” messages, as it ruled in favour of administrators that creditors should not pay income tax on interest earned while their money was tied up in the collapsed bank.
Lehman Brothers International Europe went into administration in 2008 when its parent company Lehman Brothers declared bankruptcy in one of the most dramatic collapses of the financial crisis. The European company, however, had a substantial surplus, believed to be up to £7.8bn, which has led to a number of "legal novelties", the judge said.
HMRC had changed its mind over whether tax was owed, leading the judge, Mr Justice Hildyard to chastise the Revenue over its treatment of creditors.
Until late 2015, HMRC had said that any interest paid in the course of the administration or liquidation could be paid without deducting income tax.
It was only when, in August 2015, the administrators asked HMRC to reconfirm this position, they were referred to a specialist team within HMRC, which reversed the decision, the judge said.
“I should remind HMRC how unsatisfactory it is that they should issue inconsistent or confusing statements in this way, and fail to involve a relevant specialist team and / or make proper internal checks when giving formal confirmations on their position which they must expect to be relied upon,” he said.
“It is of real importance, both in terms of good governance and a fair market, that HMRC should make every effort to ensure that this sort of thing does not happen again.”
An HMRC spokesperson said, ““We do not shy away from difficult legal challenges and it is right that we pursue every penny that may be due to the Exchequer. We are carefully considering the ruling and may appeal."
Russell Downs, joint administrator for Lehman Brothers International Europe and PwC partner, said, "We appreciate given the size of the issue HMRC's wish to seek an appeal, which has now been granted.
"We would hope and expect to work constructively with HMRC to develop an appropriate interim arrangement so that creditors do not face any unnecessary delays from the appeal as the joint administrators' plan for a distribution of interest next year takes shape."