Accelerated payment notices and Eclipse: HMRC Locked out

The Court of Appeal have quashed follower notices (“FNs”) and accelerated payment notices (“APNs”) issued to Alasdair Locke, a participant in one of the famously problematic Eclipse tax schemes.

Does this mean that the Eclipse schemes work after all?

Absolutely not.  What it does mean is that in some cases HMRC are going to have to do a bit more work to bring the matter to a final conclusion.  Let us explain.

The Eclipse planning relied upon tax relief being given for interest paid by members of the Eclipse LLPs.

There are, essentially, two circumstances in which such interest is relievable.  One is where the money borrowed is loaned (or otherwise contributed) to the LLP for use in its trade (“use-for-trade relief”).  The other is where the money is used to purchase a share in the LLP (“use-for-purchase relief”).

It has been finally established by the courts that the Eclipse LLPs did not carry on any trade (technically, that Eclipse 35 LLP did not carry on any trade; but it is not seriously suggested that the decision did not also apply to the other LLPs in the Eclipse stable).  It inevitably follows that any money loaned or contributed by a member could not have been used by the LLP in its (non-existent) trade, so that any claim to “use-for-trade relief” could not be valid.

In respect of such claims, the Eclipse 35 decision meant “game over”: FNs and APNs could be issued and enforced.  That was the case for most Eclipse members.

However, Mr Locke was one of a minority of Eclipse members who had framed their claim to tax relief not as a “use-for-trade relief” claim but as a “use-for-purchase relief claim”.  He argued (correctly) that any entitlement to the relief he had claimed was not dependent on the LLP’s trading; consequently, the decision that the LLP was not trading could not be fatal to his claim to relief.  Or, to use the terminology of the FN legislation, the decision was not “relevant” to his claim and the FNs and APNs that HMRC had issued were invalid.

The High Court had sided with HMRC, holding that HMRC “are entitled to form the view that the Eclipse 35 ruling would, if applied to [Mr Locke’s] chosen arrangements, deny [him] the tax advantages he seeks”.  It was, frankly, always difficult to see on what basis that could be sustained, and the Court of Appeal have duly overturned the decision.  That is not to say that they agree that Mr Locke is entitled to his relief: simply that the decision in Eclipse 35 does not determine the matter.

Mr Locke still has, in the view of many commentators including ourselves, an uphill battle in showing that as, a matter of fact, what he did was “purchase a share” in an LLP rather than “advance money” to one.  But he lives to fight another day.

For more detail, or for advice on your options in regard to Eclipse or any other problematic tax planning, please get in touch with your usual BKL contact or use our enquiry form.



Sam Inkersole

In 2022, Sam won the Taxation’s Rising Star award at the Taxation Awards in and was named in the Accountancy Age 35 Under 35.

Jon Wedge

While Jon’s client work focuses on the financial services sector, he also oversees the firm’s assurance service, as well as supporting the trainees following in his footsteps.


Elana joined us in 2017 as an ACA trainee, after graduating from Durham University where she had studied languages. She is now a manager in our assurance team.


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