In the 2025 Upper Tribunal decision Rettig Heating Group UK Ltd v HMRC, the court tackled the tax treatment of complex intra-group transactions carried out by Rettig Heating Group UK Ltd. This judgment sheds light on how UK tax law approaches the distinction between the legal form and the commercial substance of corporate arrangements, particularly in cross-border or group restructuring contexts.
The case acts as a reminder for companies—especially those engaging in reorganisations, asset transfers, or financial engineering—to ensure their transactions are supported by genuine commercial purposes. The tribunal’s message is clear: where HMRC identifies that a transaction is primarily tax-motivated without substantive business rationale, it may disregard the legal form in favour of its real-world economic effect.
The Facts and Legal Issues
Rettig Heating Group UK Ltd, a UK subsidiary within a larger European group structure, was involved in a series of intra-group transactions that had the effect of generating tax deductions in the UK. These transactions involved the transfer of assets and liabilities between group entities and the use of financial instruments designed to optimise tax outcomes.
HMRC challenged the deductibility of certain expenses claimed by Rettig, arguing that the transactions were artificial, lacked genuine commercial substance, and were undertaken primarily for tax avoidance purposes. The key issue for the tribunal was whether these transactions should be respected for tax purposes or whether the court should look beyond the legal form to their substance.
The tribunal agreed with HMRC in part, finding that while some elements of the transactions had a business rationale, others were structured in a way that failed to reflect any genuine economic activity or commercial necessity. The court applied the Ramsay principle—a well-established doctrine in UK tax law—which allows tax authorities and the courts to disregard elements of a transaction that have no practical business effect beyond tax avoidance.
Legal and Commercial Implications
The decision reinforces the importance of aligning legal structures with economic realities. The court reiterated that the tax treatment of a transaction depends not just on its documentation or structure, but on whether it has a discernible and credible commercial purpose.
It also highlights the continuing influence of judicial anti-avoidance principles in UK tax law. While tax planning is legitimate, companies must take care to ensure that transactions are not merely designed to generate tax advantages without contributing to the business’s operational or strategic goals.
For corporate groups operating across borders, the judgment serves as a warning that even intra-group transactions can come under scrutiny where the intended tax effects seem disconnected from genuine business activity.
What Does This Mean for Me? – Guidance for UK SMEs and Businesses
Although this case involved a larger corporate group, its principles are directly relevant to UK SMEs and owner-managed businesses—particularly those engaging in tax planning, group structuring, or intercompany financing.
1. Reassess Your Tax Planning Strategies
If your business is engaging in any form of tax-efficient structuring, such as transferring assets within group companies, claiming large deductions, or using financial instruments, now is a good time to review these arrangements. Ensure there’s a clear and demonstrable commercial rationale behind every major financial decision.
2. Prioritise Substance Over Legal Form
Courts and HMRC are increasingly focused on the economic reality of transactions. Having legal documents in place isn’t enough—businesses must be able to show that transactions were motivated by genuine business needs and were not solely implemented for tax benefit.
3. Keep Robust Documentation
Good record-keeping can make the difference in a dispute with HMRC. If your business enters into complex transactions, ensure board minutes, internal memos, financial models, and correspondence clearly demonstrate the commercial intent behind the decisions.
4. Stay Proactive with Professional Advice
Engaging with tax professionals early can help SMEs structure their affairs in a way that achieves commercial and tax objectives without crossing into aggressive or risky tax planning.
Conclusion
The Rettig Heating Group UK Ltd ruling confirms that UK tax authorities—and the courts—will challenge transactions that appear contrived or artificial, even when they comply with the letter of the law. For SMEs and larger businesses alike, this judgment is a strong reminder to ensure all transactions are grounded in commercial reality.
Tax planning remains lawful and valuable, but must be underpinned by real business substance, not just clever structuring. In today’s tax environment, clarity, transparency, and authenticity in business decisions are more critical than ever.
Author
Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law, Tax, Human Resources, Immigration & Employment Law.
Gill is a Multiple Business Owner and the Managing Director of Prof Services Limited - a Marketing & Content Agency for the Professional Services Sector.
