A seven-storey office building in London’s financial district has become the centerpiece of a legal battle over a tax avoidance scheme that allowed property owners to significantly reduce business rates obligations. The building at 2 America Square, leased by a Virgin Islands-based company, contained stacks of black boxes rather than occupants—a key element of what became known as “box shifting.”
The scheme emerged following a 2008 change to business rates rules that eliminated a 50% discount for vacant properties but allowed a three-month rate holiday at the end of each tenancy. Property owners began exploiting this loophole by repeatedly moving boxes into empty spaces to claim occupancy status, then removing them after six weeks to reset the clock. This cycle could reduce rates owed by up to 67%. A rate mitigation industry grew around providing these services, with one company claiming by 2021 to have saved clients £500 million in rates.
The City of London Corporation challenged the scheme through courts, initially losing at the high court level, where a judge acknowledged the practice was motivated by rate avoidance but ruled it fell within legal parameters. Last month, however, the court of appeal reversed that decision, with a judge determining that occupation undertaken solely for rate avoidance purposes does not qualify for relief under the statutory scheme. The ruling is expected to close one of the country’s most widely used tax avoidance mechanisms.
Government and local authority officials have hailed the decision as protecting hundreds of millions in public revenue annually. The total cost to councils from box shifting may have exceeded £1.5 billion. One of the primary companies offering rate mitigation services subsequently suspended its website operations. Questions remain about whether councils can reclaim money from previous years and whether additional legislative measures will be enacted to prevent similar schemes in the future.
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