Mr Tooth entered into an arrangement to obtain an employment loss ("Romangate"). Whether or not the arrangement achieved its objective at the time it was entered into, it was in any event nullified by retrospective legislation. Mr Tooth had submitted his tax return claiming the loss (before the retrospective legislation was enacted) but as a partnership loss, rather than an employment loss (because he wanted to use the loss immediately against his tax liability for that year, and the software in the electronic tax returns would not permit the entry of the relevant figures into the box for employment losses). Mr Tooth had informed HMRC in the "white space" to the return that the loss he claimed was an employment related loss. HMRC issued a discovery assessment on Mr Tooth (after the enactment of the legislation which nullified the arrangement) on the basis that: (1) HMRC had discovered an insufficiency in Mr Tooth’s return; (2) Mr Tooth’s return contained an inaccuracy (in that the loss was entered on the partnership pages of the return and Mr Tooth’s explanation as to why he had done this did not alter the nature of what HMRC consider to be an inaccuracy); and (3) this inaccuracy was deliberate.

The respondents are developers that own properties which are subject to NDR. They sought to avoid liability to NDR when the properties were unoccupied by entering into schemes whereby SPVs took short leases of the properties and became liable to pay the relevant taxes. No taxation payments were ultimately made by those SPVs as they were then either wound up or struck off from the register of companies for separate reasons.
The appellants are local councils which issued proceedings in the High Court for recovery of NDR from the developers. The councils argued that the developers were still liable to their NDR payments because the arrangements with the SPVs were shams which therefore did not have any effect in law. They also asked the court to apply a particular legal principle (the Ramsay principle) which requires that any relevant statute is interpreted with reference to the fact that a tax avoidance scheme is in place. Finally, they argued that the separate corporate identity (and therefore liability) of the SPVs could be disregarded because the corporate veil was pierced.
The developers applied to strike out the claims. The High Court struck out the parts relating to sham arrangements and the Ramsay principle but considered that there was an arguable case to be had with regards to the piercing of the corporate veil. The Court of Appeal found in favour of the developers. It determined that it was not open to the courts to pierce the SPVs' corporate veil and that the leases could not be disregarded by application of the Ramsay principle.
The councils now appeal to the Supreme Court.