Tax avoidance ‘hat-trick’ delivers gold

These schemes - if unchallenged - would have diverted £200 million from the UK Exchequer. 

HMRC’s Director General of Business Tax, Jim Harra, said:

“These wins in the courts are a victory for the vast majority of taxpayers who do not try to dodge their taxes. They send a clear message to tax avoiders - HMRC will challenge tax avoidance relentlessly and we will beat you. 

“We have now had three major court successes in avoidance cases in the last month alone and I hope this sends a very clear message: These schemes don’t come cheap, you carry a serious risk that you’ll end up paying the tax and interest on top of a set-up charge which can run into the hundreds of thousands of pounds. So you have to ask yourself whether it’s really worth it.

“These were complex cases which show HMRC’s experts doing what they do best, delivering great results for the UK.” 

Exchequer Secretary to the Treasury David Gauke said:

“The Government is committed to tackling aggressive tax avoidance schemes and HMRC will pursue their users through the courts where necessary. These three HMRC wins are very welcome, demonstrating that if an avoidance scheme promises results that seem too good to be true, they probably are.”

                                              DETAILS

1. Schofield (Court of Appeal, 11 July)

Concerned capital gains tax on a £10 million gain realised in 2003/2004. The wider tax protected is £90 million.

The taxpayer sold his business, making a profit of about £10 million. He used a tax avoidance scheme to create an artificial loss so that he wouldn't have to pay tax on the profit he made when he sold his business. He spent a lot of money on a scheme which, according to the Court of Appeal, did not work. 

The taxpayer had paid out over £200,000 for this failed scheme, not including the costs relating to the litigation. 

2. Sloane Robinson Investment Services (First Tier Tribunal, 16 July)

The directors of Sloane Robinson were paid significant bonuses. They considered a number of tax avoidance schemes, modifying the one they had chosen when the legislation was changed to counter that type of scheme. The First Tier Tribunal ruled the modified scheme didn't work either. About £13 million of tax was at stake. 

3. Barnes (Upper Tribunal, 30 July)

This scheme aimed to exploit a mismatch between two tax regimes. UK government bonds (gilts) generating an interest coupon were borrowed for one day when an interest coupon was due. A payment representative of that coupon was then made to the lender, for which tax relief was claimed. At the same time the scheme envisaged that no tax would be due in respect of the interest coupon received.

The scheme has been described by the First Tier Tribunal as a "designed and marketed tax avoidance scheme" which had been taken up by well over 100 individuals. The total tax at stake was around £100 million. 

There was no mismatch but the law was changed in 2005 making this clear and the rules were reformed further in 2008, making this type of scheme unworkable for the future. 

4. These three schemes follow a landmark decision in June, (Greene King, 14 June) where the First Tier Tribunal decided that a scheme to avoid tax actually produced the result that tax was payable twice. 

This case involved finance provided within a group of companies. The aim was that one group company would get tax relief on payments to another group company, without tax on the second company’s receipt. The judges said that the appellants had no evident difficulty with getting relief for payment that was not matched by taxation of the receipt. They could not legitimately complain if the scheme failed in its purpose and instead resulted in their paying tax twice.

All of the decisions mentioned above may be subject to appeal.