Last month HMRC won three key court decisions in its ongoing battle to crack down on tax avoidance.
In Schofield (Court of Appeal, 11th July), the taxpayer sold his business and made a profit of approximately £10 million. He used a tax avoidance scheme to create an artificial loss so that he wouldn't have to pay capital gains tax. According to the Court of Appeal the scheme was a failure for which Mr Schofield had invested £200,000, which excluded litigation costs.
Tax Avoidance Schemes
The directors of Sloane Robinson Investment Services Ltd 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 Tax Tribunal however ruled that the modified scheme didn't work either. Approximately £13 million of tax was at stake.
In Barnes (Upper Tier Tax Tribunal, 30th July), a scheme aimed to exploit a mismatch between two tax regimes. The scheme was described by the First Tier Tax Tribunal as a “designed and marketed tax avoidance scheme” which had attracted well over 100 individuals. The Upper Tier Tribunal ruled that there was no mismatch but the law was changed in 2005 making this clear and the rules were reformed further in 2008, rendering this type of scheme unworkable in the future. The total tax at stake was around £100 million.
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.
This is a timely reminder to freelancers who may be contemplating using expensive tax avoidance schemes that it is vital that they carry out their own due diligence before committing themselves to such a risk. Whilst that diligence process may come at a cost it could end up saving them their livelihoods in the future.
Good. This is the kind of scheme that should be shut down – generating artificial losses etc.
You might argue that tax is too high here to start with, but that’s a different argument.
However, tyhis is very different from the IR35 case, where the tax being demanded is simply unfair/wrong, whereby working people are being asked to pay both forms of NI on top of the usual levels of income tax.