HMRC claim £400 million in tax saved by Tribunal ruling
Philip Boyle, an IT contractor who used a tax avoidance scheme marketed by Consulting Overseas Ltd, lost his appeal that foreign exchange loans made to him were not employment income.
The scheme involved contractors becoming employees of Sandfield Consultants Ltd (SCL), an Isle of Man company.
They were then paid a monthly salary but about two thirds of their remuneration was paid as ‘soft’ currency loans, in particular Romanian lei, Byelorussian roubles or Uzbekistani soums. Each contractor, around 348 in total, were provided with a ‘Notification of Loan’ letter specifying the amount of foreign currency they had apparently been loaned, together with a ‘Loan Repayment Letter’.
The SCL employees also received statements from a foreign exchange broker showing the foreign currency loan immediately being sold and converted to sterling. The statement also showed an open position to purchase the same currency, plus an additional amount equal to the official rate of interest, in one year’s time and the cost of that position. The difference between the two was then paid into the employee’s bank account.
Irrespective of market conditions and the actual changes in the currency selected, employees would always receive 76 – 78% of the amount “available for loans”. This conveniently matched the amount the contractor was quoted by Consulting Overseas as the “loan retention rate” via their Employee Benefit Tax Calculator when they joined the scheme.
The currency trades were supposed to turn earnings into non-taxable foreign gains but the First Tier Tax Tribunal dismissed all the arguments put forward by Mr Boyle .
The judge concluded that the loans were “in substance and reality income from his employment, bearing in mind in particular that Mr Boyle had no need for a loan, there was an entirely artificial exchange rate; the reality is that there was no borrowing by Mr Boyle and he never believed that the ‘loans’ were other than a means of receiving his income without suffering tax on that income”.
Neither did the judge consider the loans to be genuine, remarking, “No evidence has been provided at any stage during HMRC’s lengthy investigation of the scheme, despite many requests for such evidence, to show that the foreign currency ever existed.”
David Gauke, Exchequer Secretary to the Treasury was overjoyed by the ruling, saying, “I am delighted that the tax tribunal threw out this contrived scheme, designed to avoid tax.”
Approximately £5 million tax had already been settled by 226 participants of the scheme, leaving HMRC to pursue the remainder.
According to HMRC, about 15,000 individuals used schemes similar to the one marketed by Consulting Overseas, where contractors receive “loans” as a form of remuneration. This latest ruling is expected to protect up to £400 million tax that would otherwise not have been paid.
HMRC have an impressive 80% success rate in challenging avoidance cases in the courts so it is a brave and wealthy person that is prepared to take them on!
I think one of the problems with investigations like this is how long they take to come to a conclusion. I’ve been aware of the Sandfield case, and I think it was a scheme that was active over ten years ago. HMRC are great at sending out letters to contractors saying that they (HMRC) intend to investigate someones tax return, and then then sitting on that ‘pending’ investigation for years. This causes considerable stress to those that have received the letters – never knowing if/when an investigation is going to kick off. Does Consulting Overseas still exist in any form or has it disappeared?
Mike (www.mybookkeepingmanager.com)
Obviously, it has something to do with a scheme in tax, This kind of issue is very important to resolve by law. In avoidance of any other case similar to this, the case should pay close attention to the law. The public should be aware of this scheme to stay away from this issue, the people who are involved with this must take a legal action to resolve this. Thank you for posting an information regarding with this issue, I’m looking forward to any update on this issue.
Accountax represented him, to be honest they did nothing for him. They said here take him! A lamb to the slaughter!
No evidence!! What a joke! Consulting Overseas were UK based and Sandfield was just one of their schemes.
If the person deciding says “it’s not in the governments interest” then the outcome is opinionated and weighted – that is unprofessional and biased – surprised at all the holes in this case.
The
I bet this scheme came with alleged approval from legal counsel. Many of these schemes claim to have that, which is something I do not understand, if they then stand up so poorly in court.
It’s about time these parasites were brought to justice. Wonderful news.
I just hope the Montpelier and NoToRetroTax scum are next.
Clearly some lack of inderstanding shown in the first few posts.
The schemes were known about by hmrc. At that time they were acceptable and legal. The law was changed in 2010 and a law change would not be needed otherwise. Now the financial landscape has changed. Whether the schemes were “moral” or “fair” is immaterial. They were legal at that time so it’s unfair for people to be penalised now.
Bullshit Contractor1. No matter how much you little
piggies squeal you and pay lobby firms to try and change the law WILL pay the money back you stole from the rest of us. Your time is fast approaching.
A clearly reasoned argument reddycan. Thanks for the insight. Perhaps you could articulate one actual fact here.
Regardless of your petty insults, such schemes were legal. FACT.
Aggressive, yes. Fair, maybe not…but legal, yes.
Everybody is entitled to their opinion but please grow up next time you decide to put your in writing.
Stop squealing pig and pay us back.
I think the real disappointment here is that the companies that created the tax avoidance schemes like the Sandfield one have walked away from the mess without having to pay back anything – please someone correct me if I’m wrong in saying this.
I was once contacted about a scheme in which the retention was about 80%. Of this, about 12% went to the scheme providers and the other 8% was paid in tax. However, once the sh*t hit the fan, the scheme provider disappeared with all their money whilst the contractors were left with HMRC on their backs.
I think that the way these tax avoidance schemes are run is wrong, but so long as they are called tax avoidance rather than tax evasion, people will be lured into using them.
Although i don’t condone Reddycan’s use of language, i completely understand why most decent people are sick to the back teeth of schemes like the ones mentioned above.
Attempting to justify the use and promotion of these setups with arguments like “It was legal at the time” really gets people’s blood boiling.
Most people don’t care if the schemes were “legal” or that “retrospection” has been applied. People get upset with the fact that wealthy,greedy (and stupid imho) individuals exploited loopholes and completely disregaded the spirit of the intended laws for personal gain at the expense of the rest of the tax paying public who are going through a really tough time at the moment.
I’m also aware of the NoToRetroTax campaign who abuses the double taxation agreement between the UK and IOM. I believe they’re trying dig themeselves out of their mess by paying expensive lawyers and lobby groups. If that isn’t a perversion of justice i don’t know what is. I don’t for one minute think these people will get away with the £200 million in tax they evaded (Yes, this is no different to evasion in reality)and i have faith in our government / HMRC to reclaim what is essentially “our” money but i think the public need to be made aware and these people brought to justice.
Lets get this straight right now!
The return from these schemes was more or less the same as normal contractor income. The difference was that there was some uncertainty due to ir35 which meant these so called umbrella avoidance schemes got their heyday inadvertently.
The schemes ripped off both the hmrc and the contractor.
And most importantly they lied about their workings aswell.
They did not do what they said they did, and they were schemes set to fleece the contractor and hmrc at the same time.
People who have strong opinions are allowed to vent them but opinions are usually angry ppl letting off uneducated steam.
Please read the facts and contribute using your intelligence and we can have some constructive and intelligent discussion here or it just sounds like a bitter permie piping up their two cents because they didn’t get a pay rise – thank you!
Let’s examine those claims in a little more detail Trevor:
You said : “The return from these schemes was more or less the same as normal contractor income.”
It is my understanding that the Montpelier scheme users paid on average 3.5% in tax to the UK. I’m not sure if your calculator is broken Trevor but a contractor earning around £150,000 would be paying more like 30% tax / NI if outside IR35 and around 55% inside.
In some cases the scheme users paid far less (around 0.1% in the case of Alistair Renshaw, a wealthy property director who runs the company CRC North and who chairs the NoToRetroTax group surprisingly enough)
See here:
“16. As for his tax treatment by HMRC, the claimant’s position was that from 2002 onwards he submitted tax returns claiming double taxation relief in respect of the trust income. He relied on the scheme, which was devised on the footing that, on its true construction, paragraph 3(2) of the DTA was effective to exempt from UK income tax the share of the partnership profits received by the claimant in that manner. As the judge commented, the tax outcome was paradoxical: by the use of DTA measures aimed at avoiding the imposition of double taxation on UK resident taxpayers, the claimant, as a UK resident, was able to reduce his effective UK income tax rate to an average of 3.5%. ” … [ DOCUMENT B002 – Court of Appeal Judgement CO/10012/2008]
You said : “The difference was that there was some uncertainty due to ir35 which meant these so called umbrella avoidance schemes got their heyday inadvertently.”
By “uncertainty”, we all know this means you were caught by IR35 but didn’t really want to pay a fair amount of tax because you were operating as a disguised employee and not a business. Either that, or you were outside IR35 but just plain greedy.
You said : “The schemes ripped off both the hmrc and the contractor.”
But mainly the tax paying public who in essence subsidized the scheme users who lived and worked in the UK, benefitted from public services but chose not to pay towards them. Remember, these scheme users comprised of Doctors, IT contractors and Property developers .. the kind of careers in the top 5% of earners in the UK.
You said : “Please read the facts and contribute using your intelligence and we can have some constructive and intelligent discussion here or it just sounds like a bitter permie piping up their two cents because they didn’t get a pay rise – thank you!”
You;re welcome. I’m an ex-IT contractor who now runs a consultancy and employs both permanent and freelance staff. Whilst contracting i was pulling in around £150,000 a year. As were several of my colleagues who chose to enter into the Montpelier DTA scheme between 2000 and 2008. I didn’t. But i think i’m more qualified than most to make “educated” and “intelligent” comments on the above.
What I don’t understand is why the promoters and users don’t face prison sentences?
They appear to have gotten of lightly with having to pay what was already due plus interest and penalties.
Surely if you take into account the impact that the greed of the few has had on the majority who earn nothing like the amount these scumbags did then a few years in the slammer seems fair.
Time to quiet down reddycan, please.
I genuinely don’t apologise for my actions and don’t need to justify them to anybody on the forum. We all pay into an isa, pension. Some claim tax credits, child benefit.
Lantern, in your position you may consider using a sipp to purchase office space your company rents. Big saving. Why would you not. Also you seem very knowledgeable so I respect your view.
Whether people agree with my actions is their opinion but I can not agree with retrospectively applying a law change. If hmrc changed the tax bands or reduced benefits, would they apply that retrospectively? I think not.
“If hmrc changed the tax bands or reduced benefits, would they apply that retrospectively ?”
I think the fundamental point you and other propents of these schemes misses (as evidenced by the type of justification above) is that the scheme you entered into made a complete mockery of the spirit of the law.
In this case and this case alone, i think retrospection is justified as the intention of the law was never met. Unlike paying tax in the correct band or claiming the correct benefits at the time.
As for a prison sentence. I agree this is probably a bit harsh especially as the users have been through years of anxiety, and unless they settle their dues (with interest and penalties) early are likely to go through further years of anxiety until they are forced to pay.
But then that’s entirely your choice. what i DO know is that the scheme users (and hopefully promoters) will be brought to justice at somepoint in the not too distant future.
I accept your point….but I don’t see a “spirit” in the law. It’s legal or its not…but I’m sure that’s not a commonly held view of the majority.
In the case of Glasgow Rangers, hmrc went after them. In the case of contractors, the scheme owners have closed shop and hmrc are not looking for them as far as I’m aware.
Didn’t Watkin Gittens (Montpelier Accountant) recently get arrested for abusing the law surrounding Charities to dodge taxes for his wealthy clients?
Would you really want this individual arranging your tax affairs?
No I wouldn’t.
I used a scheme for 2 years. I don’t believe I owe anything from that time. After the law change I obviously stopped to comply with the law.
Am I glad I did it? No. It’s now creating a lot of worry and I will end up costing me financially which. I’m sure reddy can will cry tears at that!
But it’s done and I’ll take what’s coming even if I don’t think its fair. Others will I’m sure.
I have always felt that more ‘attention’ should be paid to the scheme providers rather than the scheme users.
I suspect – and of course I have no proof so it is just a suspicion – that the providers of aggressive tax avoidance schemes have in many cases known that the schemes would have a short life expectancy, and that they needed to make as much money as possible, and as quickly as possible. Where do they disappear to when a scheme gets closed down? – where are the people now who set up and ran the Sandfield scheme? As far as I can tell, HMRC are chasing down contractors, but have the scheme providers got away with the millions that they have made?
Look at this article from 2006 – Actinium Limited, which was set up by the people who set up Consulting Overseas – was making a lot of money in 2005 (http://www.sourcewire.com/news/28548/freelance-firm-tops-sunday-times-awards). I think in 2007 Actinium stopped trading.
Jonathan Hinton, I’d like to see far more attention paid to this particular individual who runs Montpelier (The company that the NoToRetroTax individuals used and appear to glorify) :
http://www.thirdsector.co.uk/news/1208293/accountants-1m-gift-aid-fraud-charge-bailed-appear-old-bailey/
I contacted me scheme provider this time last year. They were confident and reassuring. I tried to context them a few weeks ago. Shut up shop and gone. That’s the most telling sign that the landscape has changed. That leaves me to pay my dues…unfairly in my view but that’s unlikely to get me anywhere.
Thanks for the debate.
“Lantern”
You said : “The return from these schemes was more or less the same as normal contractor income.”
It is my understanding that the Montpelier scheme is fundamentally different from Consulting Overseas which this debate is about!
The fact is that other schemes cannot be generalised into one group they are all different !
This case has major flaws and that is what we should be talking about not opinions on about ooh I dislike people who do this! This is what makes this the best place to live in the world, the UK!
We are talking about the justice system, the UK has laws which are laid down by parliament – we all live by these laws.
Does it matter what someone earns if the justice system fails one person it fails us all.
Personally to earn £150k in those days pre tax you would have been a top flying contractor the majority earned less so again generalising your comments to get headlines for your views!
From my understanding some earned under 40k in a year.
We all understand that stats can be skewed which is what opinionated means.
Fact is IR35 had just arrived on the scene and not many have been caught by it since, but there was uncertainty – CO took advantage of this and the directors should be held responsible for fraud.
The scheme did not do what they said it did they lied.
ie if soft currencies did not exist, what the f… Was going on?
Who was taking this money ?
Something bigger is going on here and the SFO need to get involved.
I agree with Trevor, something fishy here!
If the currencies existed and the hmrc won then fine.
It seems however that CO committed fraud on various levels.
I’m going to look into this and see if I can find anything worth mentioning that will help anyone caught by this.
It’s not as straightforward as it sounds and I think all including the hmrc have been played here.
Nobody likes paying tax but when you subscribe to schemes like this I hope you don’t complain about potholes in the road, lack of police on the streets and waiting ages in A&E. Without taxes none of these services exist, remember that the next time you complain.
It goes further than that Mary. WE pay for them. WE pay for their protection, their security, their education, their healthcare, their infrastructure, all this for their children and their children’s children.
They don’t contribute to the pot. They don’t pay anything back to the society that put them there in the first place. They buy second homes and BTL investments. They buy themselves big cars and houses. They put their children through private school.
They. Are. Selfish. Greedy. Scum.
They. Will. Be. First. Against. The. Wall.
uneducated drivel from Mary and Reddycan – I love it!
bitter swipes there without any knowledge of the case in hand.
you are so clever!