After the victories, HMRC issued the warning that it would continue to challenge tax avoidance 'relentlessly'. HMRC said that 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 backed the warning. He 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.”
HMRC's hat-trick of court wins comes at the same time as the Institute of Chartered Accountants in England and Wales (ICAEW) issued a public reminder to its members of the considerations they should bear n mind when advising clients, particularly in relation to schemes which could be considered as more agressive tax planning. (See: Be warned of aggressive tax avoidance schemes! - Shout99, Aug 2012).
Brief details of the three cases are:
- Schofield (Court of Appeal) - Concerned capital gains tax on a £10 million gain realised in 2003/2004. 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.
- Sloane Robinson Investment Services (First Tier Tribunal) - 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.
- Barnes (Upper Tribunal)- 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.
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Susie Hughes © Shout99 2012