Court rejects medical avoidance scheme

HMRC has successfully challenged in court a tax avoidance scheme designed to abuse rules set up to encourage genuine medical research.

According to HMRC the rejection of the scheme, promoted by Matrix Securities, has protected almost £80m.

The Jersey-registered limited partnership claimed to be trading in the UK and focused on creating and exploiting intellectual property from research into vaccines targeting diseases such as HIV, flu and hepatitis B.

More than 80 investors in the partnership used £28m of their own cash and £86m in bank loans. The partnership claimed a first-year trading loss of £193m, creating £77m in tax relief, which would have given them a £50m return on their personal investments.

However, HMRC investigators discovered that only £14m had been spent on research and development into vaccines, and as a result a tribunal agreed that individual partners were entitled to tax relief of no more than £14m of the losses.

It further decided that £7m in fees that the partnership had paid to a subsidiary of the scheme promoters failed to qualify for tax relief, and that interest relief on the loans was also restricted.

Jim Harra, HMRC’s director general for business tax, said: “This type of marketed avoidance scheme is unfair to the vast majority of businesses and people who play by the rules. Anyone tempted should be warned that these schemes 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.

“This was a complex case but it shows – once again – how HMRC has the resources and technical expertise to effectively challenge tax avoidance.”

HMRC has since introduced further targeted anti-avoidance legislation to prevent similar schemes being set up, in addition to a general anti-abuse rule being introduced in the Finance Bill 2013.

The Revenue also recently announced it would be doubling the Affluent Compliance Team taking it up to more than 200 inspectors.

The case came to tribunal in early July 2012 and the decision was handed down on 27 December.

Comments
ShirleyM's picture

This is good news    4 thanks

ShirleyM | | Permalink

Jim Harra, HMRC’s director general for business tax, said: “This type of marketed avoidance scheme is unfair to the vast majority of businesses and people who play by the rules.

Why do people want to push the boundaries in such a greedy manner? Isn't it enough that they have £28m between them (and the ability to borrow another 86m)? They can't be hard up and desperate for money. Why do they need to get a few more millions from the taxpayers of this country?

Congratulations to HMRC. I hope they go from success to success in closing down these aggressive avoidance schemes, where the participators and the promoters get rich at the expense of the country and its taxpayers.

Just out of curiosity, I wonder how much it cost to get this scheme closed down, and who will pay the costs?

jimeth's picture

Agreed    1 thanks

jimeth | | Permalink

I agree wholeheartedly with ShirleyM. Well said!