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image of aikio fighters | accountingweb | Acountancy firm loses Aikido avoidance dispute
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Accountants fail to defend tax scheme case

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An accountancy firm using the Aikido tax avoidance scheme has had its misguided appeal unanimously rejected.

19th Mar 2024
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Aikido is a Japanese martial art that “focuses on harmonising with your opponent to bring peaceful resolutions to situations involving conflict”. Plainly Premier Strategies (who else) did not explain that philosophy to Sharon Clipperton and Steven Lloyd, the directors of a firm of accountants, Winn Yorkshire, when they designed and marketed the complex tax avoidance scheme, Aikido, to them. And harmony is definitely not something the users of Aikido should or could ever have expected.

It is well known that Treasury ministers really don’t like taxpayers using tax avoidance schemes. But what they really, really don’t like, are members of the accounting and tax profession using tax avoidance schemes. So, I am sure that when, in January this year, the court of appeal unanimously rejected the latest misguided appeal by Clipperton and Lloyd, any relief on the part of HMRC and the Treasury would no doubt be tinged with anger that once again the accounting and tax professions were being brought into disrepute. It is perhaps no coincidence that HMRC has announced a new consultation on the regulation of tax advisers at Budget 2024.

Old-fashioned scheme

The Aikido tax scheme was in many ways a throwback to an old-fashioned type of tax scheme that, to the extent it had any chance of working, relied on what they thought was the clever interaction of a number of corporate law, trust law and anti-avoidance tax provisions to, in effect, operate against each other so resulting in a tax advantage to its users. 

Such schemes were more common before the disclosure of tax avoidance schemes (DOTAS) provisions were enacted in 2004 and especially before the major shift in the attitude of the tax tribunals towards tax avoidance schemes. And yet it was plainly sold to Clipperton and Lloyd at a time when DOTAS applied, and it seems, was disclosed to HMRC in keeping with those rules and marketed to at least 300 or so other users. 

How anyone, in Premier Strategies in particular, could possibly have believed that HMRC would see Aikido as anything other than a highly aggressive tax scheme is a mystery and, in truth, it was nothing more than a shameful punt. The very high-quality legal firepower HMRC brought to bear on the scheme is testimony to how determined HMRC was to ensure that it was able to kill it.

Complex transactions

Aikido was described by Premier Strategies as a “dividend replacement scheme” and by using a series of complex corporate and trust transactions it sought to use the settlements anti-avoidance provisions to the advantage of its users and so magically transform what would otherwise be dividends, liable to income tax in the hands of Clipperton and Lloyd to, in effect, a nothing.

The basic planning depended on the settlements legislation that provides among other things that income arising to a settlor interested trust is regarded as the income of the settlor. From this, it followed that any income arising to such a settlement was taxable only on the settlor (though as a corporate no tax could be charged) even though it was Clipperton and Lloyd who received the full amount of the distribution (other than fees and a small amount paid to a charity).

No surprise

Inevitably the scheme has failed at every level so far, so the court of appeal decision is no surprise. But there are aspects of this case that are difficult to understand. Winn was as mentioned a firm of accountants. The total dividend they sought to avoid tax on was £200,000 and the tax would be less than half that amount – not a large amount for such a complex risky tax scheme so just what were a firm of accountants thinking?

We are also now 13 years on from when the scheme was implemented and, despite crushing defeats at both the first tier and upper tribunal, they nevertheless continued with an appeal that should have been seen as hopeless. No doubt the large number of other users will have contributed to the cost of this appeal and most likely will now receive follower notices from HMRC. 

Farewell tax scheme promoters

When regulation of the profession comes (and I have no doubt that it is coming) it is to be hoped that its starting point is regulating these types of tax scheme and tax scheme promoters. Premier Strategies are long gone but they have been replaced by a new style of tax scheme promoter who have often gone way beyond what could possibly be considered as legitimate tax planning. Few of us will be sorry to see them go.

Replies (10)

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paddle steamer
By DJKL
19th Mar 2024 17:10

Had Premier offered this successfully to Winn Yorkshire clients via Winn Yorkshire, perhaps?

If that was the case that might explain why so dogged, not just themselves on the hook but their clients.

The reason I ask is I recall meeting Premier via Scott Oswald/Tenon at their offices in Edinburgh way back (late 90s/early 2000s) as we had a large property development project profit to possibly shelter. We did not run with the scheme offered but ended up using an EZ instead via A N Other, but I think Premier marketed their schemes back then via firms of accountants so it might make sense.

(I still have the Premier director's business card in my card wallet over 20 years later)

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By Justin Bryant
19th Mar 2024 17:37

It was certainly an unsurprising decision, but the scheme couldn't have been all that hopeless; otherwise they would not have got permission to appeal (there was of course a supporting QC opinion so there was nothing overly dodgy going on - unlike many R&D tax credit claims for example). Here's the full appeal history:

https://www.accountingweb.co.uk/any-answers/aikido-scheme-fails-at-ftt

Also, it's good to see someone using the proper and correct "testimony" word, rather than the annoying and misused "testament" (which used to just mean a book, basically).

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Replying to Justin Bryant:
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By Justin Bryant
20th Mar 2024 11:16

Para 17 of this case shows permission to appeal is only granted (in tax avoidance cases and any other case) if the appeal grounds are arguable: https://caselaw.nationalarchives.gov.uk/ukut/tcc/2024/70

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Replying to Justin Bryant:
By ireallyshouldknowthisbut
20th Mar 2024 14:32

Justin Bryant wrote:

there was of course a supporting QC opinion so there was nothing overly dodgy going on

Wow. Just Wow.

****EVERY**** dodgy scheme I have ever seen has managed to get a QC to at least half agree it might work if you close your eyes and belive enough. Infact one the main things I tell clients when they come to me with these things is "does it have a QC opinon?" if so this is going to be hugely high risk. If it worked, you wont need one.

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Replying to ireallyshouldknowthisbut:
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By Justin Bryant
20th Mar 2024 16:47

NB I said "overly" dodgy (like tax fraud per my above overly dodgy example and QCs/KCs don't give positive opinions on that sort of thing in case you didn't know).

You possibly also missed my permission to appeal comments above (judges don't give permission to appeal such overly dodgy stuff usually).

Also, by your logic anything with a QC/KC opinion is automatically dodgy, which is clearly wrong.

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Replying to Justin Bryant:
By ireallyshouldknowthisbut
20th Mar 2024 18:42

I would suggest if you need a QC opinion to say it works you are skating very close to the edge of the pond with a big hole in it, and an awful lot of people seem to fall in and down.

I have not have much invovlement in legal matters, but from what I have seen quite frankly anything involving lawyers can be argued. There is always an angle, even if it is largely hopeless. Infact lawyers seem to go out of their way to try and look clever and argue obscure points, so long as you pay 'em they will argue for you no matter how small the chance of succsses.

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Replying to ireallyshouldknowthisbut:
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By Justin Bryant
21st Mar 2024 09:32

Have you ever wondered about what invisible evidence you might be overlooking here? i.e. all the stuff with QC/KC opinions that works just fine (99%+ I expect) and that you don't read about therefore. I suggest you go and read a book called "Thinking Fast and Slow" that explains your fallacies.

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By chancewind
20th Mar 2024 10:50

that HMRC has announced a new consultation on the regulation of tax advisers at Budget 2024.

Presumably they were already regulated by someone? So what will more regulation do?

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Replying to chancewind:
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By raycad
20th Mar 2024 11:09

Quite so

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By JackH
20th Mar 2024 12:00

What really cheesed off HMRC about Rossminster (to the young ones, the Tax Scheme Sausage Factory of the 70s) was that their own proprietors and employees implemented their own Schemes on the fees they earned (known affectionately as "the Back End"). Even so that did not justify HM Judges conspiring with HMG and the Politburo of HMRC, over lunch and gallons of port at The Athaneum, to subvert the entire legal system, not just tax law, by intoducing into it (i.e. by unconstitutional judicial legislation) a novel form of statutory interpretation. Now called purposive or contextual interpretation, meaning what the judiciary think Parliament ought to have said if they had been as super-intelligent and clubbable as the old Codgers from Eton, Balliol and The Guards. No nasty former solicitors among them, thank you very much.

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