Save content
Have you found this content useful? Use the button above to save it to your profile.
Royal_Courts_iStock

NT Advisors lose third avoidance appeal

by
3rd Feb 2014
Save content
Have you found this content useful? Use the button above to save it to your profile.

Boutique tax firm NT Advisors, described by the Revenue as a serial avoidance promoter, has lost its third appeal over a £100m tax scheme.

The scheme, branded Project Corbiere and devised by Matthew Jenner, involved transferring millions of pounds of government bonds, known as gilts, backwards and forwards to the British Virgin Islands to manufacture an unwarranted tax deduction of £1.2m.

The Court of Appeal judgement in Nicholas Barnes v Revenue and Customs [2014] EWCA Civ 31 said the scheme exploited the fact that tax legislation offers two separate reliefs in some circumstances where securities are transferred.

“The first relief is an ‘accrued interest’ relief, and the second is a ‘manufactured interest’ relief. They deal with somewhat different situations, but the originators of the scheme sought to design a transaction that would make them both applicable, so as to allow the taxpayer to have one obligation to pay £x but two reliefs (of £x each) against that obligation. The scheme fails unless both of the two reliefs are allowable,” it said.

The Court of Appeal said the FTT and UT were right to think that the effect of section 714(5) is, for tax purposes, to reduce the interest payment received by Barnes by the amount of the accrued interest allowance, i.e. in this case almost to nil.

“In those circumstances, when one comes to apply paragraph 3(2A) of schedule 23A to ICTA, Mr Barnes is not ‘chargeable to income tax’ on the ‘periodical payment of interest on the securities which is represented by the manufactured interest’ which he received. Accordingly, he is not entitled to manufactured interest relief within the proper meaning of paragraph 3 of schedule 23A to ICTA.”

In January 2011 the FTT found for HMRC in the case of Nicholas Barnes v HMRC, and Barnes lost again in July 2012 when the Upper Tribunal dismissed his appeal.

Eighteen of the 230 individuals who first used the scheme in 2005 have settled their tax bills with HMRC paying a total of £20m, but a further £80m could have been lost to the UK if this latest appeal had been successful.

David Gauke, exchequer secretary to the Treasury, said: “Many users of this scheme have already accepted the inevitable and settled up with HMRC and those who haven’t should do so quickly. 

“This government has provided HMRC with nearly £1 billion to clamp down on tax avoidance, evasion and fraud. We recently announced proposals which will give HMRC stronger powers to tackle promoters and users of avoidance schemes sending a clear signal that tax avoidance doesn’t pay.”

Last May, HMRC challenged a tax avoidance scheme and won a victory against the promoter, Matthew Jenner of NT Advisors, who pushed the plan to more than 400 people in 2006.

HMRC said its intervention protected £190m of tax.

In addition to the Barnes and Jenner tribunals, this was the third successive Revenue victory against schemes promoted by NT Advisors. In December 2012 the first tier tribunal found for HMRC in the case of Andrew Chappell v HMRC.

Replies (11)

Please login or register to join the discussion.

By ShirleyM
03rd Feb 2014 18:50

3rd appeal?

How many appeals are allowed? Is this a normal occurrence? What is the criteria needed to get an appeal, be it first, second, third, etc.?

Thanks (1)
avatar
By johnjenkins
04th Feb 2014 11:23

@shirleym

I'm sure it's 3. First Tier, second tier and court of appeal. Congrats on your victory (sometimes common sense prevails if you get the right person).

Thanks (1)
By jon_griffey
04th Feb 2014 11:50

dodgy tax schemes

Its great to see these offensive schemes defeated.  It also makes it much easier for us on the coal face to demonstrate to clients tempted by aggresive tax avoidance that they are increasingly unlikely to work.

Thanks (2)
By ShirleyM
04th Feb 2014 12:47

@johnjenkins

What victory?

@jon_griffey - I agree. I want it to reach the stage where the promoters of artificial schemes have to repay the fees, or some other financial penalty. It still cost us, the taxpayers, a bundle to get the scheme closed down! At the moment, the promoters seem to keep the fees earned, whereas their clients have to pay the tax that was due. It seems a bit one sided.

Thanks (2)
avatar
By johnjenkins
04th Feb 2014 14:56

Wouldn't it be better

if these artificial schemes were bought before the courts (paid for by the initiators) before they are erroneously sold to greedy clients.

Thanks (2)
By ShirleyM
04th Feb 2014 15:40

@john

I think there is something like that in the USA, where a scheme has to be 'approved' before it can be marketed. I am a bit vague on the details, though.

Thanks (0)
avatar
By King_Maker
05th Feb 2014 08:10

In theory, there can be 4 levels of Appeal - FTT, UTT, Court of Appeal and Supreme Court.

Broadly similar to the "old" regime with the General/Special Commissioners at the bottom of the totem pole.

Thanks (0)
avatar
By moneymanager
06th Feb 2014 11:35

A Matter of opinion

The transcript makes interesting reading.

Frankly I am surprised that the plaintiffs took it as far as they did; quite apart from the fine points of law regarding the various reliefs claimed, there was no commercial purpose to the series of transactions, none at all so the scheme should have failed on that ground alone.

Still, no doubt it provided several pay days for barristers from the original opinion on the construction of the scheme to the QCs at the second appeal.

@johnjenkins 

ShirleyM

 

Don't forget that HMRC don't only collect the tax but also pretty hefty penalties and interest. As to whether the promoter does or should keep their fees I think it again, does or should, depend on why a scheme fails.

As this cases shows, some should perhaps have been stillborn and it does leave one wondering how clients were introduced to NT and what sort of supportive and personalized advice they had, whereas in others HMRC may properly investigate and attack a scheme successfully (double dipping under S48 and some Technology funds) while in others have their case rebuffed. Sometimes, the decision will be a fine one either way and sometimes there is clear blue water and HMRC should never have moved on them e.g. certain film related EIS Ingenious Media etc.

When HMRC loses you don't, of course, tend to hear about them

Thanks (0)
avatar
By johnjenkins
06th Feb 2014 13:15

I do not

think there is any fine line between real and artificial. It's either one or the other. There are some grey areas in law but that is because not every eventuality can be thought of. Then it is the job of the courts to decide.

To me the easiest way of defining real and artificial is "putting the wife on the books". If the money goes into her account (even joint) that is real. If no money passes hands that is artificial.

Thanks (0)
Replying to Tax Dragon:
avatar
By moneymanager
08th Feb 2014 19:52

The devil is in the detail.

I largely agree but  HMRC would quite properly, crawl all over  each and every scheme claiming S48/S42  film relief  and I know one firm of accountants who did virtually nothing except pre-release compliance checking; even the tiniest slip could turn an otherwise legitimate scheme into a failed one.

On your other point, 'real and artificial' used to be, I believe, as clear cut as you suggest. Perhaps unhelpfully, the courts have muddied the water with such  notions as constructive  trusts. I think there was a case a few years ago where a couple owned a let property but contended that all the income belonged to one of them, (might have been the other round) the courts agreed. There was another which I am sure involved an MP or local councilor in Enfield. The case I'm thinking gof related to a parent being taxable (or not) on cash invested for the child. I think the money had originated from a third party but invested by the parent. Perhaps a legal eagle could set me right?

Thanks (0)
By jon_griffey
06th Feb 2014 14:30

GAAR

Never mind GAAR and complicated anti-avoidance legislation. What is needed is a simple duck test. The person on the Clapham omnibus can tell instantly that a contrived arrangement with no commercial purpose is artificial tax avoidance. We don't need a room full of QC's to tell us that.

Thanks (3)