The first tier tribunal (FTT) has dismissed another tax avoidance scheme sold by NT Advisors involving participants, including former BBC star Chris Moyles, masquerading as second-hand car dealers.
The “highly artificial” scheme involved its users claiming to be self-employed used car traders making large tax deductions on finance fees incurred to borrow money to invest in “their trade”.
The ex-Radio 1 DJ participated in the complicated ‘Working Wheels’ tax avoidance scheme, promoted by NT Advisors, along with 450 others between 2006 and 2008 who are now being contacted and asked to pay the tax they owe.
Moyles had filed a self assessment return that claimed he had “engaged in self-employment as a used car trader” during the year to April 2008. HMRC rejected the loss claim, leading the former BBC star to launch an appeal along with Eoghan Flanagan and Allan Stennett who had also used the scheme.
Moyles did not give evidence to the tribunal but submitted a “very brief and rather uninformative” witness statement that made it clear he had entered the scheme “for no purpose other than to achieve a tax saving”, according to Judge Colin Bishopp.
The star’s accountant agreed that the scale of his borrowing was driven by the amount of the tax loss he wanted to achieve, in Moyles’ case £1m, and that the trading was not carried on for its own sake but was more a means to an end.
After the judge said that it was impossible to reach a conclusion this was a trade seriously pursued with a view to profit, Moyles issued a statement taking full responsibility for his actions and said he had learnt “a valuable lesson”.
The judgement in Flanagan & Ors v HMRC [TC03314] revealed that the purpose of the scheme was to manufacture a tax loss greater than any true economic loss at little or no financial risk to the user, whose exposure was limited to the cost of the promoters’ fees and some other minor expenses.
The tribunal found the appellants’ aim was to make it appear, “as though by magic”, that they had incurred vast fees in order to borrow modest amounts of money they did not need in order to invest it in a trade they had no desire to pursue.
The appellants loss claims were disallowed.
AccountingWEB members were quick to discuss the outcome of the case over the weekend, leading to one member saying he could now see why people cannot understand the difference between tax avoidance and evasion.
“As long as I write and appropriately inform HMRC of this legal avoidance scheme it is not tax evasion.
“But the moment a small business fails to register for VAT in time and refuse to pay the necessary output VAT that they never received from their customer to HMRC this is considered a reportable event for money laundering purposes,” said member Jekyll and Hyde.
ShirleyM added that it's was now time these scheme promoters were made to pay the cost.
“It bugs me to death that not only does the country not get the tax when it is due, but we must pay high costs to prove the scheme defective before we get any tax at all!” she said.
Treasury secretary David Gauke said: “This case is another example of why taxpayers should not fall for the promises of promoters selling schemes that are all too often too good to be true. Not only will the taxpayer waste money on the fees for these failed schemes, they will still have to pay all the tax, interest and penalties that are due.”