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

HMRC in hat trick of legal victories

by
31st Aug 2012
Save content
Have you found this content useful? Use the button above to save it to your profile.

HMRC won two tribunals and a court case against tax avoidance schemes last month that it said could have cost the Exchequer £200m.

The schemes involved capital gains tax, directors’ bonuses and tax relief on government bonds.

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.”

Exchequer secretary to the Treasury David Gauke said that the HMRC legal victories were “very welcome” and showed that “if an avoidance scheme promises results that seem too good to be true, they probably are”.

The three tax cases were:

1. Schofield (Court of Appeal, 11 July)

This case concerned capital gains tax on a £10m gain realised in 2003/2004. The “wider tax” protected by stopping the scheme was £90m, HMRC said.

The taxpayer sold his business, making a profit of about £10m. He then 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.

2. Sloane Robinson Investment Services (First-Tier Tribunal, TC02132)

The directors of Sloane Robinson were paid bonuses in shares worth a total of £24m and used a tax avoidance scheme, which they later modified.

The shares were paid in two companies, SRIM Performance (S1) and SRIM Performance 2 (S2) - controlled principally by the trustee of an employee benefit trust. The two companies were subsequently liquidated and the employees received the proceeds of the liquidation in cash.

The first-tier tribunal ruled that the modified scheme didn't work either. About £13m of tax was at stake. 

The directors argued that acquisition of shares by employees is exempt from tax because the shares are “restricted securities”  under a section of the Income Tax (Earnings and Pensions) Act 2003.

HMRC argued that the bonuses should be taxed as earnings.

In his ruling, tribunal judge Malachy Cornwell-Kelly said that the schemes the bonuses were paid into were “merely money-box companies serving an essentially mechanical purpose”.

3. Barnes (Upper Tribunal, 30 July, UKUT 273)

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 total tax at stake was £100m, HMRC said.

The tribunal dismissed the appeal by Nicholas Barnes.

All three decisions may be subject to appeal.

Replies (2)

Please login or register to join the discussion.

avatar
By johnjenkins
06th Sep 2012 10:38

I have always

said that anything artificial should not be allowed. I'm sure we all welcome these cases because in the end it gives us credibility. So now let's look at Estimated Assessments and IR35 in the same light.

Thanks (1)
avatar
By justsotax
06th Sep 2012 11:26

perhaps the article should also

be naming and shaming the scheme providers.....(I trust non of the 'big four' are involved)

Thanks (2)