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HMRC Wins Against Three Tax Avoidance Schemes 21/08/12

HMRC has won three key court decisions against tax avoidance schemes during July. These schemes - if unchallenged - would have diverted £200 million from the UK Exchequer.

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.

Stuart Coleman, ABDS Tax Manager comments:
“Tax Avoidance carries 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. So you have to ask yourself whether it’s really worth it.”

Exchequer Secretary to the Treasury David Gauke said:
“These three HMRC wins are very welcome, demonstrating that if an avoidance scheme promises results that seem too good to be true, they probably are.”

The first case concerned Capital Gains tax on a £10 million gain realised in 2003/2004 He paid a lot of money for a scheme where an artificial loss was generated to avoid the tax.

The second case involved directors of an Investment Company in which they considered a number of tax avoidance schemes, modifying the one they had chosen when the legislation was changed to counter that type of scheme. The First Tier Tribunal ruled the modified scheme didn't work either. £13 million of tax was at stake and of course there is no scope to get back the scheme fee or the costs of defending this case.

The third case 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. This scheme was taken up by over 100 people; the total tax at stake was around £100 million. Again these individuals cannot recoup the fees paid for this scheme and they have the added, non-allowable cost for tax purposes, fees in relation to defending their use of this scheme.
Stuart Coleman goes on to add:
“All of the decisions mentioned above may be subject to appeal but reminds would be participants that fees are always payable to use these schemes. If the scheme fails the agreement is always written in such a way that the fees are not refundable and all the risk of using the scheme is attributed to the user, not the scheme architect. In a recent case the scheme failure resulted in the tax being paid twice rather than no tax at all. ABDS will keep you informed.”

If you need any help and advice for your Tax and the implications of the HMRC initiatives, or particularly if you are being sold independently a tax avoidance scheme please contact Stuart Coleman, Tonmoy Kumar or Lavinia Newman to discuss how ABDS can help.

ABDS Chartered Certified Accountants of Southampton.
Tel: 023 8083 6900  E-mail:

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