HMRC has renewed a warning that ‘artificial’ tax avoidance schemes carry serious risks, after the First-tier Tribunal decided that a marketed scheme failed on Ramsay as well as technical grounds.
Jim Harra, HMRC’s director general for business tax, said he was delighted that HMRC had obtained ‘another important victory’ in its efforts to tackle artificial avoidance. The Finance Bill to be published next month will include a general anti-abuse rule. Last week the Commons public accounts committee claimed that promoters of marketed avoidance schemes ‘run rings’ around HMRC.
The ruling protected £156m in tax from a scheme devised by NT Advisors LLP and sold by Dominion Fiduciary Services Group, HMRC said yesterday. The department has identified 305 users of the scheme.
The tribunal observed that if the scheme had succeeded, its effect – in the absence of legislation countering it – would have been to make the payment of income tax ‘voluntary’.
Tax Journal’s cases editor Alan Dolton noted that the tribunal held that the scheme failed both on technical grounds and under the Ramsay principle. ‘The particular loophole which the appellant’s advisers had attempted to exploit was blocked by ITA 2007 s 581A, which was introduced by FA 2008 Sch 23,’ he wrote in this week’s issue.
John Walters QC agreed with HMRC’s submission that ‘the movements of moneys involved, if real, would have been quite staggering, but in reality the money went round in a circle from start to finish’.
Andrew Chappell claimed a deduction of more than £300,000 in his 2005/06 tax return, according to the tribunal decision released last week – Andrew Chappell v HMRC TC02516, [2013] UKFTT 098 (TC). Leading counsel for Chappell ‘frankly acknowledged’ that the claim arose from a tax avoidance scheme that had ‘no underlying commercial purpose whatever’.
The tribunal noted that in the recent Mayes case, Mummery LJ had said the statutory provisions under consideration '[did] not readily lend themselves to a purposive commercial construction’. However, in this case the relevant provisions did ‘readily lend themselves to such a construction’.
Chappell’s participation in the scheme was notified to HMRC under the disclosure of tax avoidance schemes (DOTAS) rules, and the tribunal judges noted that Chappell and his advisers had been ‘entirely open’ with HMRC about the nature of the scheme.
The scheme was ‘designed to obtain a tax deduction in respect of a manufactured overseas dividend treated as an annual payment within [ICTA 1988 s 349] with no counteracting tax charge’.
HMRC said its investigators unravelled a ‘series of complicated financial transactions … involving loan notes worth £6m, which was intended to exploit the tax rules on stock lending’.
Harra said: ‘The vast majority of people pay the tax due and this type of behaviour is totally unfair on them. People who are tempted by this type of scheme should be warned that they carry serious risks. These include paying advisers expensive set-up charges, which can run into hundreds of thousands of pounds, on top of tax that is due and interest for late payment.’
HMRC has renewed a warning that ‘artificial’ tax avoidance schemes carry serious risks, after the First-tier Tribunal decided that a marketed scheme failed on Ramsay as well as technical grounds.
Jim Harra, HMRC’s director general for business tax, said he was delighted that HMRC had obtained ‘another important victory’ in its efforts to tackle artificial avoidance. The Finance Bill to be published next month will include a general anti-abuse rule. Last week the Commons public accounts committee claimed that promoters of marketed avoidance schemes ‘run rings’ around HMRC.
The ruling protected £156m in tax from a scheme devised by NT Advisors LLP and sold by Dominion Fiduciary Services Group, HMRC said yesterday. The department has identified 305 users of the scheme.
The tribunal observed that if the scheme had succeeded, its effect – in the absence of legislation countering it – would have been to make the payment of income tax ‘voluntary’.
Tax Journal’s cases editor Alan Dolton noted that the tribunal held that the scheme failed both on technical grounds and under the Ramsay principle. ‘The particular loophole which the appellant’s advisers had attempted to exploit was blocked by ITA 2007 s 581A, which was introduced by FA 2008 Sch 23,’ he wrote in this week’s issue.
John Walters QC agreed with HMRC’s submission that ‘the movements of moneys involved, if real, would have been quite staggering, but in reality the money went round in a circle from start to finish’.
Andrew Chappell claimed a deduction of more than £300,000 in his 2005/06 tax return, according to the tribunal decision released last week – Andrew Chappell v HMRC TC02516, [2013] UKFTT 098 (TC). Leading counsel for Chappell ‘frankly acknowledged’ that the claim arose from a tax avoidance scheme that had ‘no underlying commercial purpose whatever’.
The tribunal noted that in the recent Mayes case, Mummery LJ had said the statutory provisions under consideration '[did] not readily lend themselves to a purposive commercial construction’. However, in this case the relevant provisions did ‘readily lend themselves to such a construction’.
Chappell’s participation in the scheme was notified to HMRC under the disclosure of tax avoidance schemes (DOTAS) rules, and the tribunal judges noted that Chappell and his advisers had been ‘entirely open’ with HMRC about the nature of the scheme.
The scheme was ‘designed to obtain a tax deduction in respect of a manufactured overseas dividend treated as an annual payment within [ICTA 1988 s 349] with no counteracting tax charge’.
HMRC said its investigators unravelled a ‘series of complicated financial transactions … involving loan notes worth £6m, which was intended to exploit the tax rules on stock lending’.
Harra said: ‘The vast majority of people pay the tax due and this type of behaviour is totally unfair on them. People who are tempted by this type of scheme should be warned that they carry serious risks. These include paying advisers expensive set-up charges, which can run into hundreds of thousands of pounds, on top of tax that is due and interest for late payment.’
