WIREDGOV

A tax avoidance scheme set up to allow wealthy people to pay little or no tax on their income has been successfully challenged by HM Revenue and Customs (HMRC) in court. The court ruling has protected £156 million in tax from a scheme devised by NT Advisors LLP and sold by Dominion Fiduciary Services Group, which had 305 users.

Rex Bretten QC, acting for Andrew Chappell, acknowledged that his client had taken part in the scheme solely for tax avoidance.

HMRC specialist investigators unravelled the series of complicated financial transactions involved in the scheme, involving loan notes worth £6 million, which was intended to exploit the tax rules on stock lending.

However, the tribunal found that the arrangements involved little more than signing pieces of paper and making entries in accounts. Money moved in a circle and the tribunal found that it achieved nothing for the purposes of the relevant tax law. The tribunal said that if the scheme had been successful, its effect would have been to make the payment of income tax voluntary.

The Exchequer Secretary to the Treasury, David Gauke, said:

“The Government is committed to tackling tax avoidance schemes like this one which are artificial and work against the rules set by Parliament. These schemes are an affront to the vast majority of businesses and people who pay what they owe. We will pursue the minority who do not play by the rules.

“The Government has made a significant investment into HMRC to track down and challenge tax dodgers and they will continue to make progress by closing down schemes set up for the sole purpose of avoiding paying tax.”

Jim Harra, Director General for Business Tax, said:

“I am delighted that HMRC has had another important victory as we continue to challenge this type of artificial tax avoidance. 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 advisors 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 will challenge these schemes, however complex they appear to be. We have the skills and the expertise to effectively challenge tax avoidance and we will continue to do so.”

A General Anti-Abuse Rule will be introduced in 2013.

Last month HMRC invited participants in certain tax avoidance schemes to settle their tax liabilities without the need for litigation

The NAO reported in November 2012 that HMRC has an 85 per cent avoidance litigation success rate.

The case is Andrew Chappell (Reference TC 02516).