Taxman closes down three avoidance schemes

by Calum Fuller

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21 Aug 2012

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HM Revenue and Customs

THREE TAX AVOIDANCE SCHEMES have been shut down in the courts by the taxman, with the taxpayer saving about £200m.

The first of the three cases – all concluded in July – concerned capital gains tax on a £10m gain made by Howard Schofield through the sale of a business in 2003/04.

Schofield entered into a scheme that allowed him to create an artificial loss and therefore avoid paying tax on the profit, but the Court of Appeal ruled the scheme had no commercial purpose.

According to HM Revenue & Customs, the wider tax shielded by the scheme was about £90m, while the taxpayer paid out some £200,000 for the failed structure.

In the second case, directors at international investment firm Sloane Robinson put money into companies that rewarded investors when the companies were liquidated.

The structure of the scheme was altered when legislation changed, but the First Tier Tax Tribunal swatted down the modified version, too, ruling the money was bonuses for employment and therefore taxable, saving the taxpayer about £13m.

The final case – appealed by Nicholas Barnes, one of a more than 100 participants in the arrangement – aimed to exploit a mismatch between two tax regimes, and put £100m of taxpayer's money at risk.

The scheme was built around government bonds generating interest coupons, which were borrowed for one day when a coupon was due. A payment representative of that coupon was made to the lender, allowing tax relief to be claimed. The arrangement then predicted no tax would be due on the interest coupon received.

The First Tier Tribunal branded the scheme a "designed and marketed tax avoidance scheme", and it was ruled there was no incompatibility in the law. However, changes were made in 2005 and 2008, rendering the scheme unworkable in the future.

HMRC's director-general of business tax, Jim Harra, warned the taxman would "relentlessly" pursue anyone engaging in tax avoidance.

He said: "These schemes don't come cheap; you carry 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."

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