Taxman defeats £77m avoidance scheme

by Calum Fuller

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18 Jan 2013

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HM Revenue and Customs

A TAX AVOIDANCE SCHEME that attempted to take advantage of rules set up to encourage genuine medical research has been defeated in court.

The Matrix Securities scheme operated through a Jersey-registered limited partnership claiming it was trading in the UK. The partnership focussed on creating and exploiting intellectual property from medical research into vaccines targeting diseases such as HIV, flu and hepatitis B.

Some 83 investors in the scheme used £28m from their own pocket, £86m in bank loans and claimed £193m first-year trading loss to create £77m in tax relief that would have given them a £50m return on their investments.

However, HM Revenue & Customs investigators discovered £14m had been spent on genuine research and vaccine development. As a result, a tribunal held that relief was only due on no more than £14m of the losses, and further decided that £7m in fees that the partnership had paid to a subsidiary of the scheme promoters failed to qualify for tax relief.

Interest relief on the loans was also limited.

Since the scheme was set up, HMRC has introduced further anti-avoidance measures in order to prevent similar schemes from operating in future.

HMRC director-general of business tax Jim Harra said: "This is another important victory for HMRC as we continue to challenge artificial tax avoidance schemes. This type of marketed avoidance scheme is unfair to the vast majority of businesses and people who play by the rules. Anyone tempted should be warned that these schemes 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."

Richard Rhys of Rebus Investment Solutions, which acts for victims of mis-sold tax avoidance schemes, said the Matrix scheme was "high-risk".

"This scheme was suitable for only a select few, which has undoubtedly found its way into the hands of investors who really should not have been taking on this level of risk. Mr Harra of HMRC is right, that investors not only will have to repay the tax relief, but will also have to pay interest on any tax reliefs they have claimed," he said.

Click here to take part in Accountancy Age's debate on tax avoidance.

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