HMRC’s latest anti-avoidance case court victory sends a strong message to individuals involved in similar schemes to stand back and think carefully about their options, says Blick Rothenberg.
The win in the Upper Tribunal against Cyclops Electronics and Graceland Fixing has taken the count to nine out of ten avoidance cases won in the last two years.
Isobel Clift, senior manager at Blick Rothenberg, said, ‘This is a significant victory for HMRC at the Upper Tribunal in relation to both the amounts involved and the principles at stake. It also takes the count to nine out of ten tax avoidance cases won in court in the last two years.’
‘The win continues the trend in the way the courts see tax avoidance schemes and stacks the odds overwhelmingly in favour of HMRC.’
The two businesses involved had both issued loan notes to pay bonuses to directors to avoid paying tax and National Insurance. Their case was worth £350,000, but according to HMRC the scheme was used by over a hundred other companies with £55.2 million in tax at stake.
The scheme was originally created and implemented in the 2003/04 and 2004/05 tax years and was designed to take advantage of the anti-avoidance legislation relating to the employment income share scheme legislation. The legislation has since been amended to avoid further exploitation.
Isobel said, ‘The Upper Tribunal found that the loan notes were earnings in the hands of the employees and should be subject to PAYE and National Insurance Contributions ("NIC").’
‘HMRC will now be able to issue follower notices to the other companies that used the scheme. This means that rather than taking them all to court, HMRC can now demand payment of the tax owed.’
She added, ‘Individuals who have been involved in such schemes should now stand back and think very carefully about their options.’
For more information, please contact Isobel Clift.