A High Court ruling has opened the floodgates for HM Revenue & Customs to seek £200m in unpaid income tax from 3,000 members of a tax avoidance scheme run by Isle of Man based firm Montpelier.
In a hearing earlier today, the High Court ruled against Robert Huitson, a member of the Montpelier scheme, who had challenged the Revenue’s right to levy taxes retrospectively.
Huitson’s barrister challenged the ruling on the basis it broke his rights under the Human Rights Act 2008 arguing his client’s tax affairs had been legal, which is why the Revenue had failed to take any action against him before the law was changed despite being well aware of them.
However, High Court Judge Mr Justice Parker rejected this and said HMRC had warned users of the tax avoidance scheme it may be challenged and said the government was entitled to change tax laws retrospectively.
"The tax avoidance scheme, if it worked, would, therefore, appear to realise every taxpayer’s dream of lawfully avoiding, or at least greatly reducing, income tax in any jurisdiction," said Parker.
"It is also immediately plain that the tax avoidance scheme, if it worked, would be singularly attractive to any person in the position of the claimant, that is, any resident of the UK who, as a self-employed person, carried on a trade or profession here.”
The ruling means the other members of the scheme will now be required to pay the tax due which the Revenue estimates to be as much as £200m.
The case concerned a scheme Montpelier set up which, through a complex set of partnerships and trusts, UK business contractors or consultants could channel their work to their customers and also receive their income. Due to the fact most of the income eventually came via a family trust meant no income tax was paid on it, either in the UK or the Isle of Man.
Ruling, Parker said the overall effect had been to reduce Huitson’s tax rate to just 3.5%.
"Until the relevant legislation was amended with retrospective effect, the claimant contended that, as a result of the double taxation arrangement and the legislation then applicable, the income channelled through the trust was not subject to UK income tax," said Parker.
"Indeed, it did not appear that it was even subject to tax in the Isle of Man because, although the trustee was resident there, the relevant income belonged, through the interest in possession in the trust, to a person, the claimant, who was not resident in the Isle of Man."
An HMRC spokesperson said: “The High Court has confirmed measures taken by the Government in 2008 closing down a tax avoidance scheme which sought to exploit the UK’s Double Taxation Agreements is compatible with the European Convention on Human Rights.
"HMRC is serious about tackling those who seek to avoid their tax obligations."
