In what has been hailed as a landmark victory for HM Revenue & Customs, tribunal Judge Colin Bishopp ruled against 51 so-called “Icebreaker partnerships”, of which Barlow’s Larkdale LLP was just one.
Ruling, Bishopp said: “The underlying, and fundamental, conclusion we have reached is that the Icebreaker scheme is, and was known and understood by all concerned to be, a tax avoidance scheme.
“The aim was to secure sideways relief for the members, and to inflate the scale of the relief by unnecessary borrowing, coupled with the illusion that the borrowed money was available for use in the exploitation of intellectual property rights by the device of the purported payment of a large production fee offset by the equally purported payment of a fee for a share of the resulting revenue. In our judgment the schemes substantially failed in their purpose.”
Since the ruling last week, Barlow has faced heavy criticism in the media, with MP and staunch attacker of tax avoiders Margaret Hodge, calling for him to hand back is OBE. Although prime minster David Cameron said it would be “unnecessary” to take the honour from him, despite partaking in “aggressive tax avoidance".
A spokesperson for HMRC said: "This scheme aimed to create tax losses out of nothing, unchallenged it could have cost the taxpayer £120m in lost tax.
“Tax avoidance schemes generally don't work, leaving the user facing a tax bill together with the costs of the scheme.
“We won't hesitate to challenge aggressive avoidance schemes through the courts. HMRC has protected more than £2.4bn from marketed tax avoidance schemes in 2013/14 alone.”
Barlow and his fellow Take That colleagues are not the only celebrities to have been caught out using aggressive tax avoidance schemes in recent years. In June last year, The Times newspaper investigation revealed that comedian Jimmy Carr had been invested in a Jersey based scheme called K2.
The revelations later led to the strengthening of the Disclosure of Tax Avoidance Schemes regime.
Andrew Watters, director and tax expert at law firm Thomas Eggar LLP, said: “Another celebrity has learned the hard way that tax really is taxing. Gary Barlow entered a scheme that generated large losses.
"These losses were anticipated and were set against income from the day job. For such schemes to work, they have to persuade the tax tribunal the there is a real trade and that the losses are real. The judge was not so convinced with Mr Barlow’s scheme.
“The consequence is not only a large and unexpected tax bill but also the possibility of large financial penalties. In addition, for a public figure, there can be considerable reputational damage.
“The message is that taxpayers must be very careful about the nature of their tax planning.”
