The landmark case is expected to enable the tax office to recover about £110m ($145m, €122.7m) in lost taxes.
HMRC brought the case under the Disclosure of Tax Avoidance Scheme (DOTAS) rules, which requires promoters to tell the tax authority about any avoidance schemes they design and sell.
The case was brought against Root2, the promoter of a mass-marketed tax avoidance plan called Alchemy.
The scheme aimed to extract profits from owner-managed companies in the form of winnings from bets on the stock market, which the scheme aimed to ensure would be tax free rather than in the form of taxable employment income.
The First-tier Tribunal agreed with HMRC that the promoter in this case did not abide by the DOTAS rules.
Do tell
Penny Ciniewicz, director general of HMRC’s Customer Compliance Group, said the tribunal’s decision was “a great victory that sends a clear message to tax avoidance scheme promoters that we will pursue you if you don’t play by the rules.”
“Most tax avoidance schemes don’t work. The DOTAS rules ensure that HMRC is notified of schemes so that we can investigate and challenge them.”
“Designers and promoters of avoidance schemes should come forward now if they haven’t already disclosed a scheme to us. We will take action and nobody should think they can get away with not disclosing their avoidance schemes and misleading users about the need to report them.”
HMRC said it will seek to impose a substantial penalty on the promoter of the Alchemy scheme for failing to disclose the scheme.
DOTAS was introduced in 2004 and has been strengthened and broadened more recently to keep pace with the ever-changing avoidance landscape.
The DOTAS law covers tax avoidance involving: Income Tax, Capital Gains Tax, Corporation Tax, National Insurance contributions, Stamp Duty, Land Tax, Inheritance Tax and the Annual Tax on Enveloped Dwellings.
