HM Revenue and Customs (HMRC) believes it is poised to recover £110 million after winning a legal battle against a tax avoidance scheme promoter.
HMRC described its victory over the scheme promoter Root2 as a landmark and said it would seek to impose a substantial penalty which would be set by a tribunal at a future date.
The authority brought the case in the First-tier Tribunal claiming that Root2 failed to report a mass-marketed tax avoidance scheme, known as Alchemy, to the tax authority.
HMRC claimed that disclosure of tax avoidance schemes (Dotas) rules, which demand that promoters tell HMRC about tax avoidance schemes they design and sell, were breached.
HMRC has produced guidance on disclosure of tax avoidance schemes incorporating 2010-11 rule changes: http://t.co/qjak31W
— HM Revenue & Customs (@HMRCgovuk) August 24, 2011
It said the scheme aimed to extract profits from owner-managed companies in the form of winnings from betting on the stock market, which the scheme aimed to ensure would be tax-free, rather than in the form of taxable employment income.
HMRC said this was its first victory under the Dotas rules at a tribunal and the £110 million could be recovered just from the Alchemy scheme.
Following a public hearing in London in March, the First-tier Tribunal has ruled that the scheme’s arrangements were notifiable.
In its ruling, the First-tier Tribunal, which handles appeals against some decisions made by HMRC on issues including income tax, PAYE tax and corporation tax, found an investigating HMRC officer was patient in the face of an “unwillingness to be forthcoming”.
It added that “it would be unfair to describe the responses he received as stonewalling, but they can only be considered to represent an attempt to deflect”.
It was also found that the HMRC had taken all reasonable steps to find out what the arrangements were and how they were implemented.
There is no right of appeal against the decision.
Under the Dotas rules introduced in 2004, promoters must disclose schemes to HMRC and report details of their users to HMRC on quarterly client lists.
Users must also report their use of a scheme to HMRC annually.
HMRC has various powers to tackle non-compliance and promoters face penalties of up to £1 million or more if they fail to disclose a scheme.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules here