Joel Muckett 23 Oct 2017 10:49am

HMRC defeats £325m tax avoidance scheme

A tax avoidance scheme used by the wealthy has been defeated by HM Revenue and Customs (HMRC), netting the tax office £325m in unpaid taxes

HMRC’s victory over the scheme, known as Clavis Liberty Fund 1 Limited Partnership, protected £18m of taxpayers’ money and is expected to have wider implications for users of similar schemes.

The scheme was promoted by Mercury Tax Group and aimed to create artificial tax losses that would be claimed against its users’ other income to reduce their tax bills.

HMRC director general of customer compliance Penny Ciniewicz described it as a “brilliant victory.”

“We have repeatedly warned people about the financial consequences of using tax avoidance schemes. More and more people are coming forward and settling what they owe because they know the game is up,” she said.

“Our message is clear – steer clear of tax avoidance schemes or, like Liberty’s users, you’ll face a hefty consequence.”

The scheme revolved around a limited partnership registered in Jersey claiming to trade in the UK.

A sum contributed by users of the scheme was used with a large bank loan to acquire rights to dividends declared by a company registered in the Cayman Islands.

A deduction was claimed for the cost of purchasing the dividend rights but the partnership attempted to exclude dividends received from its trading results, resulting in a loss that was then used to reduce tax bills of its users.

The First-tier Tribunal ruled that the transaction was artificial and uncommercial, a decision supported by the Upper Tribunal.

HMRC has won the vast majority (80%) of its tax avoidance cases.