Tax avoidance promoter fined £1m
A tax avoidance scheme promoter has been hit with a £1,074,600 fine after a legal challenge by HMRC.
The business was handed a near maximum allowed fine by the First Tier Tribunal (FTT) for failing to disclose an avoidance scheme to HMRC as legally required.
They promoted a disguised remuneration scheme that involved routing money to an offshore trust in Jersey and was used by over 1,000 individuals. The scheme was the successor to the K2 avoidance scheme that made headlines in the early 2010s.
This ruling follows a previous HMRC tribunal win in 2019 where business was ordered to provide the details of the avoidance scheme they promoted and its users.
Business failed to disclose a disguised remuneration scheme that paid users the National Minimum Wage, with the remainder of their earnings paid as loans which were transferred to an offshore trust in Jersey. These loans were not declared as income on the scheme users’ tax returns, meaning they did not pay tax on all of their earnings, and the loans were never expected to be repaid.
The tribunal stated: business retained 18.5% which was effectively them splitting the tax saving with the scheme user. HMRC have calculated that the gross receipts in the period were £37,608,000 which is approximately 18.26% which is broadly consistent with that finding. That means that the tax saving was a very significant figure.’
In its ruling, the tribunal described, business failing to disclose the scheme as ‘a very serious matter’ and the ‘statutory maximum penalty is appropriate’.
It went on to add: ‘We accept HMRC’s argument that the penalty imposed should act as a deterrent. It should certainly do so to deter others from deliberately setting up a company with a sole director who can at best be described as displaying Nelsonian acuity in regard to the company’s affairs. It should also act to deter those who rely only on the advice of the promoter of the ta avoidance scheme and promoter who makes large sums of money from it.’
The tribunal fined them the maximum £600 a day for the period 9 April 2014 to 5 March 2019 for failing to disclose these details for 1,791 days, resulting in a total fine of £1,074,600.
Mary Aiston, HMRC’s director of counter-avoidance, said: ‘This £1m fine should serve as a stark warning to tax avoidance promoters. Those who ignore their legal duty will face serious consequences.
‘We actively tackle promoters of tax avoidance schemes and are determined to drive them out of business. We continue to use the full force of the law to challenge tax avoidance scheme promoters.’
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