HMRC has secured its eighth tribunal win in a row against tax avoidance schemes run by NT Advisors, with an Upper Tribunal (UT) finding in its favour over a challenge to a complex scheme involving the circular movement of funds between loan notes and sham overseas securities transactions say Harris & Co accountants Northampton #accountantsnorthampton
HMRC says that the scheme, which was promoted by NT Advisors, had a total of 305 users and claims the latest ruling is expected to protect £156m in tax.
The latest case, [Andrew Chappell and the Commissioners for Her Majesty’s Revenue and Customs,  UKUT 0344 (TCC), Appeal number FTC/48/2013] centred on Chappell’s claim to deduct £303,123 from his total income in respect of two payments, which he included in his self-assessment tax return for the tax year 2005-06.
Chappell claimed he was entitled to deduct the payments because they were manufactured overseas dividends (MODs), as defined by paragraph 4(1) of Schedule 23A to the Income and Corporation Taxes Act 1988 (‘ICTA’), and thus were ‘annual payments’ within section 349(1) of ICTA and regulation 2B(3) of the Income Tax (Manufactured Overseas Dividend) Regulations 1993.
HMRC challenged this view and a First Tier Tribunal found in the tax authorities’ favour. Chappell then took the case to the UT, which has also ruled in favour of HMRC.
In its judgement the UT said that it was apparent from the full and clear findings of fact that there were neither payments nor loan notes in a real or practical sense.
The UT concluded:
‘Their purpose was not a commercial purpose, but exclusively a tax avoidance purpose. Nor was there a transfer in the sense contemplated by the regulations.’
‘Mr Chappell never had the securities available to him for any commercial purpose. All the transactions were organised in advance, and consisted of movements of funds in a circle, with the payments being recorded in writing.’
‘Loan notes to the value of £1.5bn were created, but they had no substance, no money was ever made available and the sale price had nothing to do with the intrinsic value of the loan stock. These were not overseas securities for the purpose of the regulations.’
David Gauke, financial secretary to the Treasury, said:
‘While the vast majority of people pay the taxes they owe, this victory shows HMRC’s determination and effectiveness in clamping down on those who seek to avoid their responsibilities.’
‘Users of NT Advisors schemes, or those considering using their schemes, should know by now that HMRC is very successful at defeating them, and give serious thought to ending their involvement.’
HMRC says its recent run of court successes against NT Advisors has protected over £750m in tax, defeating five of the promoter’s schemes. Among them is the Working Wheels scheme, where participants claimed to be second-hand car dealers.
The department is writing to users of many of NT Advisors’ schemes to inform them of recent successful challenges. In the last two months HMRC has written to more than 1,000 users, and users of the Bluebox scheme will be contacted shortly.