HMRC has won another case against a tax avoidance scheme designed by promoters NT Advisors, in a First Tier Tribunal (FTT) decision with implications for around 60 participants in the ‘Bluebox’ scheme which sought to use the ‘gifts to charities’ rules to reduce income tax liabilities say Harris & Co accountants Northampton
The case (William Ferguson and The Commissioners for Her Majesty’s Revenue and Custom TC/2012/05582) concerned William Ferguson who, the Tribunal heard, had earnings from employment in the tax year 2003-04 of over £800,000, and wished to avoid paying any income tax on £500,000 of those earnings.
Under the Bluebox scheme, Ferguson set up a complex series of arrangements via a family trust based in Jersey to make investments in gilts which were then used to make a £500,000 donation to a charity, the Somerton Charitable Trust (SCT). Eventually the gilts were sold, with all but 1% of the value being returned to Ferguson’s family trust rather than the charity.
In his judgement the FTT judge said:
‘In relation to the remaining 1%, from the documents referred to, we find that the transaction between the appellant and SCT, far from involving any kind of gift or other gratuitous transfer of assets, was a fiercely-negotiated arm’s length transaction. In exchange for the agreed 1% “turn” and other payment, SCT agreed to participate in the appellant’s tax avoidance arrangements, allowing its charitable status to be used as the crucial heart of those arrangements.’
The judge dismissed Ferguson’s appeal, saying that no relief was available in respect of any part of the gilts, since there had been no intention to give the whole of the beneficial interest in them to SCT as there was always an ‘expectation’ that the charity would only end up with 1% of the total value.
The judge said that the evidence put to the tribunal suggested a total net payment of some £670,000 to SCT from Ferguson and the other users of the Bluebox tax avoidance scheme, which implies a total of between £60m and £70m was put into the scheme by all its users, with potential tax savings to them of around £25m.
In its statement on the case, HMRC said the FTT’s decision protected £21m of tax, with 60 participants expected to pay the taxes due. Three individuals have already paid £24m in tax prior to the hearing.
Financial Secretary to the Treasury Nicky Morgan said:
‘The government has provided charitable tax reliefs to encourage people to give to charities. We will not tolerate abuse of these incentives for the purposes of tax avoidance. This victory shows HMRC’s determination and effectiveness in clamping down on those who seek to avoid their responsibilities. This was another scheme that wasn’t worth investing in and, as well as the fees investors will have paid to the promoters, they will now have to pay the tax owed as well as interest.’
HMRC said this was the fifth scheme promoted by Matthew Jenner and his firm NT Advisors which had been defeated at tribunal, bringing the total tax protected to more than £750m.