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HMRC wins £40m legal case over tax avoidance scheme

HM Revenue and Customs will collect £40m in unpaid taxed following its successful case against tax avoidance scheme promoter, Hyrax Resourcing.

In a statement today, HMRC confirms Hyrax will now be forced to divulge the names of 1,180 high earners who used it to dodge tax payments.

Failure to provide the information could mean a penalty of nearly £6m, as well as £5,000 per day for not fully disclosing the scheme.

Treasury financial secretary Mel Stride says: “HMRC is cracking down on the unscrupulous promoters who sell these highly contrived tax avoidance loan schemes.

“Promoters need to take note of this decision and make sure they contact HMRC urgently about schemes they haven’t yet disclosed.”

A tribunal decision agreed with HMRC that Hyrax had breached Disclosure of Tax Avoidance Schemes rules requiring promoters to tell HMRC about the schemes they sell.

DOTAS rules introduced in 2017 mean HMRC can fine up to 100 per cent of the fees earned to anyone who designs, sells, or enables the use of a tax avoidance scheme.

HMRC says Hyrax was a successor to a previous fraudulent tax scheme, the K2 arrangements, which became widely known around seven years ago.

The Hyrax scheme saw UK-based earners quit their jobs and sign new contracts with UK trusts who would then “re-hire” their employee to their previous employers and take both their earnings and an 18 per cent fee.

HMRC says the remaining 82 per cent was “just enough salary each month” to comply with national minimum wage rules.

A statement from HMRC states: “The trustee transfers its rights to be repaid the loan to an offshore trust in Jersey – with the intention that the loans are never repaid.

“The amounts loaned are not included on the employees tax returns in an attempt to avoid paying Income Tax and National Insurance.”

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. I don’t see how it can be said that this scheme or its predecessor was “fraudulent”. In the final analysis neither scheme “worked” but that is down to flaws in the designers’ legal analysis. Users of the schemes weren’t deceived – the designers believed the schemes worked to legally avoid tax charges.

  2. Who knows what the designers believed. ‘Kick the tax can down the road, get loads of fees, not be there when the wheels fall off’.

    That is at least as feasible as ‘design a robust scheme we believe works, and see what happens’.

  3. How about people pay the taxes they are supposed to pay? Then we would not need to worry about them when they find themselves with a massive bill and adverse publicity?

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