A massive multi-million pound tax avoidance scheme exploited by wealthy individuals has been closed after HMRC secured a legal victory.

The first-tier tribunal ruling has protected £156m in tax from the scheme devised by NT Advisors and sold by Dominion Fiduciary Services Group, which had 305 users.

Rex Bretten QC, acting for Andrew Chappell, acknowledged that his client had taken part in the scheme solely for tax avoidance.

HMRC specialist investigators unraveled the series of complex financial transactions behind the scheme, which involved loan notes worth £6m, designed to exploit tax rules on stock lending.

However, the tribunal found that the arrangements involved little more than signing pieces of paper and making entries in accounts. Money moved in a circle and the tribunal found that it achieved nothing for the purposes of the relevant tax law. The tribunal said that if the scheme had been successful, its effect would have been to make the payment of income tax voluntary.

David Gauke, exchequer secretary to the treasury, dubbed such schemes as 'an affront to the vast majority of businesses and people who pay what they owe'. He vowed to 'pursue the minority who do not play by the rules'.

'The government has made a significant investment into HMRC to track down and challenge tax dodgers and they will continue to make progress by closing down schemes set up for the sole purpose of avoiding paying tax.'

Such sentiments were echoed by Jim Harra, director general for business tax at HMRC: 'People who are tempted by this type of scheme should be warned that they carry serious risks. These include paying advisors expensive set-up charges, which can run into hundreds of thousands of pounds, on top of tax that is due and interest for late payment.'

'HMRC will challenge these schemes, however complex they appear to be. We have the skills and the expertise to effectively challenge tax avoidance and we will continue to do so.'

It emerged earlier this month that the scheme was linked to a charity tax-avoidance scheme that donated just £55,000 to good causes, having raised £176.5m. It allowed investors to avoid £46m in gift aid.

The Cup Trust employed an offshore bank loan to buy £1m gilts, which it then sold to investors who had paid a fee to join the scheme, for a nominal fee. The Trust then donated around £500 to charity on the investors' behalf. The investors then sold the gilts and 'donated' the money to the Cup Trust.

The Charity Commission head William Shawcross has since been summoned to appear before the Public Accounts Committee over the scam.