An offshore tax avoidance scheme, known as a Discounted Option Scheme, used by an investment management company to pay employees tax-free bonuses, has been closed by the Scottish Court of Session.

Between 2000 and 2003, Aberdeen Asset Management paid its senior employees and directors over £31m free of income tax and National Insurance Contributions (NICs) using an Employee Benefit Trust (EBT).

The Court of Session agreed with HMRC that PAYE and NICs totalling £7m should be paid on the bonuses, which were converted into shares under the complex scheme.

The scheme was originally blocked by a First Tier Tribunal (FTT) in October 2010 before the Upper Tribunal ruled against the taxpayer a second time (but on a narrower basis) in December 2011. Both HMRC and Aberdeen Asset Management then appealed the decision at the Scottish Court of Session, which unanimously reinstated the FTT's decision.

This case, Aberdeen Asset Management PLC v R & C Commrs [2013] CSIH 84, is the latest in a series of court rulings against businesses that have tried to avoid PAYE and NICs using schemes involving EBTs. The scheme used by Aberdeen Asset Management was stopped by legislation in 2003.

Jim Harra, director general, business tax, HMRC, said: 'This decision will be a big help when we come to argue other cases that are currently in the courts.

'We hope this success will encourage more companies to cut their losses and come forward to settle their EBT liabilities on the basis that this kind of avoidance scheme does not work.'

The Scottish Court of Session's decision is available HERE