HMRC has won a case involving a scheme set up to assist independent contractors avoid income tax and national insurance contributions - saving £400m in tax revenue.
The First-Tier Tribunal ruling dismissed arguments put forward by contractor, Philip Boyle, in his appeal against HMRC's assessments concerning a scheme marketed by Consulting Overseas Limited.
To avoid tax, contractors signed up as employees of an Isle of Man company, Sandfield Consultants Ltd, and agreed to receive about two thirds of their income as loans in Romanian lei, Byelorussian roubles or Uzbekistani soums. They then entered into currency trades that were supposed to turn these earnings into non-taxable foreign exchange gains.
The judge found that the loans were 'in substance and reality income from his employment, bearing in mind in particular that Mr Boyle had no need for a loan, there was an entirely artificial exchange rate; the reality is that there was no borrowing by Mr Boyle and he never believed that the "loans" were other than a means of receiving his income without suffering tax on that income'.
The judge also decided that the loans were not genuine: 'No evidence has been provided at any stage during HMRC's lengthy investigation of the scheme, despite many requests for such evidence, to show that the foreign currency ever existed.'
About 15,000 people used schemes similar to that used by Boyle, where contractors receive 'loans' as a form of payment.
Of the 348 users of this scheme, 226 have settled with HMRC and paid approximately £5m. HMRC is continuing to pursue others.
David Gauke, exchequer secretary to the Treasury, said he was delighted that the tribunal threw out the 'contrived scheme, designed to avoid tax'.
'The unprecedented package of counter-avoidance measures announced in the Autumn Statement, combined with HMRC's record of winning over 80 per cent of all avoidance cases taken to court, shows the writing is on the wall for the minority who are prepared to use marketed tax avoidance schemes to get around the rules,' said Gauke.
The First-tier Tribunal decision is available HERE
