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On December 9th, 2013 HMRC won an employment income avoidance case.

The tax tribunal ruling against an income tax avoidance scheme marketed by Consulting Overseas Limited is expected to protect up to £400 million in tax that would otherwise not have been paid. The scheme was marketed to independent contractors as a remuneration package was designed to save them substantial amounts of income tax and national insurance contributions.

So how did this scheme work?

Contractors signed up as employees of an Isle of Man company, Sandfield Consultants Ltd, to avoid tax and then agreed to receive two thirds of their income as loans in foreign currencies; Romanian lei, Byelorussian roubles or Uzbekistani soums. Currency trades were then arranged that were designed to turn these earnings into non-taxable foreign exchange gains.

The First-tier Tribunal dismissed all arguments put forward by the contractor in his appeal against HM Revenue and Customs’ (HMRC’s) assessments. The judge found that the loans were “in substance and reality income from his employment, bearing in mind in particular that the contractor 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.” 

David Gauke, Exchequer Secretary to the Treasury, said: “I am delighted the tax tribunal threw out this 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.”

Please click here to review the First Tier Tribunal decision.

Lisa Keeble is the Managing Director for Contractor Umbrella Ltd, one of the UK’s Most Respected Umbrella Companies and founder member of AllUmbrellaCompaniesAreEqual.
Learn more about Lisa on Google.


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