A legal victory over Cyclops Electronics and Graceland Fixing proves that a multi-million pound tax avoidance scheme used by over a hundred other businesses was a ruse to avoid paying tax, HMRC has claimed after a £55 million tax avoidance win.
The businesses used loan notes to pay company directors’ bonuses in an attempt to get around paying tax and National Insurance on their awards.
Specially created companies issued loan notes in £10 denominations which matched the bonus amount exactly. Special conditions were included to dodge the tax and National Insurance due when the loan notes were given to the director.
The scheme was designed to take advantage of legislation that provides tax relief for genuine commercial transactions, which has now been amended to prevent any further attempts to exploit the rules.
Penny Ciniewicz, HMRC’s director general for the customer compliance group, said: “We cannot allow tax avoidance schemes like these to deprive the UK of vital revenue. The money we've protected in this case alone would be enough to pay the annual salaries of around 2,400 newly qualified teachers.
“The honest majority of people who pay their taxes shouldn’t have to carry the burden of paying for the public services we need.”
The win at the Upper Tribunal adds to HMRCs’ tally, winning nine out of ten tax avoidance cases taken to court in the last two years, with many more settling before reaching that stage.
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