HMRC have won a legal victory over Cyclops Electronics, a supplier of electrical components and Graceland Fixing, a
building company. HMRC successfully proved that a multi-million pound tax avoidance scheme used by over a hundred other businesses was a ruse to avoid paying tax.
The scheme was initially designed and promoted by Haines Watts a firm of accountants which involved businesses using 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 that matched the bonus amount exactly. Special conditions were included to avoid 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.
HMRC has made great play out of the fact that over the last two years it has won nine out of every ten avoidance cases taken to court, with many more settling before reaching that stage.
This particular scheme was devised to work around the anti-avoidance legislation introduced to the employment income share schemes legislation at part 7 ITEPA 2003 by schedule 22 FA 2003. The legislation has been amended to prevent any further attempts exploit the rules. This scheme was formulated and implemented in the 2003 to 2004 and 2004 to 2005 tax years.
The Bedrock team works with accountants and their clients to assist with settlement of historic tax planning arrangements which are now being pursued by HMRC through the use of APNs and Follower Notices. If you’d like to know more about our settlement service either give us a call or take a look here.
