HM Revenue and Customs has won what some legal experts have called a landmark ruling against a controversial tax avoidance scheme used by wealthy investors, as it continues to crack down on aggressive tax avoidance schemes.
The ruling was handed down last week by the Upper Tribunal of the Tax and Chancery Chamber in London, and comes after lower courts had also ruled against the Jersey-registered limited partnership, known as the Clavis Liberty Fund 1 LP scheme.
Between 2005 and 2009, about 1,600 people – including celebrities, doctors and judges – are believed to have invested about £1.2bn in the scheme, which had sought to make use of dividends paid on shares to a company based in the Cayman Islands, in order to create an artificial tax loss worth around £18m, according to press reports.
Among the celebrities reported to have been caught out by the judgement were Gary Barlow, the lead singer of Take That; British actor Michael Caine; former Weakest Link presenter Anne Robinson; and the late Wham singer, George Michael.
The arrangement created a tax loss for investors that they could offset against other income.
The ruling could ultimately help HMRC to recoup around £325m in unpaid tax, a Press Association report noted, as similar schemes are found to have been intentionally set up to create tax losses usable for the tax planning purposes of wealthy individuals, and those who advise them.
In his 22-page judgement, Justice Mann upheld an 18 April, 2016 decision by the First-tier Tribunal, or FTT, in the case, which found that the way the scheme had been set up and run was artificial and un-commercial.
Mercury Tax Group
The Clavis Liberty Fund scheme had been promoted to high earners by the Mercury Tax Group, according to HMRC.
HMRC director general for customer compliance, Penny Ciniewicz, said the ruling was “a brilliant victory that will bring in millions of pounds” to the government’s tax coffers. She also stressed the tax authority’s intention to pursue aggressive tax avoiders as well as tax evaders.
“We have repeatedly warned people about the financial consequences of using tax avoidance schemes,” she added.
“More and more people are coming forward and settling what they owe because they know the game is up.
“Our message is clear – steer clear of tax avoidance schemes or, like Liberty’s users, you’ll face a hefty consequence.”