HM Revenue and Customs has won what it is calling a “landmark” case against a tax avoidance scheme promoter that it says could lead to the recovery of £110m.
The victory over Root2 came after the scheme promoter “failed to report a mass-marketed tax avoidance scheme, known as Alchemy”, to the tax authorities, HMRC said in a statement over the weekend.
According to HMRC, the scheme had sought to to extract profits from owner-managed companies “in the form of winnings from betting on the stock market, which the scheme aimed to ensure would be tax free, rather than in the form of taxable employment income”.
HMRC had brought the case against Root2 under the so-called Disclosure of Tax Avoidance Scheme (DOTAS) rules, which require promoters to tell HMRC about tax avoidance schemes they design and sell.
The First-tier Tribunal agreed the promoter did not abide by these rules. There is no right of appeal against such tribunal decisions.
HMRC has said it will seek to impose a “substantial penalty” on the promoter for failure to disclose the scheme.
Penny Ciniewicz, director general of HMRC’s customer compliance group, said the outcome in the Root2 case “sends a clear message to tax avoidance scheme promoters that we will pursue you if you don’t play by the rules”.
“Most tax avoidance schemes don’t work,” she added.
“The Disclosure of Tax Avoidance Scheme rules ensure that HMRC is notified of schemes so that we can investigate and challenge them.
“Designers and promoters of avoidance schemes should come forward now if they haven’t already disclosed a scheme to us.
“We will take action and nobody should think they can get away with not disclosing their avoidance schemes and misleading users about the need to report them.”