HM Revenue and Customs (HMRC) has won a landmark case against a tax avoidance scheme promoter that could lead to the recovery of £110 million.
The victory over scheme promoter, Root2, came after they failed to report a mass-marketed tax avoidance scheme, known as Alchemy, to the tax authority.
The scheme aimed 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 brought the case against Root2 under the Disclosure of Tax Avoidance Scheme (DOTAS) rules, which requirespromoters to tell HMRC about tax avoidance schemes they design and sell.
The First-tier Tribunal agreed with HMRC that the promoter did not abide by the DOTAS rules.
Penny Ciniewicz, Director General of HMRC’s Customer Compliance Group, said:
“This is a great victory that 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. The DOTAS 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.”
HMRC will seek to impose a substantial penalty on the promoter for failure to disclose the scheme.