Enter Your E-mail

TW Ed wonders if HMRC's version of reality allows room for failure...

HMRC has recently announced that it has won yet another tax avoidance case in the Upper Tribunal, which is apparently the fifth victory against a particular tax planning boutique. Ironically enough, a boutique which I’d never even heard of before HMRC kindly donated the “oxygen of publicity”.

Yet again, it seems that HMRC has no problem “naming names”, when it suits HMRC’s purpose – although taxpayer anonymity itself is of course normally one of the first casualties of a battle with HMRC, advisors rarely merit a mention.

HMRC would have us believe that resistance is futile, and that it will always win in the end.  However, the Tribunals and the Adjudicator’s Office all too frequently find otherwise.  I should be more concerned about HMRC’s 90% failure rate when it comes to dealing with ‘ordinary’ cases at the Adjudicator’s, as it likely represents the proverbial tip of the iceberg.

With regard to avoidance cases specifically, HMRC’s problem is that making too much of its successes runs the risk that, in the public eye at least, the taxpayer need only be successful once, to justify such schemes. And yet there’s at least one case about which HMRC is curiously reticent – no trace in the recent news sections of its website...

As many readers will already know, HMRC doesn’t win every case: the Rangers case (Commissioners v Murray Group et al [2014] UKUT 0292(TCC)) is evidence enough of that, and they have now lost twice, although I understand they intend to appeal again. As one employee taxes expert succinctly put it to me quite recently, HMRC has a real problem in distinguishing the Rangers case from Dextra and Sempra, but appear still to want to have their cake and to eat it. His opinion has, thus far, held good.

There’s one paragraph which I think is particularly ‘choice’ from HMRC’s aforementioned press release:

“This complex scheme devised by NT Advisors used a series of circular and self-cancelling transactions involving alleged overseas securities. These purported to create substantial tax losses where, in reality, no economic loss had been suffered.”

Yes, folks, HMRC is all about “economic reality”, except when the reality is that a loan was actually made, (at least, the Tribunals thought so in Rangers), or where insurance bonds have been surrendered – such as the Lobler case, (Joost Lobler v Revenue & Customs [2013] UKFTT 141 (TC)), where the taxpayer suffered an “outrageously unfair” tax charge when there had been no ‘real’ gain or, as the Tribunal found,“amounts [were] calculated under the provisions of the Chapter which bear little or no resemblance to ‘gains’ in common or commercial parlance.”

One final quote from that case sums things up ‘nicely’:

“[This case] takes place at a time when there is great media and political comment about a fair tax system. That interest focuses on the avoidance of tax by those who have substantial income, but to our minds it is more repugnant to common fairness to extract tax in the taxpayer’s circumstances than to permit other taxpayers to avoid tax on undoubted income.”

Hear, hear. One can only hope that, away from the spotlight, HMRC quietly availed itself of its not inconsiderable powers to forgo the tax that was legally, if not rightly, due.

Regards all,

TW Ed