Tax avoidance litigation success for HMRC

HMRC have published their list of tax avoidance litigation decisions for the 2022-23 year. This identifies the results in litigation decisions where HMRC considered that tax avoidance was involved. The summary indicates increased litigation and a high win rate for HMRC.

Of the thirty-three cases litigated where the substantive issue considered was tax avoidance, thirty were recorded as wins for HMRC. Among these were:

• Sharon Clipperton & Steven Lloyd v HMRC UKUT 00351, in which the Upper Tribunal (UT) agreed that a dividend tax avoidance scheme relying on the automatic application of the Settlement provisions did not work. The individuals, and not their company were the settlors of the arrangement.
• Moulsdale t/a Moulsdale Properties v HMRC [2023] UKSC12, where the Supreme Court held that the seller of an opted-to-tax property did not meet the provisions allowing him to disapply the Option to tax. He was not a developer, the sale was not exempt and VAT should have been charged.
• HFFX LLP and Ors v HMRC [2023] UKUT73, where the Upper Tribunal (UT) found that allocations by a corporate member of a Mixed member partnership to individual members should be subject to Income Tax under the miscellaneous income provisions.
• Kwik-Fit Group Limited & Ors v HMRC [2022] UKUT 00314, in which the Upper Tribunal (UT) held that restructuring loans to utilise trapped Non-Trading Loan Relationship Deficits (NTLRDs) and obtain greater deductions for the debtors did count as securing a tax advantage, meaning the loans had an unallowable purpose.

HMRC identified a further sixteen procedural cases which consisted of twelve wins, one partial win and three losses. The wins included:

• Douglas Lambourne v HMRC [2022] TC08666, where the First Tier Tribunal (FTT) reluctantly struck out an appeal against HMRC’s refusal to repay amounts voluntarily paid to settle a Disguised remuneration scheme following the 2019 loan charge review. The tribunal did not have jurisdiction as the legislation did not allow for such an appeal.

There were seven Disclosure of Tax Avoidance Schemes (DOTAS) cases, of which, HMRC won six.

League table

Results for the three most recent years are summarised in the league table below.

Results for 2022-23 show a notable increase in the number of cases litigated where the substantive issue considered was tax avoidance. Overall, HMRC's success rate remains as 2021-22, at 88%. 

Useful guides on this topic

DOTAS: Disclosure of Tax Avoidance Schemes
What are the Disclosure of Tax Avoidance Schemes (DOTAS) rules? When should you disclose your use of a tax avoidance scheme? What are the consequences of non-disclosure? How are penalties calculated?

Anti-avoidance: HMRC's spotlights
What are HMRC's Spotlights and where can you find them?

What is the Ramsay principle in tax?
Not sure what is meant by the Ramsay principle? Here is a quick guide.

Tax Agents: HMRC's Standards for Agents
HMRC's 'Standard for agents' is a non-statutory standard, aimed at all tax agents, although largely to most tax agents who are not members of any of the professional tax and accountancy bodies. 

Professional Conduct in Relation to Taxation
The Professional Conduct in Relation to Taxation (PCRT), adopted by the main professional accounting and tax bodies, sets out the professional standards that are expected of a member when undertaking tax work.

External link

Tax avoidance litigation decisions 2022 to 2023