HMRC has won a court ruling allowing them to claim back millions of pounds in backdated tax from UK taxpayers who used an offshore tax avoidance scheme.
The High Court in London dismissed an application for a judicial review in the case of Robert Huitson, a self-employed IT contractor, who wanted to challenge a £100,000 backdated tax demand from HMRC.
Mr Justice Kenneth Parker ruled that the demand did not breach human rights law.
KinsellaTax believes that there are almost 3,000 taxpayers who will be affected by this ruling, with about £100 million of income at stake.
Mr Huitson started using a scheme set up by Montpelier Tax Consultants (Isle of Man) in 2001.
The scheme allowed him to receive £15,000 annually in his capacity as the owner of a life interest in an offshore trust.
Mr Justice Kenneth Parker ruled that, by utilising this scheme, Mr Huitson avoided income tax of £84,980 over seven years and reduced his effective tax rate to 3.5%.
The court heard that 57 other people taking advantage of the scheme could not meet tax demands even if they were to dispose of all their assets, including their family homes.
Several people faced bankruptcy ‘and the related financial worry has caused mental health problems and marital breakdown’.
The judge said:-
‘Such elaborate arrangements would not have been entered into other than for the purpose of tax avoidance… the arrangements can therefore correctly be described as artificial
It is also immediately plain that the tax avoidance scheme, if it worked, would be singularly attractive to any person in the position of the claimant, that is any resident of the UK who, as a self-employed person, carried on a trade or profession here.’
As he dismissed the application for a judicial review, Mr Justice Kenneth Parker said that such a tax avoidance scheme ‘could be expected to have a significant bandwagon effect’.
In his judgement he added:-
‘I note that, according to the evidence in this claim, HMRC intends to take into account financial hardship to taxpayers before seeking to enforce demands for tax and interest in respect of past periods.’