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A tax avoidance scheme use by property developers and IT contractors  has been overcome at a tribunal by HMRC, meaning the investors now owe the taxman up to £200 million in unpaid tax.

The scheme, which was used by over 2,000 people, was used to exploit the UK’s double tax agreement with the Isle of Man as they believed it would reduce their rate of income tax.

In order to do this, the scheme used a partnership and a trust in the Isle of Man in an attempt to claim exemption from UK taxation via the DTA (Isle of Man double tax agreement). If the scheme would have operated as it intended to, Mr Huitson who was beneficiary of the trust, would have been entitled to an annual fee of £15,000 including a share of the partnership profits, paying only income tax and national insurance on the annual fee.

He would pay no income tax or national insurance on any sum paid to him as a beneficiary of the trust.

The arrangement was blocked in 2008 by anti avoidance legislation in the Finance Act 2008. However, Mr Huitson challenged the legislation and took the case to tribunal.

In February 2012, the Supreme Court refused an application to hear appeals against the Court of Appeals judgement in these cases.

Jim Harra, director general of business tax at HMRC, said: “This is yet another example where some people try to abuse the tax system to deprive the UK of money for vital public services.

“This is unfair on the majority who pay their fair share.”

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