Statistics published by HMRC show that only three of 26 tax avoidance cases taken to court were lost by the government department, with them recording 22 wins and one mixed result.
This represents a very slight fall from 2015-2016, in which 23 out of 26 cases were won by HMRC. Despite this marginal decline in victories, Heather Self, partner at Pinsent Masons, commented: “Anyone seeking to implement a complex tax avoidance scheme would have to be a confirmed optimist to assume they would win if the case is ultimately litigated.”
Self referenced the General Anti-Abuse Rule as a major weapon in HMRC’s arsenal, with this able to litigate tax avoidance when loopholes in pre-existing legislation has been exploited. The GAAR can be applied to any transactions after 2013, and was used for the first time fairly recently, in a case centred on gold bullion tax avoidance.
“The first ruling of the GAAR panel was released recently and was unanimously in favour of HMRC”, Self said.
Self explained: “The corporation tax cases mainly relate to complex financing transactions, where subsequent legislation make it unlikely that such schemes would be implemented now. Many were devised by professional services firms but few have actually succeeded.”
“The income tax cases, on the other hand, tend to relate to fundamental questions such as whether an entity was trading, or whether PAYE/NICs should apply to specific arrangements.”
Despite bringing to light some of the violations that result in a court case, Self noted that these cases are not necessarily representative of current behaviour, as the vast majority of these cases involve activities that took place some years ago.
“All of the direct tax cases relate to facts dating from 2003-09, with the majority at least ten years old before they reach the courts”, Self commented.
“Of the decisions reported, there is only one VAT case and that dates back to 1997! The long delay was caused by a need to refer to the ECJ, but shows that VAT avoidance issues are now rare, especially following the leading case of Halifax in 2006. It takes a long time for the ‘tail’ to die out.”
Earlier this year, it was reported that HMRC received a record number of judicial reviews, raising concerns that the Revenue was abusing its power.