Banks’ £135m tax avoidance scheme shutdown by authorities

A CONTRIVED tax avoidance bonus scheme used by Deutsche Bank and UBS has been deemed illegal in the Supreme Court after HMRC discovered it was helping businesses avoid £135m in tax.

The two banks used the scheme to pay their staff bonuses in the form of shares in specifically created companies, enabling the bonuses to be exempt from tax and NICs. The scheme was designed to pay the bonuses in a way that took advantage of exemptions in the Employment-Related Securities (ERS) legislation.

UK-domiciled employees would hold their shares in the scheme for two years, and then would only have to pay 10% capital gains tax.

HMRC argued that the shares involved were taxable and not exempt from PAYE or NICs. The Supreme Court ruled in favour of the taxman, allowing HMRC to now persue over £30m of avoided tax from similar schemes used by 27 other parties.

“This is an important victory and confirmation from the UK’s highest court that tax avoidance is simply unacceptable,” said David Gauke, financial secretary to the Treasury.

“The UK is home to some of the world’s most successful banks and we have been clear we expect them and their employees to pay their fair share of tax.”

This news will most likely be seen as a victory for chancellor George Osborne, who is expected by many to talk about the government’s battle against tax avoidance in the next week’s budget.

The Supreme Court decision has been welcomed by tax advisers, with some labelling it a “game changer” on tax avoidance in the UK.

“I think it sends a powerful deterrent message to those who create, market and invest in complicated avoidance schemes that HMRC are determined to root out the cancer which has such a debilitating effect on the revenue gathering system no matter how many setbacks they may encounter,” commented Andrew Watt, partner at Watt Busfield Tax Investigations.