HMRC wins 22 out of 26 tax avoidance cases in 2016-17

In 2016-2017 HMRC only lost three out of 26 tax avoidance cases taken to court. It netted 22 wins and one mixed result, according to statistics published by HMRC.

These figures are slightly down from 2015-2016, when HMRC won 23 out of 26 cases.

The three cases lost by HMRC in the past year were against Invest Asset Finance PLC over corporation tax, Project Blue Limited in Guernsey over stamp duty land tax and individuals Salinger and Kirby over inheritance tax. The case that returned a mixed verdict was against Greene King PLC over corporation tax.

Despite this minor decline in wins, 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 pointed to the General Anti-Abuse Rule as a power that HMRC can rely on to litigate tax avoidance in cases where there are loopholes in existing legislation. The GAAR can be applied to transactions from 2013. Despite existing for some time, the GAAR was invoked by HMRC for the first time recently, over gold bullion tax avoidance schemes. “The first ruling of the GAAR panel was released recently and was unanimously in favour of HMRC”, Self said.

The Revenue’s full published list of tax avoidance cases gave some insight into the type of activities warranting litigation.

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.”

Although shedding light on the types of violations that end up in court, Self noted that the cases do not illuminate on current behaviour of taxpayers, as most of the activities occurred several 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.”

Although HMRC’s winning streak positions them as a formidable force, Self noted that the volume of cases was not high, “which suggests that politicians’ regular promises to collect billions more from ‘stamping out avoidance’ are unlikely to collect as much as they would think.”

This is despite visible efforts by HMRC to crack down on tax avoidance and evasion, with the number of dawn raids increasing by 34% in five years.

Earlier this year, it was reported that HMRC received a record number of judicial reviews, raising concerns that the Revenue was abusing its power.