Tax avoidance continues to be a big talking point – and now HMRC has won a dispute with a promoter of a tax scheme.

The First-tier Tax Tribunal (FTT) has slapped IPS Progression Ltd with a fine of £900,000 after failing to disclose a scheme under the Disclosure of Tax Avoidance Schemes (DOTAS) legislation.

Here, we take a look at the case and share our advice for taxpayers…

Background to the IPS tax avoidance case

IPS Progression Ltd is one of a number of companies that together form the Income Plus Group.

In 2016-2018, IPS was an umbrella company providing PAYE payroll services in relation to individuals – such as locum doctors and nurses – whose services were made available by recruitment agencies.

IPS saw the recruitment agencies as its “clients”, and the businesses and entities requiring the personal services as “end users”.

Each of those individuals (“employees”) entered into three agreements with IPS:

  1. An employment agreement stating they were an employee of IPS.
  2. A loan agreement whereby IPS would loan “certain monies” to the employee with interest charged at 2% above HMRC’s official rate of interest.
  3. A bonus agreement stating the employee could participate in a bonus scheme.

The end users paid an hourly rate for the employees’ personal services. From the payments received from the end users, IPS deducted 15% as its own fee.

IPS issued payslips to employees showing the remaining 85% as paid to the employees, divided into three elements:

  1. “Salary paid”: equivalent to the national minimum wage for the number of hours worked.
  2. “Rolled-up holiday pay”: 12.07% of the “salary paid” element.
  3. “ILO bonus”: the remainder of the payment to the employee.

Tax and National Insurance were deducted in respect of the “salary paid” and “rolled-up holiday pay” elements only.

IPS’s view

IPS argued that:

  • Each amount of “ILO bonus” was a loan by IPS to the employee under the loan agreement and was therefore not taxable.
  • It was envisaged the employees would repay the loans and accrued interest from future bonuses to be paid under the bonus agreements, and that these would have been subject to tax and National Insurance when they were paid.

Eleventh-hour application by IPS

After the end of the appeal hearing – but before the tribunal issued its decision – IPS made a written application for permission to raise a new ground of contention. This new argument was that HMRC started the proceedings for the determination of a penalty after the expiry of the time limit.

The earliest employment agreement, loan agreement and bonus agreement in evidence at the hearing were dated 7 April 2016. HMRC started the proceedings in April 2022.

Until the end of the hearing, IPS didn’t dispute this was within the six-year time limit. The new application argued that new evidence discovered after the hearing showed IPS’s business in fact started in January 2016.

However, the FTT rejected IPS’s application.

HMRC’s argument

HMRC brought the case to ask the tribunal to decide on a penalty in relation to IPS’s failure to comply with DOTAS.

The tax body argued that:

  1. The scheme operated by IPS was of the nature of what is generally called a “contractor loan scheme”. It said this type of scheme had been repeatedly and extensively used by the tax avoidance industry to avoid significant amounts of tax over a number of years, and was currently one of the highest profile types of tax avoidance schemes it investigates.
  2. The scheme constituted notifiable arrangements, and IPS was a promoter in relation to them. IPS was therefore required to provide HMRC with prescribed information in relation to those arrangements.
  3. The time limit for compliance was 14 April 2016, but disclosure wasn’t made by IPS until it filed the second AAG1 form on 16 May 2022. The period of non-compliance was therefore 2,222 days (some six years).
  4. IPS didn’t have a reasonable excuse for the lateness.
  5. The maximum penalty the tribunal could impose was £1,333,200 (£600 per day times 2,222 days). The fees received by IPS in relation to the scheme were around £3.6 million.

The appeal decision

The FTT ruled IPS was subject to a penalty for failing to comply with DOTAS in the period from 19 April 2016 to 24 April 2022.

The judge, Dr Christopher Staker, said: “The respondent [IPS] never intended to establish a genuine bonus scheme and never intended that the loans would be repaid. The practical effect was that employees were paid part of their taxable earnings tax-free. These were notifiable arrangements, and the respondent was a promoter in relation to them. The respondent did not provide HMRC with the prescribed information until some six years after expiry of the time limit for so doing, and has no reasonable excuse for the lateness.”

In deciding the fine, the tribunal weighed up various considerations and decided the appropriate amount was £900,000.

HMRC’s reaction to the ruling

Jonathan Smith, HMRC’s Director of Counter Avoidance, said: “This penalty underlines how IPS were prepared to ignore their legal obligations and we are pleased the tribunal agree a significant penalty is due in this case.

“We use all powers available to ensure penalties are collected. This can include making company directors liable.

“We would urge anyone who thinks they have entered a tax avoidance scheme to contact us as soon as possible to get help.”

HMRC urged taxpayers to be vigilant and to stay away from tax avoidance. The ‘Don’t Get Caught Out’ campaign highlights the consequences of using tax avoidance schemes, which could be unexpected tax bills, interest and penalties.

Our advice for taxpayers about tax schemes

It’s very easy for people to get caught up in tax schemes.

Regulation is now becoming increasingly likely and, unfortunately, necessary to prevent taxpayers getting tripped up by schemes that are too good to be true.

If you’re thinking about putting any type of scheme in place, you should carry out full due diligence on the provider and consider their attitude to, and relationship with, HMRC.

Working with a firm that takes an aggressive approach to its clients’ tax affairs and has little regard for the rules isn’t for the faint hearted. These companies also tend to have little interest in their obligation to provide information to HMRC and work with the authorities in general.

Trusted tax advice

For plain-English, professional tax advice, talk to our team on 07813 434195 or email

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Steph Churchill

Stephanie Churchill

Managing director & co-owner of Churchill Taxation