A tax avoidance scheme promoter has been fined £1 million after a legal challenge by HMRC.

Hyrax Resourcing Ltd was handed the eye-watering fine by the First-tier Tribunal (FTT) for failing to disclose an avoidance scheme to HMRC as legally required.

Hyrax promoted a disguised remuneration scheme that involved routing money to an offshore trust in Jersey. The scheme was the successor to the K2 tax avoidance scheme that made headlines in the early 2010s.

This ruling follows a previous HMRC tribunal win in 2019 where Hyrax was ordered to provide the details of the avoidance scheme they promoted and its users.

£1 million fine serves as “stark warning”

Mary Aiston, HMRC’s Director of Counter-Avoidance, said: “This £1 million fine should serve as a stark warning to tax avoidance promoters. Those who ignore their legal duty will face serious consequences.

“We actively tackle promoters of tax avoidance schemes and are determined to drive them out of business. We continue to use the full force of the law to challenge tax avoidance scheme promoters.”

Failure to disclose

Hyrax failed to disclose a disguised remuneration scheme that paid users the National Minimum Wage, with the remainder of their earnings paid as loans that were transferred to an offshore trust in Jersey. These loans were not declared as income on the scheme users’ tax returns, meaning they didn’t pay tax on all their earnings.

In its ruling, the tribunal described Hyrax’s failing to disclose the scheme as “a very serious matter” and said the statutory maximum penalty was “appropriate”.

The tribunal fined Hyrax the maximum £600 a day for failing to disclose these details for 1,791 days, resulting in a total fine of £1,074,600.

HMRC cracks down on tax avoidance

HMRC said this recent win supported its wider work to drive tax avoidance schemes and their promoters out of business, including its Tax Avoidance: Don’t Get Caught Out campaign.

Earlier this year, it used new powers to publicly name tax avoidance schemes and their promoters.

HMRC provides a range of other tools to help people steer clear of avoidance schemes, such as their interactive risk checker and payslip guidance.

Our thoughts

HMRC has tightened up on artificial tax schemes and what it considers to be unacceptable tax avoidance.

So, it’s vital for you to carry out your own due diligence before undertaking any tax planning that seems ‘too good to be true’ because, in reality, it probably is.

If a scheme is put into action and then later fails in court, you’ll suffer the tax liability you would have paid, plus the interest and penalties. And that bill will be on top of the money you will already have paid to the scheme provider.

It’s important for you to understand what planning you’re implementing and to make sure your advisers are abiding fully with the law.

Trusted tax advice

At Churchill Taxation, our tax advisers have decades of experience helping people and businesses to plan for a financially healthy future, while complying with the law.

Chat to our team today on 07813 434195 or email: stephanie.churchill@churchilltaxation.co.uk

Steph Churchill

Stephanie Churchill

Managing director & co-owner of Churchill Taxation