The HM Revenue and Customs (HMRC) has won a case against the Clavis Liberty Fund 1 Partnership scheme, which helped the wealthy avoid taxes by creating artificial tax losses that were claimed against other income of users to lower their tax bills.
The decision by the Upper Tribunal upheld the First Tier Tribunal’s (FTT) decision and is mainly associated with the tax treatment of a £60m dividend paid to the partnership by Helios in April 2006.
The scheme, promoted by Mercury Tax Group, was a limited partnership. It was registered in Jersey and also claimed to conduct UK operations.
Under the scheme, users contributed a sum that was used to buy rights to dividends declared by a Cayman Islands-registered company. The company however created an artificial loss and used it to help users dodge taxes by claiming a deduction for the cost of the rights but excluding the receipt of dividends from its trading profits.
HMRC said that the victory will protect £18m of taxpayers’ money, and will also have wider implications for other Liberty scheme users.
HMRC director general for customer compliance Penny Ciniewicz said: “This is a brilliant victory that will bring in millions of pounds. We have repeatedly warned people about the financial consequences of using tax avoidance schemes. More and more people are coming forward and settling what they owe because they know the game is up.”