Another month goes by and another battle is won by HMRC in their war against aggressive tax avoidance. The tribunal dealing with complaints against HMRC decisions recently dismissed an appeal by three of the 450 participants in a scheme known as ‘Working Wheels’ (so-named after some of the entities involved in the complex arrangement).
The most famous person to be named and shamed as a user was former DJ Chris Moyles.
Working Wheels was essentially a scheme to take advantage of old tax rules on manufactured overseas dividends (MODs) – payments made by a temporary owner of foreign shareholdings (the ‘borrower’) to the ‘lender’ for interest gained on the holding while on loan.
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A lending structure was established to manipulate these rules involving two UK special purpose vehicles (SPVs), a joint venture agreement, a second-hand car dealership business and not one, nor two, nor three, but four British Virgin Island SPVs!
If MODs and SPVs sound a bit complex, that was only the tip of the acronym iceberg in the Working Wheels structure. To the public eye, what was on offer in this scheme amounted to financial hocus pocus and the tribunal decided, technical questions aside, that the whole operation was illegitimate as it amounted to a raid on the treasury with the weapon of choice being the government’s very own rules.
The Exchequer Secretary, David Gauke MP, took the opportunity of the decision to warn UK taxpayers against utilising schemes that seem too good to be true. They almost always are.
HMRC is naturally delighted to be on a bit of a roll in the courts, crowing about its victory over celebrities and ‘other high earners’ in its press release. Yet even though the guardians of the public purse may have won this time, it seems they went through a lot of head-scratching to get there – the scheme was initially disclosed as long ago as early 2007.
With the recent addition of the new general anti-avoidance rules to HMRC’s arsenal of weaponry against outlandish avoidance, there is little prospect of an end to their string of victories. Instead, we may all be left wondering why GAAR was a necessary supplement at all.
Edward Keene works at boutique private wealth law firm Maurice Turnor Gardner LLP