A wealth management firm has cost clients £156 million after a losing legal challenge arguing a tax saving scheme was really just a clever dodge to evade payments to HM Revenue & Customs (HMRC).
The scheme involved Jersey-based Dominion Fiduciary Services Group (DFSG), one of the UK’s fastest growing offshore wealth management companies, which attracted 305 participants.
A specialist HMRC investigation found that the scheme used a number of intricate transactions involving a loan note worth £6 million to let wealthy clients reduce their tax bills.
By using loan notes, the scheme could exploit stock lending tax rules.
The ploy was created by NT Advisors LLP, while DFSG, which employs 90 staff in accountancy, law and banking positions in Jersey, London and Malta, provided what the firm describes as ‘limited execution services’
Affront to businesses
The firm, which is based in Jersey and set up as a QROPS provider in Malta three years ago, manages around £2 billion in assets across a broad range of portfolios which have 3,000 members.
The tribunal was told that the scheme was created for clients to avoid their UK tax liabilities.
Ruling against DFSG, the tribunal said the arrangement the scheme worked by continuously pushing paper around and entering the transaction in their accounts.
They said that money was moved around which did nothing in tax law and had it been successful would have led to its participants not having to pay tax.
David Gauke, the Exchequer Secretary to the Treasury, said: “These schemes are an affront to the vast majority of businesses and people who pay what they owe. We will pursue the minority who do not play by the rules.
Investors warned
“We have made a significant investment into HMRC to track down and challenge tax dodgers and they will continue to close down schemes set up for the sole purpose of avoiding paying tax.”
The court case is the latest win for HMRC and comes after its call last month for anyone who may be involved in mitigating their tax bills to step forward and settle-up without the need for court action and potential penalties.
The British government has also committed itself to investing millions of pounds over the coming years into HMRC’s ability to track down and investigate those who it suspects are not declaring their full tax liabilities.
HMRC director general for business tax, Jim Harra, vowed that they would continue in their fight to challenge tax mitigation schemes, no matter how complex they appeared, and that they were developing the expertise and skills to do this more effectively.
He also warned potential investors in these schemes that they have expensive set-up charges and that they would still be liable for the tax and any penalties.
