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HMRC wins landmark stockmarket tax avoidance case

HMRC wins landmark stockmarket tax avoidance case

HM Revenue and Customs (HMRC) has won a landmark case against a tax avoidance scheme linked to stockmarket investments.

The victory over scheme promoter, Root2, came after it failed to report a mass-marketed tax avoidance scheme, known as Alchemy, to the tax authority. The victory could lead to the recovery of £110 million. 

The scheme aimed to extract profits from owner-managed companies in the form of winnings from betting on the stock market. The scheme was designed to ensure earnings would be tax free, rather than in the form of taxable employment income.

HMRC brought the case against Root2 under the Disclosure of Tax Avoidance Scheme (Dotas) rules, which requires promoters to tell HMRC about tax avoidance schemes they design and sell.

The First-tier Tribunal agreed with HMRC that the promoter did not abide by the Dotas rules.

Commenting on the victory, HMRC director general of HMRC's customer compliance group Penny Ciniewicz said: 'This is a great victory that sends a clear message to tax avoidance scheme promoters that we will pursue you if you don’t play by the rules.

'Most tax avoidance schemes don’t work. The Dotas rules ensure that HMRC is notified of schemes so that we can investigate and challenge them.'

She added: 'Designers and promoters of avoidance schemes should come forward now if they haven’t already disclosed a scheme to us.

'We will take action and nobody should think they can get away with not disclosing their avoidance schemes and misleading users about the need to report them.'

HMRC said it would be seeking to impose a 'substantial penalty' on the scheme's promoter. 

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