Tax Avoidance – HMRC Prevail Once More

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Posted in:Banking and Finance, Litigation|May 4, 2016 | Join the mailing list

Once again the Supreme Court was asked to look at a tax avoidance scheme and determine whether HMRC’s interpretation of the governing legislation allows the revenue to classify a scheme as an unlawful tax avoidance scheme.  The Supreme Court allowed HMRC’s appeal, and found that the scheme was an unlawful one. The case is UBS & DB Group Services (UK) Ltd v HMRC [2016].

The present conjoined cases concerned employee benefit trusts.  They were ruled to be unlawful as the steps taken that created the tax loss were artificial, and under the Ramsay Principle should be disregarded for fiscal purposes.

This decision is important for two reasons.

Ramsay Principle:  The Supreme Court has once again up-held the principle that legislation, especially tax legislation, should be interpreted in a ‘purposive’ manner.  That is, one must consider what Parliament’s intention was in enacting the legislation and interpret the legislation giving weight to the intention.  This will be used many times in regards to the schemes currently being considered by HMRC and for which many people have now received Advanced Payment Notices (“APNs”) and Partner Payment Notices (“PPNs”).  If the scheme being considered was set up for the principal purpose of avoiding tax, it will be more likely than not unlawful.  If it carries out no genuine real-world activity but instead creates artificial steps to create a tax loss, then those artificial steps must be disregarded and likely makes the scheme itself unlawful.  If avoided tax is a side benefit to the real world activity and has lawful means that happen to create a tax loss, then it may be lawful.

Governance:  It has been alleged that much of the legislation since the 1980s that involves tax was derived from drafts created by the Big 4 audit companies.  Tax is so exceptionally complex that the easiest way of drafting the legislation is to have it drafted in the first instance by those that work with it day in day out.  Much of the 1990s and 2000s tax legislation has been seen to allow the Big 4 to create tax avoidance schemes and to sell those tax avoidance schemes to their clients, and then push it out to IFAs and accountants who then on-sell to their clients.  By 2010 many High Net Worth individuals had much of their wealth backed up by tax avoidance schemes to mitigate their tax liabilities.  This decision takes away the advantage of unclear language that might be capable of being read more than one way, giving rise to uncertainty within which many tax avoidance schemes sat.  It also removes the ability of a scheme to use an artificial means in order to create a tax loss, as those steps will be disregarded without which there is no loss and the scheme fails.  That lack of clarity is now done away with, because the decision once again up-holds the principle that what Parliament actually intended to do is the way it must be interpreted.

What Does It Mean

Essentially not much will change.  HMRC will continue to interpret unclear language in the way that it has always done.  That is to say, they will always interpret legislation based upon what the intention of Parliament was in enacting this legislation.  In doing so, where a tax loss is allowable for tax calculations these schemes fail because the steps taken by them that created the tax loss are deemed artificial.  The steps taken could not have been in the thinking of Parliament, and thus are disallowed, meaning the loss is not considered for the purposes of tax calculations

That means that when considering whether a scheme is a scheme for the purposes of gaining a tax deferral or a tax credit then that scheme is unlawful.  If the scheme is designed to do a real world activity, such as create/produce movies, and has a side-effect of creating tax mitigation by way of a tax loss, then it will be interpreted as a lawful scheme.

UBS & DB Group Services (UK) Ltd v HMRC [2016] Application to APNs and PPNs

APNs and PPNs are the first step in looking at a tax scheme.  Once the “saved” tax is collected by HMRC through issuing APNs/PPNs it will get on with the job of analysing a scheme and determining whether it is a lawful scheme or whether it was intended to be a tax avoidance scheme with no real-world action.  If the former, HMRC will refund the APNs and PPNs.  If the latter HMRC will keep the money.  If the scheme is challenged by the creator/promotor, then a Follower Notice will be issued once HMRC has prevailed in Court

If you are a member of a scheme that has been subjected to scrutiny by HMRC and you have received (and paid) a PPN, APN or Follower Notice please contact berg.  Not all schemes subject to APNs etc will be found to be unlawful.  However, where they are, you need to know what your rights are.  You need to understand whether the person or business that sold you the scheme should have acted differently when they sold it to you.

Due to the age of these products it is essential that you seek urgent advice and not wait until HMRC has made a decision about the scheme.  The APN/PPN will act as your date of knowledge in most cases.  That means that HMRC may have made its ultimate decision after your time has run out to take legal action.  It is better that you protect your rights now and not leave it until time has run out.

DB Group Services (UK) Ltd v Commissioners for Her Majesty’s Revenue and Customs [2016] UKSC 13

UBS AG v Commissioners for Her Majesty’s Revenue and Customs [2016] UKSC 13

Both cases were heard together.

Decision Summary:



To find out more about the issues raised in this post, or to discuss any queries regarding tax avoidance and APNs please get in touch with our Finance and Litigation team on or call +44 (0) 161 829 2599.
The information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by berg or any of its partners or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

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