HMRC wins £40m battle against tax avoidance promoters

HMRC's victory over Hyrax Resourcing means the promoter now has to disclose the details of their tax avoidance scheme to HMRC, along with the names and addresses of 1,180 high earners who used it.

If Hyrax fails to provide the required information to HMRC, it could face a penalty of nearly £6 million, as well as £5,000 per day for not fully disclosing the scheme.

According to HMRC, the scheme promoted by Hyrax was a disguised remuneration avoidance scheme that worked by paying scheme users in loans so they could avoid paying income tax and national insurance on their earnings.

Scheme users were paid just enough to comply with the national minimum wage. The rest of their income was made up in loans that were transferred to an offshore trust in Jersey, the tax office said. 

The amounts received under loan agreements were not declared as income on the scheme users' tax return, meaning they didn’t pay tax on all their earnings, HMRC disclosed. 

"HMRC is cracking down on the unscrupulous promoters who sell these highly contrived tax avoidance loan schemes," Mel Stride, Financial Secretary to the Treasury, said.

"Promoters need to take note of this decision and make sure they contact HMRC urgently about schemes they haven’t yet disclosed."

The First-tier Tribunal agreed with HMRC that Hyrax Resourcing had not complied with the Disclosure of Tax Avoidance Schemes (DOTAS) rules, which requires promoters to tell HMRC about the schemes they sell.

The Hyrax scheme was a successor to the K2 arrangements, which became widely known about in 2012.

New legislation has been introduced every year since 2014 to help HMRC take on promoters and enablers of tax avoidance schemes.