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Court rejects appeal over tax avoidance scheme

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17/07/2012
The Court of Appeal has unanimously rejected an appeal by a taxpayer against HMRC regarding a tax avoidance scheme recommended by PricewaterhouseCoopers in the early noughties.
Court rejects appeal over tax avoidance scheme

The Court also refused permission for Howard Peter Schofield to appeal to the Supreme Court.

The scheme, called Digital Collar, had been described by HMRC as “an artificial, circular, self-cancelling scheme designed with no purpose other than to avoid tax”.

In 2002, Schofield sold shares in his company, PL Schofield Limited, and made a considerable profit.

Allowing for taper relief of 75%, he would have been liable to pay a tax bill of £10.7m for the 2002/3 tax year.

However, after receiving advice from PricewaterhouseCoopers in 2003, he entered into the Digital Collar scheme involving non-commercial self-cancelling option agreements that would create an allowable loss.

The scheme involved Cooper moving to Spain for five years to become a non-resident of the UK.  

Viewed separately, the options created exempt gains and allowable losses. However, viewed as a composite transaction, they did not.

The first tier tribunal found in favour of HMRC and the upper tribunal agreed.

The Court of Appeal has now unanimously rejected Schofield’s appeal.

The scheme, which has not been in use since 2005, was used by about 200 people who must now all pay the tax in full, plus interest, on top of significant fees for use of the scheme itself.

This case involved losses of about £11m but there are other users of the generic scheme on which this scheme was based, generating substantial “losses”.

A spokesperson for PwC said: “The case reported today relates to tax planning undertaken some years ago and planning of this nature would no longer be recommended to our clients.”

 

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