Tax department wins battle against banks’ tax scheme

Bankers in the UK may see their bonuses cut with the Supreme Court siding with the tax department, Her Majesty's Revenue & Customs (HMRC), agreeing that taxes could not be avoided when using a special scheme to award shares to employees.

UBS and Deutsche Bank had arranged to pay bonuses in redeemable shares in offshore companies under schemes they had set up.

However, HMRC, calculated that the arrangement was designed to avoid around £135 million in tax, and decided that the shares should attract taxes for the employees. Although the Court of Appeal ruled in favour of the banks, the UK Supreme Court disagreed and sided with the tax department.

Following yesterday's success, HMRC said that it now planned to chase a further £30 million in taxes from 27 other users of similar schemes.

In his judgment, Supreme court judge Lord Reed slammed the conditions both banks had placed on shares as not having any business or commercial purpose and existing only to trigger the tax exemption.

"This is the latest in a series of successful HMRC challenges to such schemes marketed at wealthy individuals to get out of paying tax," said

Jennie Granger, director general for enforcement and compliance at HMRC, hitc.com reported.

"We will continue to challenge artificial arrangements such as these in the interests of the vast majority of businesses and people who choose to play by the rules."

According to judge Lord Reed, the scheme saw a great deal of 'intellectual effort devoted to tax avoidance'. He went on to describe it as 'the most sophisticated attempts of the Houdini taxpayer to escape from the manacles of tax.'

Financial secretary to the Treasury David Gauke said, 'This is an important victory and confirmation from the UK's highest court that tax avoidance is simply unacceptable.

'The UK is home to some of the world's most successful banks and we have been clear we expect them and their employees to pay their fair share of tax.'