HMRC has recently announced its success in a tax avoidance case worth £55 million that involved businesses issuing loan notes as bonuses to avoid tax.

According to HMRC, its legal victory over Cyclops Electronics and Graceland Fixing proved that a multi-million pound tax avoidance scheme used by over a hundred other businesses was a ruse to avoid paying tax.

The businesses used loan notes to pay company directors’ bonuses in an attempt to get around paying tax and National Insurance on their awards.

Specially created companies issued loan notes in £10 denominations that matched the bonus amount exactly. Special conditions were included to avoid the tax and National Insurance due when the loan notes were given to the director.

HMRC says the scheme was designed to take advantage of legislation that provides tax relief for genuine commercial transactions. This legislation has now apparently been amended to prevent similar situations arising in the future.

“We cannot allow tax avoidance schemes like these to deprive the UK of vital revenue,” said Penny Ciniewicz, HMRC’s Director General for the Customer Compliance Group. “The money we’ve protected in this case alone would be enough to pay the annual salaries of around 2,400 newly qualified teachers.”

HMRC says that it has won nine out of ten tax avoidance cases taken to court in the last two years, with many more settling before reaching that stage.

HMRC Tax Demand Advice Glasgow Edinburgh & London

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