Top tax barrister tumbles at tribunal

HMRC won another important legal case last month when Tax QC Rex Bretten, who designed his own tax avoidance scheme,  failed in his bid to avoid paying £190,000 in tax.

The Exchequer Secretary to the Treasury, David Gauke, said:

“This is simply unacceptable and this case serves to highlight the work HMRC is doing to tackle evasion, avoidance and fraud. This Government has invested over £1 billion in HMRC and we are determined to ensure that the tax that is due under the law is collected.”

Although this case related to the personal  tax affairs of the barrister and not advice provided to a client, it is perhaps an example of the fact that complex tax avoidance schemes do not always work. It also underlines a risk which recruitment agencies and their directors are exposed to when dealing with service providers who may use such schemes.

Jim Harra, HMRC’s Director General for Business Tax, said:

“Some people make the mistake of thinking that a complex avoidance scheme backed by a senior lawyer is safe from HMRC’s challenge. That would be a big mistake, as this outcome proves. People should always ask themselves whether a proposed scheme is too good to be true.”

Lawspeed  understands that HMRC  has been increasing its focus on the Managed Service Company (MSC) legislation – which applies to umbrella companies. Agencies should be cautious about suppliers’ claims of compliance based on tax counsel’s advice – could it have been written by Mr Bretten?

This could have serious implications for recruitment agencies who use umbrella companies who claim to be tax compliant but may not be. The Bretten case demonstrates that even tax lawyers’ advice is not always fail-safe and the agency can be liable for the tax debt of contractors in certain circumstances.

The Lawspeed SPA scheme (Service Provider Audit) is free to recruiters and can help a recruiter review and understand the MSC risk involved in dealing with umbrella companies.

For more details contact Ravi Murphy on 01273 236 236 or email