HMRC scores £40m victory over controversial Jersey tax scheme

Thursday 25 April 2019

HMRC are set to net over £40million in uncollected taxes after a court victory against the promoters of a new iteration of the infamous Jersey tax avoidance scheme used by comedian Jimmy Carr.

The ‘Hyrax’ scheme involved its high earning clients quitting their jobs and being ‘rehired’ by a UK trust.

They would then be paid the National Minimum Wage, with the rest of their income made up of loans transferred to an offshore trust in Jersey – meaning they didn’t pay tax on all their earnings.

Pictured: The majority of scheme users' income would be put into loans transferred to a Jersey-based offshore trust.

It is not yet known which Jersey firms or individuals may be linked with the scheme.

While not illegal, such schemes are heavily frowned upon by the UK government, which has made successive attempts to thwart them. 

Hyrax was the successor to the infamous K2 scheme, which was described by former Prime Minister David Cameron as “very dodgy” and “morally wrong” after it emerged in 2012 that it was being used by over 1,000 people, including comedian Jimmy Carr, apparently losing the Treasury £168million per year. 

But despite criticism from the top level of government, a subsequent investigation, and new anti-tax avoidance legislation being introduced every year since 2014, it was not the end of K2.

In fact, K2 was just one in a long line of schemes stretching back to 2004.

Pictured: Hyrax was a spin-off of K2, which itself was a successor in a long line of tax avoidance schemes.

In her recently-published judgment on the Hyrax case, Judge of the Tax Chamber of the First-Tier Tribunal, Barbara Mosedale, likened the scheme to a “phoenix”.

“…It was HMRC’s case that, as legislation was coming into force which was perceived as taking away the tax advantage of the previous iteration, a new iteration was introduced which was intended to avoid the new legislation.

“Not only did each scheme arise from the ashes of the old scheme, it was clear from this that those behind the schemes represented them to potential users as different points along a single continuum,” she noted.

Hyrax did not call any witnesses before the tribunal, nor did it provide any evidence at the hearing. HMRC argued that “adverse inferences” could be drawn from this.

It was therefore concluded that the scheme was for tax avoidance purposes, and that, under the law, HMRC were entitled to information about it.

Pictured: Hyrax could now be slapped with a fine worth millions if it doesn't comply with HMRC's request.

Hyrax will now have to divulge the details of its scheme to HMRC, as well as the names and address of its 1,180 users.

If they do not do so, the promoters of the scheme could be slapped with a penalty of nearly £6million, as well as a further fine of £5,000 per day for not fully disclosing the scheme.

Following the decision, Financial Secretary to the Treasury, Mel Stride MP, commented: “HMRC is cracking down on the unscrupulous promoters who sell these highly contrived tax avoidance loan schemes.

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

Pictured top: Comedian Jimmy Carr, who used the K2 tax avoidance scheme, which was Hyrax's predecessor.