UK Firm Punished with £900,000 Penalty for Tax Avoidance

Published by Rana Zubair posted in Resources on 17 April 2024

The IPS Tax Avoidance Saga

An Isle of Man-based tax avoidance promoter used by doctors and nurses faces a £900,000 fine for tax evasion. Between April 2016 and April 2018, IPS Progression Limited (IPS) paid 1,593 scheme users, mostly locum doctors and nurses, with tax-free loans. Judge Christopher Staker ordered IPS to pay a £900,000 penalty for late notification to HMRC.

The Tribunal Decision: Unveiling the £900,000 Penalty

The tribunal’s decision of £900,000 was less than the original penalty that HMRC sought, which was at or close to the maximum amount of £1,333,200. There is a £600 a day penalty for non-compliance. At the tribunal hearing, IPS argued for a nil penalty, asserting that the complex nature of the law in this area warranted such a decision. They claimed that the company had obtained appropriate specialist advice, acted in good faith, and cooperated with HMRC.

IPS refused to accept that it owed any penalty at all, as it did not need to disclose the scheme to HMRC. As a result, there was no option for a settlement agreement. Only the tribunal could decide if a penalty could be charged and the size of the penalty.

This is not the first time the tribunal has handed out a substantial penalty; in 2022, Hyrax Resourcing was given a £1,074,600 fine at the FTT.

Comparative Analysis: IPS Penalty vs. Previous Cases

This argument did not persuade the tribunal judge. The scheme worked on a similar basis to a typical disguised remuneration scheme.

The hourly rate for the contractors’ services went to IPS who took a 15% cut. Then IPS would deduct income tax and National Insurance contributions (NICs) from the ‘salary paid’ element at national minimum wage and describe a further 12.07% portion as ‘rolled-up holiday pay’, while paying a further third element called the ‘ILO bonus’ part tax-free.

IPS claimed it ’envisaged’ the employees would eventually repay the ‘ILO bonus’ loans and these would have been subject to income tax and NICs. The issue first kicked off on 1 November 2017, when HMRC wrote to IPS stating that it was aware of promotional material claiming that working with IPS Progression Ltd as an employee can offer returns of 85% of your contract value.

HMRC Tax Avoidance: Timeline and Correspondence with IPS

HMRC requested a meeting to discuss why the company believed its arrangements weren’t notifiable under DOTAS legislation. In January 2018, IPS accountant Peter MacGregor wrote to HMRC explaining why they believed the arrangements weren’t notifiable. Christopher Champion, IPS director, sought legal advice confirming scheme’s compliance with DOTAS. The tribunal determined the penalty amount to be £900,000 after considering all relevant factors. Income tax payable on ‘ILO bonus’ payments totaled £12,790,800, with £2.5m due at 20% tax or £5.7m at 45%.

Assessment of Penalty: Breakdown of Tax Implications

The tribunal considered the figures not as estimates but as a general indication of the tax-risk scale. It is possible that, on average, employees earned significantly more or less than three times the national minimum wage. The tribunal proceeds on the basis that there is no clear evidence of the actual amount. IPS has 56 days from the date of the decision on 12 February to appeal the judgment.

Jonathan Smith, HMRC’s director of counter-avoidance, emphasized, “This penalty underscores IPS’s willingness to ignore their legal obligations, and we are pleased that the tribunal agreed that a significant penalty is due in this case. All powers are to ensure penalties are collected. This can include making company directors liable. We urge anyone who thinks they have entered a tax avoidance scheme to contact us.

Conclusion and Next Steps: Implications for IPS and Taxpayers

A new criminal offense occurred on 22 February 2024 and applies to those who fail to comply with a Stop Notice. Nigel Huddleston MP, prioritizes supporting HMRC to clamp down on avoidance promoters using all available powers. HMRC now has the powers to seek disqualification and pursue new criminal sanctions through the courts.’