Crying in the chapel: HMRC and tax avoidance

One Andrew Chappell (along with, it is said, 304 other taxpayers) took part in what was admitted to be a tax avoidance scheme. The details of how it was intended to work are unimportant and anyway far too complicated to explain in this note. The First-tier Tribunal has just decided that the scheme failed to work as intended, both on a “black letter” reading of the law and because of the application of the “Ramsay” principle. Nothing particularly newsworthy there; in isolation the case is, perhaps, not all that important (except, obviously, for Mr Chappell and 304 others and to some extent to HMRC – the aggregate tax at stake is said to have been £156m).

But while one swallow does not make a summer nor one snowfall a winter, the regularity with which HMRC now seem to be winning important avoidance cases cannot be ignored. Indeed, the National Audit Office reported in November 2012 that HMRC’s success rate in litigating in avoidance cases is now running at around 85%: the glorious summer of tax avoidance seems to be yielding to a winter of discontent.

Our view on avoidance remains constant: most schemes don’t work: some do: but picking winners is incredibly difficult. So we don’t generally recommend them.

In the light of their successes HMRC have been inviting participants in some selected schemes to settle “out of court” – So – should you take them up on their offer? The view of scheme promoters should always be sought but our general view is that in offering the “settlement opportunity” HMRC aren’t giving much if anything away – they are inviting settlement on broadly the terms which would be likely to apply if HMRC were to win before the Tribunal.

So why should you consider settling?

  • It is possible (though we think it’s unlikely) that if the case went to Tribunal HMRC might get an even higher settlement than is being offered here. It’s also of course possible that they might get a lower settlement. But we think the most likely outcome will be broadly similar to the terms now being offered.
  • Settlement now will stop further interest running (though you can also achieve this by buying a Certificate of Tax Deposit).
  • You will have certainty.
  • You will avoid the need either to meet your own cost of litigation or to contribute to any fighting fund which may need to be established.

In HMRC’s words

“As well as continued uncertainty, delay in resolution, additional costs and potential reputational damage, taxpayers who choose the litigation route” (i.e., don’t accept the settlement opportunity) “may end up with a worse tax result than they would obtain under the settlement opportunity.”

Careful examination of the terms offered is desirable and decisions will be needed on a case-by-case basis; but on the basis of what we have seen so far we think that if we were participants we would need a better incentive to throw in the towel than this.



Sam Inkersole

In 2022, Sam won the Taxation’s Rising Star award at the Taxation Awards in and was named in the Accountancy Age 35 Under 35.

Jon Wedge

While Jon’s client work focuses on the financial services sector, he also oversees the firm’s assurance service, as well as supporting the trainees following in his footsteps.


Elana joined us in 2017 as an ACA trainee, after graduating from Durham University where she had studied languages. She is now a manager in our assurance team.


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