HM Revenue & Customs is poised to chase £100m in income tax from users of an offshore tax avoidance scheme, following a High Court ruling today.
The Court upheld the right of HMRC under the 2008 Finance Act to seek funds from 2,500 tax evaders, after a failed challenge by a self-employed IT consultant.
Robert Huitson, who used an intricate Isle of Man tax arrangement to avoid £85,000 of income tax over seven years, argued HMRC's retrospective levy on taxes contravened his human rights, the BBC reports.
But judge Justice Parker rejected this, saying users had been warned about possible future challenges to scheme, adding the Government has the right to change tax law retrospectively to end artificial arrangements.
Huitson's solicitors say they intend to appeal.
At the centre of the case is a tax avoidance scheme marketed by Isle of Man-based tax consultants Montpelier, through which, using a complex web of partnerships and trusts, UK business contractors or consultants could channel work to customers and also receive their income.
As most of the income eventually came via a family trust, no tax was paid on it either in the UK or the Isle of Man.
In Huitson's case, the scheme meant he paid income tax of just 3.5%.
Claims a High Court victory for the Revenue could result in some of the scheme's users falling into bankruptcy were met with short shrift by the judge.
People who spent their money on day-to-day living or on investments they would find hard to cash in could not be favoured over those who had paid their taxes on account or had put money aside in case they eventually had to pay up, he said.
HMRC would take financial hardship into account when levying tax, he added.
The tax avoidance scheme has been well known in the accountancy industry. Several other versions marketed by other firms are now thought to be under threat.
"I think all tax practitioners will worry a bit about this judgement if it is seen as opening the door to retrospection," says John Whiting of the Chartered Institute of Taxation (CIOT).
Two global vehicles
'Further plug advice gap'
Must appoint separate CEOs and boards
Advisers do come out well
Will report to Mark Till