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PwC tax avoidance scheme ruled against in court

The tax avoidance scheme once promoted by accountancy firm PricewaterhouseCoopers has been ruled against by the courts after one businessman tried to use the scheme to avoid around £11 million in taxes.

Tax avoidance has grown to be a serious problem as of late, with the current furore kicked off by the revelation that TV comedian Jimmy Carr was caught red-handed using the controversial K2 avoidance scheme to shave off the amount of money he owed to the taxman. Accountants have been urged to warn their clients off from using such schemes, with both government ministers and representatives from the ICAEW commenting on the issues.

If the courts had instead decided in favour of the PwC scheme, it could have been used by approximately 200 taxpayers, according to court documents, which could have led to around £100 million in lost tax revenues. However, the new court ruling has set the groundwork for the collection of possibly billions of pounds in the future, thanks to the precedent it has set.

Her Majesty’s Revenue & Customs originally brought the case against Howard Schofield, the businessman who had been sold the PwC scheme in order to avoid having to pay capital gains tax on around £10.7 million of income. Involving a convoluted sequence of derivatives transactions, the end result would have been to completely negate the amount of tax that needed to be paid.

An HMRC spokesman commented in the wake of the decision in their favour, condemning the scheme as ‘artificial, circular, and self-canceling’ designed with no other goal besides avoiding tax. HMRC praised the court decision, adding that with this scheme now stopped in its tracks, substantial losses in the future have now been prevented.

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