After seven years the Supreme Court has passed a ruling on foreign exchange trading firm HFFX LLP stating they should have paid Income Tax on their earnings.
This follows a HMRC crackdown on tax avoidance schemes that exploit LLPs. The tax authority has issued strict warnings that several schemes are deemed to be illegal tax avoidance.
The Supreme Court has ruled that members of the foreign trading firm HFFX LLP should have paid Income Tax on their earnings instead of using a structure that allows them to be taxed at the lower corporation tax rate.
HFFX LLP is a partnership founded in 2010 within GSA. Its members include billionaire trader Alexander Gerko, who developed software used for high-frequency currency trading.
The legal dispute centred on how the partnership’s profits were handled. Instead of paying profits directly to members, the LLP allocated its profits to a corporate member called GSA Member (GASM) Ltd.
GASM then paid Corporation Tax on those profits and redistributed the money to individual members through a deferred payment scheme known as a capital allocation plan.
Members argued that they did not need to pay Income Tax on those later payments. However, HMRC disagreed and said in 2016 that profits should have been taxed as personal income from the beginning and issued tax assessments covering 2011 to 2016.
After years of appeals, the Supreme Court deemed that they owed £22.5 million in tax.
The court decided that the payments made under the capital allocation plan were a form of income and that members had rights to these payments due to how decisions were made, so they were not optional or gift-like payments.
This means the deferred payments were taxable income under UK law. The court rejected the appeal and ruled that they must pay income tax on the amounts they received.
HMRC is actively targeting LLP structures that are used to aggressively minimise tax contributions.
The tax body has said that they will pursue anybody who promotes or enables tax avoidance through LLP structures. Anybody who fails to disclose a scheme that has been implemented will be penalised up to £600 a day.
HMRC has strongly urged anybody using similar schemes or arrangements to withdraw from them and settle their tax affairs.
Aggressive tax avoidance is always a bad idea and HMRC will pursue it. Speak with an accountant today to help minimise your tax contributions legitimately, rather than risking a substantial backdated liability.
Get in touch today for tax advice that will keep you on the right side of HMRC.
