EBT scheme's defeat will protect £2.4m, says HMRC
A tax avoidance scheme that routed a film financing venture’s profits via Employee Benefit Trusts at the behest of the venture’s owner, an ex-accountant, has been blocked by a tribunal.
Operated by John Dryburgh, a former partner with Deloitte & Touche, the scheme involved extracting profits from a series of companies named ‘Scotts’ and paying them into EBTs.
In total, almost £9million in tax deductions paid by Dryburgh’s companies, Scotts Atlantic Management and Scotts Film Management, were challenged for being paid into the trusts.
HM Revenue & Customs, which made the challenge, said the real purpose of the EBT contributions was “just to avoid corporation tax, or to strip the companies of their assets.”
HMRC told the tribunal that neither purpose was “wholly or even remotely” a legitimate revenue expense of the trade, yet Dryburgh claimed corporation tax deductions.
Since the vast majority of the benefits passed to the people who were the ultimate shareholders (Dryburgh and a Mr Andrew Somper), these deduction were “improper”.
The Revenue added that the two were distributing profit, not an expense in earning profit, and “worse still” a distribution of all the assets that left both companies unable to pay liabilities.
Seeming aware of the strong case by HMRC, which he accused of being “hounded” by, Dryburgh lied to the tribunal and later admitted such deceiving was done in a material way.
Although they expressed some sympathy for the 61-year-old, the tribunal points out in its ruling that he forged documents and threw away a memory stick in order to destroy evidence.
The Revenue welcomed the tribunal finding in its favour, not least because the denial of the claimed deduction has protected £2.4million of tax. The Treasury is also pleased.
David Gauke, its exchequer secretary, reflected: “This scheme – like so many others – was not worth buying into.
“The government has made almost £1 billion available to HMRC to tackle the issues of avoidance and evasion and to ensure that the minority who try to avoid their responsibilities pay the tax due.
“HMRC will always challenge this type of planning and the tribunal decision should send a clear message to anyone thinking they can get away with tax dodging – HMRC will pursue you and you will have to pay the tax due as well as interest, on top of the promoter’s fees.”
Elaborating on ‘this type of planning,’ HMRC said employers paid money into an EBT and claimed corporate tax deductions. The EBT gives undervalued shares in a new company, causing a loss to the employer.
The tax authority added that, despite Dryburgh being bankrupt and Scotts Atlantic Management being in liquidation, its officials believe that the cash can be recovered.