The decision in the Tower Radio tribunal over payment of PAYE tax and National Insurance Contributions on bonuses raises the prospect of a new interpretation of the Ramsay principle.
The case centred on whether bonuses paid through companies, which were set up for the apparent purpose of tax avoidance and were subsequently liquidated, were taxable.
The case could have wider implications for tax advisers involved in devising creative tax avoidance schemes and has introduced an extended definition of the Ramsay principle.
In the ruling, judge Peter Kempster said that 'the scheme is a clear example of artificial and unacceptable tax avoidance'.
'An awful lot of people are probably very worried at this stage,' said Phil Fisher, employment tax partner at BDO. 'A larger and larger body of decisions is going against the taxpayer.
'The difference is that in the past it did seem that the judges and courts tended to go with the purposive law approach. On this one we have now got the "broader Ramsay principle".'
Fisher added that 'people are trying to devise schemes and give the impression that they are acceptable, but they are artificial'.
'I am very much at the conservative end - this scheme was ludicrously artificial.'The scheme was promoted by accountancy firm Barnes Roffe LLP and used in tax years 2003/4 and 2004/5. Tower Radio Ltd and Total Property Support Services Ltd [ UKFTT 387 (TC)] were lead cases at the First Tier Tribunal (FTT), with 104 related cases revolving around the same approach. The case revolved around whether the scheme was purely artificial.
The FTT ruled that PAYE tax and National Insurance Contributions should have been paid on bonuses given to directors through companies which were specially set up just to be liquidated and pay out the cash.
Barnes Roffe has 56 days to lodge an appeal but it is not clear whether they were paying for the case or their clients were footing the legal bill.
'The Revenue will have unlimited resources to fight this one if it went to appeal,' Fisher added.
The decision is available HERE