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News - 23 January 2013

Medical research tax avoidance scheme rejected by court

A tax avoidance scheme, designed to abuse rules set up to encourage genuine medical research, has been successfully challenged by HM Revenue and Customs (HMRC) in court.
A Jersey-registered limited partnership claimed to be trading in the UK, focused on creating and exploiting intellectual property from research into vaccines targeting diseases such as HIV, flu and hepatitis B.

Eighty three investors in the partnership used £28 million of their own cash and £86 million in bank loans. The partnership claimed a first-year trading loss of nearly £193 million, creating £77 million in tax relief. This would have given them an almost £50 million return on their personal investments.

However, HMRC Specialist Investigators discovered that only £14 million had been spent on research and development into vaccines. As a result, a tribunal agreed that individual partners were entitled to tax relief of no more than £14 million of the losses. The Tribunal further decided that £7 million in fees that the partnership had paid to a subsidiary of the scheme promoters failed to qualify for tax relief. Interest relief on the loans that had been used in the scheme was also restricted.

Tonmoy Kumar, Manager of the Accounts Department of ABDS comments:
“This was a complex case but it shows – once again – how HMRC has the resources and technical expertise to effectively challenge tax avoidance. The National Audit Office reported in November 2012 that HMRC has an 85 per cent avoidance litigation success rate.”

If you need any help and advice on Personal or Business Tax and the implications of the new Tax Avoidance Legislation, contact Lavinia Newman, Stuart Coleman or Tonmoy Kumar to discuss how ABDS can help

ABDS Chartered Certified Accountants of Southampton.
Tel: 023 8083 6900  E-mail: abds@netaccountants.net

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