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The UK's Supreme Court has ruled against a scheme designed to avoid value-added tax (VAT) on car repairs that could have cost the Exchequer GBP600m (USD920.4m).
According to HM Revenue and Customs (HMRC), the scheme, started in 1998, involved the restructuring of a group engaged in the selling of car warranties. This enabled the VAT on car repair services to be recovered.
Insurers cannot normally recover VAT in such instances, because they do not have to charge VAT on the insurance premiums they receive. In this case, the insurer's responsibility to repair the cars was devolved to a claims handler, via two Gibraltar reinsurers.
HMRC refused to repay the tax on the basis that the scheme had failed. The Supreme Court ruled unanimously that in cases involving a construct of contractual relationships, the matter must be assessed as a whole to determine the economic reality. HMRC says that the ruling protects GBP600m of at risk revenue a year.
Exchequer Secretary to the Treasury, David Gauke welcomed the news: "HMRC's success in defeating this scheme sends a clear signal – the Government will relentlessly pursue those that try to avoid their responsibilities, no matter how long it takes, and win.
"While most businesses and individuals pay the tax they owe on time, HMRC has received additional resources to make sure the minority are challenged when they attempt to avoid paying what is due."
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