These investment structures are a collection of limited companies formed and managed by a number of operators including Zeus Partners LLP between 2007 and 2011 that were promoted as exploiting various assets with leveraged limited recourse finance.
HM Revenue and Customs (“HMRC”) have made it clear that they consider deals, such as those managed via Zeus Partners, to be highly artificial tax schemes. The schemes claim to create capital losses that reduce the amount of tax payable on earnings from employment or other income. HMRC does not believe that any of these schemes work under current legislation or that any tax relief is due.
Little or no realistic prospect of success
In these schemes, an individual subscribes for shares issued by a company. Subscribers pay only a small proportion of the nominal cost of the shares themselves, with the balance met by ‘loans’. If the company fails, they either:
- are not required to repay the ‘loans’
- repay them out of funds provided to them in a non-taxable form
The company is said to be carrying on a high-risk commercial activity. However, HMRC claim that activity has little or no realistic prospect of success. Shortly after the company issues the shares, its activities are declared to have failed. This is so the shares become negligible in value or they are sold for very little. The individuals make claims to set the resulting capital losses on the shares against their taxable income.
Working with HMRC
The tax implications will depend on whether the investors were given relief in the first place and many claims were immediately turned aside and if they made a claim for interest relief arising from the loan taken out to fund the acquisition of shares.
Our internal tax team has significant experience of dealing with the tax affairs of our clients and has built strong relationships with key individuals within the various relevant HMRC units. We can either engage directly with clients and represent their interests on a consultancy basis, or work with clients existing advisors to provide an in-depth and complementary advisory service.
Litigation and action
We are currently seeking redress on behalf of the members of these structures. Third party litigation funding has been secured, a legal team appointed and work is well underway to launch proceedings.