Transfer of assets abroad provisions take precedence

The taxpayers took part in a tax avoidance scheme. Under this each established an Isle of Man settlement the trustee of which was an Isle of Man company. Each trustee formed a partnership with the trustees of similar settlements. The partnership entered into a services agreement with each taxpayer under which they provided services to UK third parties in return for a fee. The taxpayers were also entitled to a profit share of the partnership.

The taxpayers accepted the fees were self-employed income but claimed the profit share was exempt from tax under the UK/Isle of Man double tax agreement.

HMRC disagreed saying the fees and profit shares were earnings from employment. As a result of the decision in Huitson (TC4621) concerning the same scheme the taxpayers accepted HMRC’s decision but claimed they were entitled to a PAYE credit for the amounts that the relevant employer...