‘Screwing it up’: HMRC’s £14m error lets tax avoidance specialist off the hook

HMRC squandered the chance to hold a notorious promoter of tax avoidance schemes to account after making a “rudimentary” error at tribunal, new documents reveal.

According to a recently published tax tribunal judgement, the UK tax authority was attempting to bring a £14m penalty against Paul Baxendale-Walker, a former lawyer and tax adviser. HMRC estimates his schemes to have cost the exchequer some £1bn in lost taxes according to a separate court filing.

Baxendale-Walker denied a “false collection of allegations” put to him by TBIJ, and said the £14m penalty was “a fiction … conjured” by HMRC.

The judgement raises questions about HMRC’s handling of the promoters of tax avoidance schemes at a time when tax has become a battleground in the forthcoming general election.

HMRC has enjoyed some substantial victories in recent years, including a £650m windfall and fraud conviction against former F1 mogul Bernie Ecclestone, and a landmark £615m deferred prosecution agreement with the owner of Ladbrokes and Coral. But experts suggest it has failed to adequately hold enablers of tax dodging to account.

“This is screwing it up 101,” said Ray McCann, the former president of the Chartered Institute of Taxation and a senior HMRC investigator of more than 30 years. “I’m completely mystified as to why [HMRC] did what they did [... it appears] there’s a lack of battlefield command within HMRC.”

Baxendale-Walker, 60, gained notoriety after designing a number of tax avoidance schemes in the 1990s and 2000s that were later found not to be legal.

Court documents filed in a separate case in the United States cite HMRC estimates that his schemes cost the tax authority over £1bn in total. Baxendale-Walker disputed this figure to TBIJ, but did not provide evidence to support his claim. “He’s caused carnage,” said McCann.

HMRC was attempting to bring a penalty based on an information notice it obtained at tribunal in 2022, to force Baxendale-Walker to hand over documents to the authority. Baxendale-Walker told TBIJ that he did not have the documents to begin with, and HMRC said it would not comment on individual cases.

HMRC agreed to an extension requested by Baxendale-Walker, but in doing so made one of two mistakes, both of which involved missing a deadline for imposing a penalty.

The Upper Tribunal judge found that it did not matter which mistake HMRC had made, it had invalidated the £14m penalty regardless.

The judge struck out the proposed £14m fine in its entirety in a judgement handed down on 28 July 2023, which was made public this month.

McCann said: “When I was in [HMRC], I would never in a million years have deviated from what a tribunal had authorised because it always goes wrong. [...] Now the penalty is history because [HMRC] screwed it up.”

Over the past two decades, Baxendale-Walker has been subject to various civil court cases, professional sanctions and criminal charges.

He was struck off as solicitor in 2006 for conflicts of interest relating to a tax avoidance scheme. In 2012, he was subject to a civil restraint order for filing repeated claims against the Law Society after his dismissal as a lawyer.

In 2016 he pleaded guilty to forgery after impersonating an investigator contracted by HMRC on a call to the Solicitors Regulatory Authority. Two years later, he was declared bankrupt following a court defeat that found him liable for some £16m on the basis of negligent tax advice.

“HMRC should have approached Paul Baxendale-Walker with extreme care,” said McCann. “Get some people working on his case who really know what they’re doing, don’t take any risks whatsoever, don’t deviate in any way from what the law says.”

Dan Neidle, the founder of the independent thinktank Tax Policy Associates and former head of tax at global law firm Clifford Chance, said: “If HMRC can’t get this guy, it’s hard to see how they can get anyone.”

Paul Baxendale-Walker told TBIJ that his tax advice was made through a partnership that “paid every due penny of tax” and that he had retired a decade ago. He said HMRC’s £14m penalty was based on a “fictional tax liability” and “randomly chosen multiplier”.

He added: “Every citizen has the right to order their affairs so as to pay the least amount of tax … The evil is accruing a level of taxation which is at a record high since WW2. Not persons who lawfully advise others as to their civil rights and obligations.”

A spokesperson for HMRC said: “We do not comment on identifiable individuals or businesses.”