A Turning Point for Tax Avoidance Promoters: High Court Approves HMRC’s Section 85 Powers

Key development at a glance

The High Court has granted HMRC’s application to wind up Purity Limited under section 85 of the Finance Act 2022, marking the first reported and successful use of this promoter-targeting power. The court found it just and equitable to order compulsory liquidation in order to protect the public revenue, in circumstances where multimillion-pound tax losses were linked to remuneration arrangements involving loans to employees that were treated as taxable earnings.

The court ordered compulsory winding-up despite Purity already being in creditors’ voluntary liquidation, emphasising that voluntary steps will not necessarily prevent public-interest intervention.

How the ruling unfolded

In HMRC v Purity Limited [2025] EWHC 3401 (Ch), the High Court declined to stay HMRC’s petition and placed decisive weight on the public interest in protecting public revenue. The judge held that a compulsory liquidation, led by an independent office-holder, was necessary to ensure proper investigation and scrutiny of the company’s affairs, rather than a voluntary process controlled by existing stakeholders.

Purity operated as an umbrella company for agency workers. Most workers received a small PAYE salary, with the remainder of their income paid in the form of long-term loans, purportedly repayable in the future. The arrangements were designed to avoid PAYE and national insurance contributions on the majority of earnings. The court accepted HMRC’s position that, in substance, workers were entitled to their full remuneration and that the loan structure did not alter the reality that the amounts were taxable as employment income.

Purity later introduced an “employee motivation scheme”, said to fund future loan repayments, but the court accepted HMRC’s evidence that this was commercially unrealistic. Only a fraction of the sums required were ever paid into the scheme, compared with tens of millions of pounds advanced as loans in a single year. HMRC calculated that more than £20 million of tax would have been payable on the arrangements.

Following the issue of PAYE and NIC determinations, Purity initially appealed but later withdrew those appeals. This triggered statutory deeming provisions under the Taxes Management Act 1970, rendering the liabilities final. In November 2023, HMRC issued Purity with a stop notice under the promoters of tax avoidance schemes (POTAS) regime, after which the company ceased trading in early 2024.

The court also treated Purity as closely connected to Alpha Republic Limited, a previously liquidated entity investigated by HMRC over substantially similar arrangements. That history, together with findings of limited transparency towards both staff and HMRC, supported the conclusion that compulsory liquidation was required to prevent any continuation or phoenixing of the business through new entities.

Section 85 of the Finance Act 2022 empowers HMRC to petition for the winding-up of a body that promotes tax avoidance where it is expedient in the public interest to do so for the protection of public revenue. Importantly, the court confirmed that HMRC is not required to establish conclusively that a scheme has already failed or that tax is definitively due before exercising the power. The focus is on conduct and public interest, not solely on quantified tax loss.

The judgment signals that HMRC’s promoter strategy has moved decisively from warnings and monitoring to direct court action where public revenue is at stake.

Contractor News commentary

This judgment represents a significant milestone in the use of HMRC’s promoter-focused powers and provides valuable clarity on how section 85 will be applied in practice. It confirms that public-interest considerations can outweigh company-led insolvency processes, and that independent oversight may be required where significant tax risk is alleged.

For contractors, agencies and advisers, the case reinforces that loan-based remuneration models and similar umbrella arrangements remain high-risk, particularly where repayment is unrealistic or opaque. The decision also underlines that voluntary liquidation will not shield a business, or those behind it, from enforcement action that may lead to deeper investigation and potential personal consequences.