The loophole saw certain bankers paid bonuses in the form of shares in specially created companies rather than cash. The scheme was designed to ensure the initial share bonus and their subsequent redemption would be exempt from income tax and national insurance contributions.
HMRC challenged the scheme, saying the shares were taxable as their value was in a monetary form and therefore not exempt from tax.
The Supreme Court ruled in HMRC’s favour and it expects to now pursue another £30m ($42.7m, €38.7m) in unpaid tax from 27 other users of similar arrangements.
David Gauke, financial secretary to the Treasury, said: “This is an important victory and confirmation from the UK’s highest court that tax avoidance is simply unacceptable.
“The UK is home to some of the world’s most successful banks and we have been clear we expect them and their employees to pay their fair share of tax.”
Jennie Granger, director general for enforcement and compliance at HMRC, said: “This is another important success for HMRC against an avoidance scheme with the top court in the country confirming our view this scheme did not work.
“This is the latest in a series of successful HMRC challenges to such schemes marketed at wealthy individuals to get out of paying tax. We will continue to challenge artificial arrangements such as these in the interests of the vast majority of businesses and people who choose to play by the rules.”