HM Revenue and Customs says it has won what it believes to be a landmark case against a tax avoidance scheme promoter that could lead to it recovering £110 million in lost tax revenue.

HMRC says the victory over scheme promoter Root2 came after the company failed to report a mass-marketed tax avoidance scheme, known as Alchemy, to the taxman.

The tax avoidance scheme aimed to “extract profits” from owner-managed companies in the form of winnings from betting on the stock market. The scheme aimed to ensure the returns would be tax free rather than in the form of taxable employment income.

HMRC brought the case against Root2 under the Disclosure of Tax Avoidance Scheme (DOTAS) rules which require promoters to tell HMRC about tax avoidance schemes they design and sell.

Root2 is based in the City of London. Its staff include tax experts, lawyers and accountants. At least one member of staff worked previously for HMRC. Root2 has been asked for comment on the case.

The First-tier Tribunal agreed with HMRC that the promoter did not abide by the DOTAS rules.

Penny Ciniewicz, director general of HMRC’s Customer Compliance Group, said: “This is a great victory that sends a clear message to tax avoidance scheme promoters that we will pursue you if you don’t play by the rules.”

“Most tax avoidance schemes don’t work. The DOTAS rules ensure that HMRC is notified of schemes so that we can investigate and challenge them.”

“Designers and promoters of avoidance schemes should come forward now if they haven’t already disclosed a scheme to us. We will take action and nobody should think they can get away with not disclosing their avoidance schemes and misleading users about the need to report them.”

HMRC says it will seek to impose a substantial penalty on the promoter for failure to disclose the scheme.

There is no right of appeal against the Tribunal decision.

Under DOTAS rules promoters must notify HMRC of schemes that use tax avoidance. DOTAS was introduced in 2004 and has been strengthened and broadened since.