Over the years many people have used tax arrangements that were designed to reduce tax liabilities. However, HMRC usually challenges what it considers to be ‘tax avoidance’ or ‘tax schemes’. In some cases it can take HMRC years to gather evidence and pursue a tax avoidance arrangement to the tribunal. This can leave individuals or companies with large tax bills, often years after the original scheme was used.
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Tax Avoidance - How can we help you?
If you have used a tax avoidance arrangement and HMRC is pursuing you for the tax and you wish to settle, we can help with that settlement. We can ensure that HMRC is only pursuing years that it is entitled to. We can make sure that HMRC’s computations are correct, and you are paying the right amount of tax. We can also look to see if there are any ‘consequential’ claims you can make to reduce the net amount you will need to pay on settlement as well as argue against any penalties. If time to pay is needed, we can negotiate with HMRC on your behalf to get a manageable payment arrangement. If you have received any accelerated payment or follower notices, we can help you deal with those. Unwinding a tax scheme can be complex, we can guide you through the process in an understandable way and help get the best result.
What you need to know
What are tax avoidance schemes?
Various types of arrangements have been designed over the years, purporting to reduce the tax liability of an individual or company. Some arrangements generated losses (for example film schemes) which were used to offset other taxable income. Other arrangements like employee benefit trusts (“EBTs”) or contractor loan schemes sought to turn taxable income into tax-free loans. Often these were mass-marketed and were not bespoke to any customer. Where HMRC becomes aware of these, in most cases it challenges the effectiveness of the arrangements. In the majority of cases where HMRC has taken the challenge to Tribunal, HMRC has won.
Is tax avoidance ‘legal’?
A tax avoidance scheme will either work or it will not, based on the facts and the law. However, any arrangement that seeks to hide or misrepresent transactions or facts is likely to be straying into the realms of tax ‘evasion’. Evasion is certainly not legal and can have serious consequences. In our experience HMRC assertively challenges all tax avoidance schemes it becomes aware of, whether anyone considers them to be ‘legal’ or otherwise.
Will I have to pay a penalty if I used a tax avoidance scheme?
If you use a scheme that does not work, you’ll certainly pay the tax and interest. In some circumstances, you may also have to pay a penalty. After 2017 if you used an avoidance scheme and did not get properly qualified independent advice as to whether it will be effective, you may pay a penalty since you will not be considered to have taken ‘reasonable care’. Tax-geared penalties are generally based on whether or not you took reasonable care or if you acted ‘deliberately’. Deliberate behaviour, from HMRC’s perspective, means fraud. In the past penalties were typically not in point in relation to tax avoidance schemes. However, HMRC is now considering penalties in many avoidance cases. If HMRC is proposing that you should pay a penalty in relation to an avoidance scheme, we can help you if we think that a penalty should not apply to your circumstances.
Can I settle my avoidance scheme with HMRC?
Yes, you can settle with HMRC. Often HMRC will have settlement terms for different schemes. We can help you navigate HMRC’s settlement terms, ensure that the settlement is correct and the lowest it reasonably can be. We can also argue for time to pay if needed.
Should I settle my avoidance scheme with HMRC?
This is a difficult question. From a tax dispute perspective, the answer will depend on your attitude towards risk and your financial position. It is true that when HMRC chooses to litigate avoidance, it usually wins the case. If HMRC is challenging a tax scheme you have used, you are certainly likely to have a long, hard and probably expensive fight in defending it. Based on recent HMRC successes, there is a reasonable chance that HMRC will win although that is not guaranteed. You will need to balance the cost and possible stress of a long fight against the cost of settlement. Everyone has their own approach to risk and uncertainty. We can discuss with you the options and possible outcomes to help you decide whether to settle. It is certainly HMRC’s opinion that you should settle, and political and public opinion is nowadays usually against the use of any tax avoidance scheme.
What is DOTAS?
Disclosure of tax avoidance schemes, or DOTAS, is a regime that compels those who devise tax arrangements that have a tax advantage as a main benefit and that have certain hallmarks, to disclose it to HMRC. The arrangement is then given a scheme reference number that users must put on their tax return. Having a DOTAS reference does not mean that HMRC ‘approves’ of the arrangement as has sometimes been claimed.
What are APNs?
An accelerated payment notice, or APN, is a way that HMRC can compel users of avoidance schemes to pay the tax up front while the argument or litigation is still ongoing. We can help with representation in relation to these or negotiate time to pay. They should not be ignored as penalties can apply if they are not dealt with properly.
What is a follower notice?
A follower notice is a mechanism whereby HMRC can demand that the user of a scheme amends their return or settles, where key principles of the arrangement have already been defeated in litigation. The rules are complex and there may be some subjectivity as to whether the ‘defeated’ arrangement has principles that apply directly to the arrangements receiving the follower notice. We can help assess whether a follower notice has been issued properly and issue representations that it should be withdrawn if not.
What you need to know
BE MINDFUL WHEN THINKING ABOUT TAX AVOIDANCE
Tax avoidance is a way of legally minimising a tax liability. The celebrated US judge Learned Hand said in 1934:
“Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.”
Although tax avoidance is quite different to tax evasion – which is tax fraud and is illegal – HMRC and the press sometimes like to present it that way. Previously, tax avoidance ‘schemes’ or arrangements were being sold on a mass market basis – that’s not the case so much now, but some are still available.
Some of the schemes worked, but more often than not, schemes like EBTs, EFURBS and Film Schemes have either been defeated in Court or are subject to new and challenging legislation like Follower Notices, Accelerated Payment Notices and the new ‘April 2019 Loan Charge’.
Unfortunately, clients are having to accept that the promised result simply won’t be achieved, and the arrangements need to be unwound or settled. We can help you understand the pros and cons so you can make an informed choice.
We don’t sell schemes, and we never have. But we have helped many clients understand the arrangements, whether they are effective, and if not helped them through to settlement, ensuring that the right amount is requested, all reliefs are claimed, and negotiating time to pay. In some instances, the failure of a scheme can lead to threats of liquidation or bankruptcy and if it is unavoidable, we can help you through this process.
Tax investigations into tax avoidance can be as lengthy and as stressful as other tax enquiries. inTAX is experienced in dealing with all types of tax investigations including tax avoidance cases.
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