What Avoidance Schemes Don’t Tell You

10 things tax avoidance promoters keep ‘mum’ about

HMRC has recently produced a list of ‘10 things a tax avoidance scheme promoter won’t always tell you’ which are:

  1. Most schemes don’t work. A person may be told that avoidance is legal, but if the scheme doesn’t work they will have made an incorrect tax return which could give rise to significant tax arrears, interest and penalties.
  2. The ultimate costs could outweigh the initial tax gains. Avoidance schemes are complex. They can give rise to unintended additional tax consequences, and the fees paid by an individual to a promoter cannot be offset against the tax arrears. A person could therefore end up paying much more than just the tax they are trying to avoid.
  3. Hefty legal fees may have to be paid if the scheme is taken to litigation. The promoter may ask the participant to pay into a ‘fighting fund’ up front.
  4. Criminal conviction is a possibility. Where someone deliberately misleads or conceals information from HMRC they could be prosecuted and convicted.
  5. Individuals may face unwanted publicity as a tax avoider. If they are named in court papers when the case is litigated, or in public registers, then the media may portray them as a tax dodger.
  6. Schemes are never HMRC approved. Getting an avoidance Scheme Reference Number (SRN) from HMRC doesn’t mean the department has cleared the scheme. HMRC issues these numbers when a scheme has signs of being designed to avoid tax.
  7. An individual could be singled out as a high-risk taxpayer. Use of a scheme could mark someone out as a high-risk taxpayer, which means that all of their tax affairs will be closely scrutinised in future, not just their claim for relief.
  8. There is a strong likelihood, based on current successes, that HMRC will defeat a scheme in the courts. HMRC wins 8 out of 10 cases where taxpayers and promoters take avoidance schemes to court.
  9. The risk is normally all the individuals. It’s unlikely that a promoter will give someone a guarantee that a scheme will work and they probably won’t be around to support the unwitting taxpayer once HMRC starts investigating their affairs. Some promoters set up simply to sell the scheme and then disappear into the night.
  10. Under the new ‘accelerated payments’ rules individuals will have to pay tax up front anyway. They won’t get a cash-flow advantage while HMRC investigates a scheme. New legislation means that the disputed tax has to be paid up front.

The list is being published as HMRC begins writing to the first promoters who will be caught by new High-Risk Promoters rules. If they don’t change their behaviour, then the Revenue could name them publicly and fines might be imposed of up to £1 million.

Financial Secretary to the Treasury, David Gauke, said:

“The government has taken unprecedented steps to clamp down on the selfish minority who practise tax avoidance, because we are firmly on the side of the vast majority of taxpayers who play by the rules. As a result, tax avoidance is now very high risk.

On top of a substantial fee to join a scheme that will almost certainly fail a challenge by HMRC, tax avoiders will also have to pay the tax they dodged, plus interest and penalties.

To help protect taxpayers from unscrupulous promoters we have put in place new High-Risk Promoters rules, but people need to be aware of the dangers. So I would strongly advise anyone thinking of signing up to a scheme which they have been told will legally reduce their tax bill to carefully consider today’s list of things a promoter may not tell you.”

Anyone tempted by a tax avoidance scheme should always seek third party advice but that can be costly. However, it won’t be as expensive as the consequences of getting involved with a failed scheme.

3 Comments

  • Big Bird says:

    All is not good here. If we are anti avoidance then why not just put legislation that says “tax avoidance is illegal, onus is on the tax payer to prove it in court” which is what the Australian law says. If a scheme gets a tax avoidance number why are they not investigated upfront and shut down? Oh forgot the HMRC likes to be wined and dined by these schemes and the politicians probably have interested in these offshore dependences to avoid tax in the first place.

  • Big Bird Brain says:

    [quote name=”Big Bird”]All is not good here. If we are anti avoidance then why not just put legislation that says “tax avoidance is illegal, onus is on the tax payer to prove it in court” which is what the Australian law says. If a scheme gets a tax avoidance number why are they not investigated upfront and shut down? Oh forgot the HMRC likes to be wined and dined by these schemes and the politicians probably have interested in these offshore dependences to avoid tax in the first place.[/quote]

    You obviously dont understand the term ‘tax avoidance’ its not possible to make it illegal, it legitimate. Plus the onus is already on the tax payer to prove….

  • Big Bird Brain-less says:

    [quote name=”Big Bird Brain”][quote name=”Big Bird”]All is not good here. If we are anti avoidance then why not just put legislation that says “tax avoidance is illegal, onus is on the tax payer to prove it in court” which is what the Australian law says. If a scheme gets a tax avoidance number why are they not investigated upfront and shut down? Oh forgot the HMRC likes to be wined and dined by these schemes and the politicians probably have interested in these offshore dependences to avoid tax in the first place.[/quote]

    You obviously dont understand the term ‘tax avoidance’ its not possible to make it illegal, it legitimate. Plus the onus is already on the tax payer to prove….[/quote]

    Tax avoidance is legal? #1 and #6 above doesn’t sound like it!? If #1 & #6 above is true then why is the scheme allowed to operate? If it is allowed to be selling for years and HMRC not shutting them down even though they have to alerted by SRN what is going on there? Suddenly HMRC pops up to claim their lost millions.

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