HMRC have recently published a list of factors to consider before entering into a ‘tax avoidance scheme’. The list is shown below and it explains the risks of entering into a tax avoidance scheme including the possible monetary costs, reputational damage of tax avoidance, and the risk of a potential criminal conviction.
HMRC shall be writing to the first scheme promoters who will be caught by new High-Risk Promoters rules. If they don’t change their behaviour, HMRC could name them publically and fines might be imposed of up to £1 million.
The 10 things a promoter won’t always tell you:
Most schemes don’t work. You may be told that avoidance is legal, but if the scheme doesn’t work you’ll have made an incorrect tax return which is not in accordance with the law. You are legally obliged to pay tax that is due and you may be charged penalties if you try to avoid it.
It could cost you more than you bargained for. Avoidance schemes are complex. They can give rise to unintended additional tax consequences, and the fees you pay the promoter do not count as tax paid. So you could end up paying much more than just the tax you’re trying to avoid.
You may have significant legal fees to pay. If the scheme is taken to litigation, you’re likely to have hefty legal fees to pay. Your promoter may ask you to pay into a ‘fighting fund’ up front.
You could face criminal conviction. If you deliberately mislead or conceal information from HMRC you could be prosecuted and convicted.
You could face publicity as a tax avoider. If you are named in court papers when the case is litigated, or in public registers, you could be reported in the media as a tax dodger.
Your scheme is never HMRC approved. Getting an avoidance Scheme Reference Number 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.
You could be marked out as a high-risk taxpayer. Use of a scheme could mark you out as a high-risk taxpayer, which means that all of your tax affairs will be closely scrutinised in future, not just your claim for relief.
HMRC is likely to beat your scheme in court. HMRC wins eight out of ten cases where taxpayers and promoters take avoidance schemes to court.
The risk is normally all your own. It’s unlikely that a promoter will give you a guarantee that a scheme will work. And they probably won’t be around to support you once HMRC starts investigating your tax affairs. Some promoters set up simply to sell the scheme, and then disband.
You’ll have to pay the tax up front anyway. You won’t get a cash-flow advantage while HMRC investigates a scheme. New legislation means you’ll have to pay the disputed tax up front.
Our team commented on this list:
“The above list published by HMRC provides a good guide to would be scheme participants as to the risks attached to any scheme. Given the current HMRC and general political appetite to clamp down on tax avoidance, once an enquiry has been opened by HMRC it may take many years before the case is settled, and this may impact upon any future sale of a business. HMT LLP as a firm does not promote such tax avoidance schemes and we would not recommend that our clients enter into such schemes unless they are fully appraised of the risks and the fact that the planning may ultimately fail.”
If you have questions, please do not hesitate to contact our team on 01491 579740.
HMRC have recently published a list of factors to consider before entering into a ‘tax avoidance scheme’. The list is shown below and it explains the risks of entering into a tax avoidance scheme including the possible monetary costs, reputational damage of tax avoidance, and the risk of a potential criminal conviction.
HMRC shall be writing to the first scheme promoters who will be caught by new High-Risk Promoters rules. If they don’t change their behaviour, HMRC could name them publically and fines might be imposed of up to £1 million.
The 10 things a promoter won’t always tell you:
Most schemes don’t work. You may be told that avoidance is legal, but if the scheme doesn’t work you’ll have made an incorrect tax return which is not in accordance with the law. You are legally obliged to pay tax that is due and you may be charged penalties if you try to avoid it.
It could cost you more than you bargained for. Avoidance schemes are complex. They can give rise to unintended additional tax consequences, and the fees you pay the promoter do not count as tax paid. So you could end up paying much more than just the tax you’re trying to avoid.
You may have significant legal fees to pay. If the scheme is taken to litigation, you’re likely to have hefty legal fees to pay. Your promoter may ask you to pay into a ‘fighting fund’ up front.
You could face criminal conviction. If you deliberately mislead or conceal information from HMRC you could be prosecuted and convicted.
You could face publicity as a tax avoider. If you are named in court papers when the case is litigated, or in public registers, you could be reported in the media as a tax dodger.
Your scheme is never HMRC approved. Getting an avoidance Scheme Reference Number 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.
You could be marked out as a high-risk taxpayer. Use of a scheme could mark you out as a high-risk taxpayer, which means that all of your tax affairs will be closely scrutinised in future, not just your claim for relief.
HMRC is likely to beat your scheme in court. HMRC wins eight out of ten cases where taxpayers and promoters take avoidance schemes to court.
The risk is normally all your own. It’s unlikely that a promoter will give you a guarantee that a scheme will work. And they probably won’t be around to support you once HMRC starts investigating your tax affairs. Some promoters set up simply to sell the scheme, and then disband.
You’ll have to pay the tax up front anyway. You won’t get a cash-flow advantage while HMRC investigates a scheme. New legislation means you’ll have to pay the disputed tax up front.
Our team commented on this list:
“The above list published by HMRC provides a good guide to would be scheme participants as to the risks attached to any scheme. Given the current HMRC and general political appetite to clamp down on tax avoidance, once an enquiry has been opened by HMRC it may take many years before the case is settled, and this may impact upon any future sale of a business. HMT LLP as a firm does not promote such tax avoidance schemes and we would not recommend that our clients enter into such schemes unless they are fully appraised of the risks and the fact that the planning may ultimately fail.”
If you have questions, please do not hesitate to contact our team on 01491 579740.
