What to look for in a tax avoidance scheme

[DonkeyRhubarb]

So any Tax Avoidance scheme by definition will have to be tested in the law courts. So don't be surprised by the brown envelope, and in the end it will be down to a judge to decide whether the interpretation was valid.

Not quite true but almost. HMRC do not litigate in all cases. In theory, they are only supposed to go to court if there is some prospect of winning, although their track record says otherwise.

This is the thing that would worry me not disclosing the SRN on the tax return. There may only be a £100 penalty for this, but what if HMRC take the scheme to court and win, and you have to repay the tax. It could be construed that by not disclosing the SRN this constituted evasion, and HMRC could try to impose (upto 100%) penalties as well as interest.

[BlasterBates]

One point of law. Tax avoidance has been redefined. Before 1990, it was any legal way of not paying tax. Now since a landmark case (you can look it up) there is a distinction. In the past tax avoidance was about exploiting intended tax breaks. But during the 1980's "clever" tax lawyers started to interpret the law in a different way than was intended. This lead to long legal battles, and lead to a new legal definition of Tax Avoidance

So just to clarify Tax Avoidance is interpreting the law not in the way that it was intended, and will have HMRC down on you like a ton of bricks. Tax Mitigation is using the law as intended, to pay the less tax, so for example deferring income, using a different method of depreciation. In fact in olden days this would have been called Tax Avoidance.

So any Tax Avoidance scheme by definition will have to be tested in the law courts. So don't be surprised by the brown envelope, and in the end it will be down to a judge to decide whether the interpretation was valid.

[ninjakettle]

If they are telling your friend they don't need to fill it in then that sounds v. dodgy to me!

I think they took the line that they don't offer tax advice. They did provide him with the scheme number however.

Although £100 hardly seems like much of a penalty!

Thanks for digging this out - that's it in black & white really. I'll leave it up to him to decide if £100 is worth being put on "The list". Cheers

[Robot]

I agree, and this is not a hypothetical risk either.

I am coming across loads of people from different schemes who have had enquiries opened into their returns, and then heard nothing for months/years, not even a courtesy letter to say that they're still investigating.

HMRC must be sitting on tens of thousands of scheme returns.

I wonder what they are waiting for?

The outcome of BN66 perhaps?

Wonder if anyone will consider taking HMR&C to the court of human rights, seems a tad unfair that taxpayers have to suffer undue stress for months/years. Every other bu**er seems to use the court of human rights why not tax-payers?

[Lewis]

Ok, thought as much. Obviously to falsify anything on a tax document is illegal, but this is a supplemental section of the main form and it's not entirely clear if you have a right to retain the information.

Supplemental sections are not optional sections they are just printed separately because they don't apply to everyone. But if they apply to you then you need to fill them out just like any other part of the tax return. For example, if you have had more employers than will fit on the standard form them you need to use supplemental pages, you cannot just ignore the employers that won't fit on the form.

If a scheme has a scheme number then members need to put it on the form. That is the whole point of the scheme numbers and why the disclosure legislation was brough in. If they are telling your friend they don't need to fill it in then that sounds v. dodgy to me!

In fact here you go ...

Promoters who fail to give a registration numbers to their client will be liable to a maximum penalty of £5,000. Taxpayers who fail to show scheme registration numbers on returns will be liable to an initial penalty of £100 rising to £500 for subsequent failures.

http://www.hmrc.gov.uk/avoidance/aag-disclosure.htm

EDIT - Although £100 hardly seems like much of a penalty!

[ninjakettle]

Ok, thought as much. Obviously to falsify anything on a tax document is illegal, but this is a supplemental section of the main form and it's not entirely clear if you have a right to retain the information.

[Lewis]

Thanks for responding DR. Well, given that stating his participation of the scheme is probably not in his best interests; then why fill it in when providing the information seems to be optional and not a legal requirement?

I think you'll find it is a legal requirement!

[ninjakettle]

Thanks for responding DR. Well, given that stating his participation of the scheme is probably not in his best interests; then why fill it in when providing the information seems to be optional and not a legal requirement?

[DonkeyRhubarb]

- Is he obliged (by law?) to fill this out?

Failure to disclose. Isn't that called evasion?

Of course, by disclosing, he is certain to be investigated. This is standard procedure now within HMRC for anyone using a tax avoidance scheme ie. open enquiries first, then ask questions later.

He will then face years of uncertainty while the cogs grind slowly.

I speak as someone who has been on the receiving end with 2 schemes.

[ninjakettle]

A friend at work uses a registered Tax Avoidance Scheme, and is now filling out his SA Tax Return. On page Ai 4, you're asked to provide details of any scheme you may belong to.

- Is he obliged (by law?) to fill this out?
- If not, is there any reason why he should or shouldn't?

The scheme people haven't advised either way so I guess he's just wondering if giving the details of the scheme will mean he attracts unwanted attention from HMRC!

[DonkeyRhubarb]

DR one small footnote....

Just because a scheme works today it does not mean that HMRC wont try and close it down, and with retrospective legislation...! Which means they will try and clobber you for all tax due since you joined the scheme. See BN66 for more info.

I agree, and this is not a hypothetical risk either.

I am coming across loads of people from different schemes who have had enquiries opened into their returns, and then heard nothing for months/years, not even a courtesy letter to say that they're still investigating.

HMRC must be sitting on tens of thousands of scheme returns.

I wonder what they are waiting for?

The outcome of BN66 perhaps?

[smalldog]

DR one small footnote....

Just because a scheme works today it does not mean that HMRC wont try and close it down, and with retrospective legislation...! Which means they will try and clobber you for all tax due since you joined the scheme. See BN66 for more info.

[DonkeyRhubarb]

There have been quite of lot questions recently from people asking about different schemes.

The following is based on my own experience.

First of all, don't go there unless you have your eyes wide open.

1. Under the new disclosure regime, you are almost 100% certain to be investigated by HMRC. Even if the investigation ultimately goes nowhere you will have to live with the uncertainty.
2. Any investigation could drag on for years before it's resolved. There is no time limit under which HMRC have to complete their enquiries. In theory, they could keep your returns open indefinitely.
3. The company operating the scheme could go bust, so any assurances they gave of defending the scheme could turn out to be totally worthless. You could find yourself having to pay for your own legal defence. Either that or you just end up throwing in the towel and paying HMRC what they want (+ interest).

OK, so you've read the above and you still want to go ahead. What should you look for in a scheme promoter?

1. Pick a firm that has been around a decent length of time. Steer clear of anyone that has only set up shop to run a scheme. They are likely to disappear just as quickly at the first sign of trouble, leaving you holding the baby.
2. Try to avoid companies which only operate schemes for contractors. You want someone who is specialised in tax planning, not administering contracts and basic accountancy. Many of the brolly companies have little or no experience in Tax Litigation.
3. Choose a promoter that has a broad track record in tax planning and has succesfully fought off challenges from HMRC. Ask to see details of cases that they've won (& lost) at the Special Commissioners/High Court/Court of Appeal/House of Lords.

You will notice in the above that I haven't mentioned the often touted Tax Counsel QC Opinion. Of course the scheme should have this but it should not be confused with any form of guarantee. After all, this is only one opinion no matter how qualified the Barrister. Also, remember who paid for this opinion and what they wanted it to say.

IMO, a promoter's previous track record in litigation is far more important than any one-off legal opinion.

If you are still reading this and haven't been put off yet, then I wish you the very best of luck!