08 Nov 2017 11:32 AM
The leaking of the Paradise Papers and Apple’s use of offshore companies has brought the topic of tax avoidance back into the limelight, not that it was ever that far away. This reminded me of a very informative list issued by HMRC some time ago ‘Ten things a tax avoidance scheme promoter won’t always tell you’. It’s worth sharing again, as it clearly warns of the risks that people face when they sign up to a tax avoidance scheme. These include both the monetary costs and reputational damage of tax avoidance, but also a potential criminal conviction.
When he was the Financial Secretary to the Treasury, David Gauke, made the position very clear by saying ‘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’.
The ‘ten things a promoter won’t always tell you’ are:
- 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 issue these numbers when a scheme has signs of being designed to avoid tax.
- You could be marked out as high-risk taxpayer. Use of a scheme could make 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 are likely to beat your scheme in court. HMRC win eight out of ten cases where taxpayers and promoters take avoidance schemes to court.
- The risk is normally all your own. It is 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 start 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 whilst HMRC investigate a scheme. New legislation means you’ll have to pay the disputed tax up front.