I find reading HMRC’s spotlights very interesting, do you? Every professional adviser should at least know the subject of those spotlights given it helps to consider what is sensible planning and what might be a tad aggressive. However, at this point of reading, some professional advisers may not consider that they need to know more but wait, they may find it helps them better advise their client and manage their own risks by fulfilling a duty of care. Plus they might want to know about how the government is willing to introduce retrospective legislation, retroactive legislation or even prosecute.
HMRC have recently updated the spotlights so we thought it would be useful to summarise them and the types of arrangements causing unease in the tax world.
There are currently 25 spotlights which we list below and it is noted that after a two year gap, the list increased in 2015 by two more spotlights.
Spotlight 25 concerns Stamp Duty Land Tax (SDLT) avoidance and in particular names the Blackfriars Scheme as well as refers to the willingness to introduce retrospective legislation. HMRC even refer to the Court of Appeal case APVCO 19 Ltd & Ors, R (on the application of) v HM Treasury & Anor 2015 where the court unanimously refused an application for a judicial review against SDLT retrospective legislation, introduced in 2013 and applied retrospectively to 21 March 2012.
Lord Justice Vos said:
“The government had made it perfectly clear that SDLT avoidance schemes … would not be tolerated, and that retrospective legislation would be used to achieve that objective. The appellants can have been in no doubt about any of that, before they decided to take advantage of a scheme devised purely to circumvent the precise wording of section 45(1A) as it was before the legislative changes.”
Spotlight 24 concerned the use of “contrived arrangements” for employers to benefit more than intended from the Employment Allowance where employers can save up to £2,000 of employer’s National Insurance Contributions (NICs).
HMRC didn’t detect the scheme: BBC’s Today programme and BBC online exposed it on 29 May 2015! Obviously journalist never use underhand means to acquire information as no doubt Rebecca Brooks would testify. After an alleged £16m pay off, apparently Rebecca is to return as CEO so being squeaky clean does pay off!
Spotlights are an interesting indication of what HMRC feels is unacceptable; although they do not cover all planning concepts that have been or are being promoted. It is believed that spotlights indicate avoidance that HMRC feel is unacceptable although there can be no reliance that the particular planning is avoidance as it may in fact constitute evasion. More recently, the spotlights have illustrated the desire by HMRC to legislate, as well now with hindsight, the areas where HMRC will consider litigating. Inevitably, HMRC also use them to warn of promoters.
Avoidance or evasion
The definition of avoidance is the legal manipulation of ones affairs to mitigate a tax liability, whilst evasion is the illegal manipulation to evade taxes. All in practice are aware of the uncertainty of what constitutes legal or illegal. For example, contributing to an Employee Benefit Trusts (EBT) and receiving loans back has always been considered legal tax planning. However, in light of the EBT settlement opportunity and HMRC’s extensive analysis of what they consider the correct tax treatment contained with that opportunity, anything that is different could arguably be illegal – right?
Fortunately, the law has required that the intent of the person needs to be considered. For example (and broadly), if their actions were undertaken believing that they were acting legally (if they had received professional advice) then it is unlikely they have evaded tax. Sigh of relief. Although don’t forget the strict criminal offence being introduced in respect of offshore: weren’t most EBTs offshore?
Historic examples involving tax evasion normally refer to falsification or deliberate acts. This could still apply to avoidance schemes, for example consider the legal concept of a “sham” established in the case of Snook v West Riding 1967:
“acts done or documents executed by the parties to the “sham” which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create.”
Where parties do not take legal steps seriously, the planning will be vulnerable to attack. The Rangers case considered whether loans were genuine given that there was not an expectation for them to be repaid. Whilst HMRC were not successful on that occasion, it appears likely that on other occasions they might be.
Given HMRC’s increase in intended prosecutions as well as the moving goal posts on what is acceptable or not, care needs to be taken when considering the risk of prosecution with both historic and current planning.
Retrospective and retroactive legislation
It appears the Government is committed to “thwarting” unacceptable tax planning by whatever means possible including the introduction of legislation that prevents the tax upside of a transaction. This is a major game change and may be subject to challenges through Judicial Review in the future. How successful will challenges be?
We have often muted that where a settlement opportunity is not embraced, the Government may be inclined to litigate or to legislate to counter any historic or current advantage. Given this approach, is it worth seeking Judicial Review or facing litigation? It may be more bearable where affordability of legal action is not a problem. However, many have paid considerable fees already and may not be inclined to risk further expense with the downside that they still have to pay the tax (or have paid it through accelerated payments).
HMRC’s view on what is within the Disclosure of Tax Avoidance Scheme (DOTAS) rules may be wider than a promoters view. Where HMRC believe that a scheme is notifiable under the DOTAS rules, anyone who comes within the meaning of a promoter for such a scheme who has not notified it under the DOTAS rules could be liable for a fine of up to £1 million.
The definition of “promoter” under the DOTAS rules goes beyond those who devise the scheme itself and may include a person who:
- Makes a firm approach to another person with a view to making a scheme available for implementation by that person or others
- Makes a scheme available for implementation by others
- Organises or manages the implementation of a scheme
Whilst spotlights indicate some areas HMRC are intent on attacking, they also define the extent of HMRC’s approach towards those using and promoting unacceptable planning. Of particular concern should be the willingness to retroactively or retrospectively legislate, the strict criminal offence and the intended increase of prosecutions.
We are happy to discuss on a no obligations basis the implications of planning implemented or being considered.
|1||Goodwill – companies acquiring businesses carried on prior to 1 April 2002 by a related party|
|2||VAT artificial leasing|
|3||Pensions schemes artificial surplus|
|4||Contrived employment liabilities and losses|
|5||Using trusts and similar entities to reward employees – PAYE and NICs, Corporation Tax and Inheritance Tax|
|6||Employer-Financed Retirement Benefits Scheme|
|7||Avoidance using Gift Aid (6 January 2010)|
|8||Investments to obtain trade loss reliefs (‘sideways loss relief’) (8 February 2010)|
|9||Gift Aid with no real gift (29 March 2010)|
|10||Stamp Duty Land Tax avoidance (7 June 2010)|
|11||Avoiding income tax on pay (3 March 2011)|
|12||Taxing the rewards for work carried out for a UK based employer (23 August 2011)|
|13||Property business loss relief schemes (29 October 2012)|
|14||Stamp Duty Land Tax avoidance (29 November 2012)|
|15||Share Loss Relief schemes (29 November 2012)|
|16||‘Plan Green’ – car benefit scheme (11 January 2013)|
|17||Employment Benefit Schemes using fettered payments (March 2013)|
|18||Stripped bond tax avoidance schemes (April 2013)|
|19||Stamp Duty Land Tax avoidance – update (April 2013)|
|20||Gift Aid with no real gift – update (June 2013)|
|21||Business Premises Renovation Allowances schemes (July 2013)|
|22||VAT contrived non-profit-making bodies scheme to obtain exemption for sporting or educational/training supplies (July 2013)|
|23||Employee bonuses – tax avoidance scheme involving Restricted Securities (November 2013)|
|24||Employment Allowance avoidance scheme – contrived arrangements caught by existing rules (June 2015)|
|25||Stamp Duty Land Tax avoidance – no human rights breach in Stamp Duty avoidance challenge (August 2015)|