Monday, July 6, 2009

Grant Thornton's tax avoidance scheme - again

This is a brief update on a post I published earlier today as the BBC has reported on further aspects of the GT 'tax avoidance' scheme.

According to the BBC:
Newspaper reports have accused Grant Thornton of devising a scheme to save high earners 40% of their tax bills.
These will be the reports to which I referred in my earlier post.

But a Grant Thornton director said it was not aimed at bankers with huge bonuses and that no income tax would be avoided by those using it.

"It doesn't fit HMRC's characteristics of a tax avoidance scheme," said Justin Rix, a Grant Thornton director.

One of his colleagues. Mr Fathers has claimed that "It is not a tax wheeze. It is a share based incentive arrangement to align employees' interests with those of the company."

However, Dave Hartnett the permanent secretary for tax, is reported to have said:

"We are well aware of this aggressive avoidance scheme and we're looking at it closely,"

In my earlier post I noted that the media seemed to be suggesting that it was 'bad' to get involved in tax avoidance even though it's legal and akin to what every taxpayer does when they ask their accountant to help them to pay no more tax than is legally required.

The BBC report contains further details of the scheme and seems to be quite a balanced piece. Having said that, in my view we can be pretty certain of 3 things:

1 - The motivation for the creation of the scheme in question was to find a way to reward employees without them paying as much tax as would be payable if they either received conventional bonuses or awards of shares;

2 - It makes good commercial sense for unquoted businesses to create a facility for their employees to be able to acquire shares in the company (should they wish to do so). This is not easy to do as it means it's also necessary for the employees to be able to sell their shares, someone needs to set the price for buying and selling the shares, there are probably Financial Services Act (FSA) issues to consider and there are certainly tax traps to avoid.

3 - If this was a disclosable tax avoidance scheme, then GT would have disclosed it to HMRC in accordance with the law that obliges them to so do.

Finally - I would imagine that GT now have very mixed emotions about the press coverage they have received about this scheme. On the one hand they are having to defend their approach publicly. On the other hand I'll bet they're loving the publicity which, from a commercial perspective, must be good for business. I would expect that many larger firms have created similar schemes. In practice the market for them is quite limited, possibly even more so given the reported views of HMRC.

Whatever any of us may think about legal but 'abusive' tax avoidance and 'harmful tax practices' - accountants and tax advisers are going to continue to advice on tax minimisation. It's what clients want. Personally though I struggle with the issue so gave up giving tax advice 3 years ago. What's your view?

1 comment:

  1.; You saved my day again.