Monday, August 24, 2009

Beware of HMRC spotlights - EBTs now included

Regular readers will know I'm no fan of structured tax avoidance schemes. Now, hot on the heels of my recent posts containing ten things every accountant needs to understand about tax avoidance schemes, HMRC have published more of their spotlights on structured schemes.

Spotlights are used to highlight a selection (rather than all) activities which, in HMRC's view, are not likely to have the legal effect desired by those thinking of using them.

The purpose of the spotlights is clearly to frighten off those taxpayers who might be tempted or approached by the promoters of such schemes.

To amplify my earlier posts it's worth stressing that most professionally qualified accountants are required to comply with five fundamental ethical principles. These include: Objectivity, integrity and competence. Clearly this means that they should never be advising clients to undertake transactions unless they (the accountants) understand them. This is not something that can easily be done when considering most structured avoidance schemes. And it's hardly worth the effort to secure this knowledge given how relatively few clients choose to proceed with such schemes when offered an objective view of the downsides, risks and caveats along with the hoped for tax savings and benefits. Perhaps this partly explains my view that accountants are not at risk of negligence claims if they choose to ignore such schemes. Indeed advocating a scheme they don't understand could put them at risk of breaching the fundamental ethical principles.

In this connection it can help to be aware of the schemes featuring in HMRC's Spotlight. More fool anyone who suggests to clients that they will be safe from attack if they undertake such schemes: (NB: Spotlight 5 refers to scheme often described as Employee Benefit Trusts)
  • Spotlight 1: Goodwill - companies acquiring businesses carried on prior to 1 April 2002 by a related party
  • Spotlight 2: VAT artificial leasing
  • Spotlight 3: Pensions schemes artificial surplus
  • Spotlight 4: Contrived employment liabilities and losses
  • Spotlight 5: Using trusts and similar entities to reward employees - PAYE (Pay As You Earn) and National Insurance contributions (NICs), Corporation Tax and Inheritance Tax
  • Spotlight 6: Employer-Financed Retirement Benefits Scheme ('EFRBS')

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