"It will help you to understand what we are likely to see as tax avoidance by identifying the types of arrangements or scheme which we are likely to challenge."I applaud the concept of Spotlights and support much of the content on the page which first appeared in 2009. I am equally aware that HMRC's choice of terminology does not accord with mine or that of most accountants and tax advisers.
I would much prefer to see the words 'tax avoidance' qualified by a prefix of 'abusive' or 'unacceptable'. In effect HMRC are putting the spotlight on structured tax schemes and arrangements that they (and, by implication, the Government) consider to be abusive. There are plenty of inoffensive ways of avoiding an unnecessary liability to tax and of reducing the tax that you might otherwise have to pay. This too is tax avoidance achieved through sensible tax planning.
The other point is that 'abusive' and 'unacceptable' arrangements are not the same thing as deliberate tax evasion or fraud - at least until and unless they are successfully challenged in Court. But the clear message on the Spotlights page is that you undertake such transactions at your own risk. And I've addressed these before on this blog.
Earlier posts (see list below) reveal I'm no fan of structured abusive schemes so, despite my reservations about the terminology used, I am pleased to replicate HMRC's list of "a number of indicators of tax planning to be wary of."
The inclusion of one of these features does not necessarily mean that tax avoidance is involved, but the more of these features that are present, the more likely it is that HM Revenue & Customs (HMRC) would see the arrangements as tax avoidance and challenge your self assessment. If you have doubts about a scheme then you should check with a reputable tax adviser.As they say, a good list of factors, most of which should sound warning bells, even more so if more than one or two are present. The challenge for many accountants is that the promoters of such schemes employ excellent sales people who are well versed in convincing gullible clients that it's worth the risks.
Tax planning to be wary of:
- It sounds too good to be true.
- Artificial or contrived arrangements are involved.
- It seems very complex given what you want to do.
- There are guaranteed returns with apparently no risk.
- There are secrecy or confidentiality agreements.
- Upfront fees are payable or the arrangement is on a no win/no fee basis.
- The scheme is said to be vetted by a top lawyer or accountant but no details of their opinion are provided.
- The scheme is said to be approved by HMRC (it does not follow that this is true).
- Taxation of income is delayed or tax deductions accelerated.
- Tax benefits are disproportionate to the commercial activity.
- Off-shore companies or trusts are involved for no sound commercial reason.
- A tax haven or banking secrecy country is involved without any sound commercial reason.
- Tax exempt entities, such as pension funds, are involved inappropriately.
- It contains exit arrangements designed to sidestep tax consequences.
- It involves money going in a circle back to where it started.
- Low risk loans to be paid off by future earnings are involved.
- The scheme promoter lends the funding needed.
Previous relevant blog posts:
- Were you wasting time advocating this tax scheme?
- The beginning of the end for structured tax avoidance schemes?
- Bending vs breaking tax rules
- Tax avoidance is a card game - the metaphors multiply
- Tax avoidance - what are you allowed to do? A simple guide.
- Tax avoidance schemes - a simple guide
- Naive promoters of tax avoidance schemes
- Five facts all accountants need to know about tax avoidance schemes
- Five more facts all accountants need to understand about tax avoidance schemes