Tax planning to be wary of

The Spotlights page on HMRC's website remains as it was before the change of Government. It's purpose is to clarify what activities HMRC "are likely to see as [unacceptable] tax avoidance."

The page identifies the types of arrangements and schemes which HMRC say they are likely to challenge. I've mentioned some of these before. The page also sets out 17 indicators of tax planning that HMRC suggest you should be wary of.

I've divided HMRC's list into 2 parts and added some additional comments of my own below.

Even HMRC accept that none of these features, of itself, is a problem. However the more of these features that are present, the more likely it is that HMRC would see the arrangements as [unacceptable] tax avoidance. And, I would add, the greater the likelihood that the promised tax savings are more risky and less certain. This is not simply because of the prospect of the taxpayer being subject to a challenge by HMRC. It is also because the more of these features that exist, the more likely it is that HMRC's challenge will be successful. This is especially the case when the promoters have had no previous connection with the taxpayer - ie: the taxpayer has been encouraged to use a marketed scheme rather than simply undertaking commercially driven tax planning.

So watch out where a marketed scheme is involved and any of the following apply:

1. There are guaranteed returns with apparently no risk.
2. It sounds too good to be true.
3. There are secrecy or confidentiality agreements.
4. Upfront fees are payable or the arrangement is on a no win/ no fee basis.
5. The scheme is said to be vetted by a top lawyer or accountant but no details of their opinion are provided. [In the past I saw schemes where the opinion was from a different Barrister to the one addressed in the instructions - suggesting that the promoters had to keep looking to find someone who would provide the desired opinion]
6. It involves money going in a circle back to where it started.
7. Low risk loans to be paid off by future earnings are involved.
8. The scheme promoter lends the funding needed.

And be cautious about structured arrangements where 2 or more of the following apply:

1. Artificial or contrived arrangements are involved.
2. It seems very complex given what you want to do.
3. Tax benefits are disproportionate to the commercial activity.
4. Taxation of income is delayed or tax deductions accelerated.
5. The scheme is said to be approved by HMRC (it does not follow that this is true).[HMRC make the point that when they issue a Scheme Reference Number this does not mean either that HMRC 'approves' the scheme or that HMRC accept that the scheme achieves its intended tax advantage].
6. Offshore companies or trusts are involved for no sound commercial reason.
7. A tax haven or banking secrecy country is involved without any sound commercial reason.
8. Tax exempt entities, such as pension funds, are involved inappropriately.
9. It contains exit arrangements designed to sidestep tax consequences.

For the record I have previously noted that HMRC's spotlights page contains an example of how: HMRC confuse tax avoidance and tax evasion again