HMRC turn the Spotlight on the newest EBT related tax avoidance schemes
The best tax advice you will ever hear
9 Aug 2011
“It looks like this freeze will pay for the SEIS,” [Seed Enterprise Investment Scheme]and that:
“That will be very good for start-up businesses, but will have limited appeal for ordinary investors. This is robbing the ordinary people to pay for perks for the very rich.”Come on. The annual exemption is intended as a convenience to avoid 'normal' people being in default for failing to disclose relatively small capital gains. I had been more concerned the exemption was going to be reduced to £1,000 (as was proposed in the Lib Dem manifesto).
"Insurance comparison firm Confused.com has provoked a storm of criticism from both cyclists and drivers alike with a ham-fisted and error-strewn press release aimed at promoting an equally confused road safety campaign and ostensibly highlighting the problem of road rage on Britain’s roads which has instead managed to alienate – not to mention confuse – almost everyone at whom it was aimed."
I [Graham Aaronson QC, the author of the report] therefore see no unfairness in applying the GAAR to an arrangement which is not yet completed before the date when it comes into force; and it would in my view be appropriate to do so.
9. There are some areas of taxation, such as trusts, where the present statutory rules are extremely complex and can give rise to many anomalous consequences. Para 5.30
10. The UK’s tax legislation is notoriously long and complex. In many places it is virtually impenetrable. Para 1.7(iv)
‘I’m sometimes tempted to ask the French if they would like a cheese tax,’
Gaines-Cooper left the UK partly to mitigate his tax liabilities; there is £30m at stake; and lest we forget this is a trial that has already lasted six years and looks set to run further. In other words, this is not a run-of-the-mill case. Guidance, on the other hand, is meant for run-of-the-mill cases – the "ordinary sophisticated taxpayer",And that taxpayers are not not able to rely much on guidance when an action is undertaken in contentious areas because:
it is not in HMRC's interests to provide clear guidance for these cases. Taxpayers and advisors in these situations will have to argue on case law and legislation – a lesson Gaines Cooper has learnt the hard way.
Someone running their own business MIGHT be running a limited company, but often they are not. There are many practical, administrative and tax differences between businesses that are run as limited companies and those that are not.
Many people mistakenly run their business through a limited company when this is not really the most suitable or convenient option. Others only 'incorporated' their business into a limited company because there seemed to be some tax savings. These will vary each year as the relevant tax rates change.
The tax system recognises that someone might want to 'incorporate' their business. As a result, as long as the right steps are taken in the right order, there need be no tax charges when the business moves into a limited company. The position is quite different however when a business owner wants to 'disincorporate'. Essentially this means they want to continue their business without continuing with the limited company. The absence of specific tax rules, reliefs and allowances means there are a number of tax traps that often result in unwelcome tax charges.
The Office of Tax Simplification recently issued a discussion paper to clarify the level of interest in disincorporation reliefs. The paper identifies a number of situations where this might be of benefit:
There are also capital gains tax issues for the shareholders in all cases, though only in the last situation are these likely to be significant.
The discussion paper invites responses by 7 October 2011. The next step is as yet unclear. Suffice it to say that there is no immediate prospect of a 'disincorporation' relief being introduced.
In the meantime let me just repeat the warning I give whenever I speak on this subject. Ignoring the potential tax charges when a business disincorporates is storing up trouble for the future. Many people find a way around the administrative and legal issues. It is unwise to proceed without also being very clear as to the tax rules which are commonly misunderstood.
This week HMRC announced that five plumbers have been arrested for failing to pay the right amount of tax. A further 600 or so are under civil investigation by HM Revenue & Customs (HMRC) for failing to pay the right amount of tax. Some of those involved owe up to £150,000.
The arrests and investigations have taken place during HMRC's campaign titled the 'Plumbers Tax Safe Plan (PTSP)' . This invited plumbers, gas fitters, heating engineers and members of associated trades to get their tax affairs in order by the end of this month. But there was an earlier deadline of 31 May by when you had to notify HMRC you intended to 'fess up. The raids and arrests were of people who were known to be tax ‘ghosts’ - people who have not declared their earnings.
HMRC have announced that more raids are expected to take place over the coming weeks across the UK, including Yorkshire, Kent, Cambridgeshire, Tyne & Wear, Midlands and South Wales.
So how likely is it that you might be arrested for tax avoidance?
Simply stated it will NEVER happen. Not for tax AVOIDANCE anyway. But remember that the plumbers were not arrested for tax avoidance. What the plumbers did was to EVADE their tax obligations, and that's illegal. Which is why they have been arrested.
I have long argued that more publicity of this type of heavy-handed action by HMRC and the police would have a deterrent effect. I expect that it will encourage more people to come clean earlier. And hopefully more people will recognise the huge risk they take by conducting a business without telling HMRC what they are doing.
There are two problems however:
1 - Those people who would like to come clean and are now scared off by news of the arrests. Don't be scared. If you come forward voluntarily there is next to no chance of being arrested*.
2 - Those people who are paid cash in hand by 'employers' who refuse to comply with their obligations as employers. They would also 'sack' anyone working for them who threatens to tell HMRC what's going on. In such cases it is clearly the 'employer' who is in the wrong. They may be prosecuted by the workers would never be arrested in such cases.
*Whether you are a plumber, a gas fitter, a life coach, an ebay trader, a restauranteur, a medical professional or indeed anyone who has been evading tax, or you know someone who has, TAKE PROPER ADVICE. The same goes for you if you run a business that is evading VAT.
I haven't picked any of those categories at random. They are all referenced in recent pronouncements by HMRC. I've written about some of them in previous blog posts - see below. Even if your situation has yet to be addressed by a specific HMRC campaign, the penalties will generally be less severe for taxpayers who come forward voluntarily to put their affairs in order with HMRC. And in such cases these penalties will NEVER include imprisonment.
Taking PROPER ADVICE means speaking with an experienced tax consultant with specialist experience of negotiating 'back duty' settlements with HMRC. (Back duty is an outdated but still useful term to focus attention). Few local accountants are able to do this sort of work unaided. Which is why I recommend the Tax Advice Network.Related posts:
"Police officers who allegedly took payments from newspapers and private investigators could face hefty fines and criminal prosecution after it emerged HM Revenue & Customs is reopening personal tax records to check if payments were fully disclosed."
"primarily due to a tougher stance towards tax planning activities adopted by the Government and HMRC."
"It has an immediate impact on people's purchasing powers or the bottom line of businesses."
"The “web robot”, used with the department’s 'Connect' computer system, also helps find people who are trading without telling HMRC.Do bear in mind that there are inbuilt delays in our tax system. The web robots may be doing one or both of the following:
'Connect' alerts HMRC to previously invisible tax evasion by matching a vast amount of HMRC and third-party data, enabling a fast and focused response to tax evasion. It shines a light onto previously hidden relationships, uncovering anomalies between such elements as bank interest, property income and lifestyle indicators before homing in on unexplained inconsistencies."
"The band was heavily criticised after moving parts of its business affairs from Ireland to the Netherlands in 2006, apparently in response to a cap on already generous tax breaks for artists in the republic. Though the band insists this simply reflects the global nature of their income as the world's highest-earning musicians, their decision not to pay all their tax in their home country looks even worse in the light of Ireland's financial meltdown. Bono is happy to tell the government how it should spend taxpayers' money – campaigning for an increase to the aid budget – yet he has taken his tax euros not just from Ireland's development fund, but also its hospitals and schools."They also note that:
"The case in Bono's favour – and it is a strong one – is that he's almost certainly done more for the world's poorest people than anyone who has come to protest against him in the Glastonbury crowd. Which makes his choices over tax even more curious."There does seem to be a case to answer here. There are no apparent mitigating circumstances, external shareholders or commercial reasons that might justify the band's (legal) tax avoidance activities. About the only justification I could imagine that would legitimise these would be if the monies otherwise payable as taxes are being donated directly to charitable aid projects. This would be akin to Bono saying to the Irish Government - "I'm cutting out the middleman. Instead of keeping my companies in Ireland and paying taxes here, I've set things up so that I can pay similar amounts (or more) directly to help the needy. I don't trust the Government to do enough for them." It's a nice thought.