HMRC wins Best public policy decision of the year

At the first ever Citizens Advice Awards ceremony this week, HMRC were announced as winners of the "Best public policy decision of the year". This was felt to be HMRC's decision not to issue unexpected tax demands to thousands of low income pensioners following an administrative error in respect of the tax year 2007-08.

The Citizens Advice press release explains that:

"Through their engagement with a coalition of charities, including Citizens Advice, HMRC demonstrated that as well as being open to arguments of a legal and financial nature, they were also mindful of the plight of the pensioners concerned. In using their discretion not to pursue the unpaid tax they displayed the fairness and common sense for which this award commends them."

The only problem is that I'm not sure that HMRC deserve the award. As is well known HMRC do not have facility to exercise discretion and regularly tell us that they are legally obliged to collect all tax that is due even when the law operates unfairly.

As reported by the Telegraph in May 2008, the decision to waive the collection of tax in the case described in the citation was taken by the Government in response to extensive pressure brought by the charities and MPs. Perhaps HMRC officials were known to have passed on these representations to minsters. Perhaps.

What's your view on this award?

Tax and financial advisers in court again re 'failed' tax scheme

Tomorrow, January 18th is the date on which Blackfriars Crown Court will pay host to pleas and a case management hearing re an apparent prosecution about which I have written on this blog before (see below).

Two tax advisers, their wives and a financial adviser are allegedly being prosecuted for cheating the public revenue through their involvement in connection with a tax scheme, “which took advantage of the legislation providing tax relief on the donations of share to charities". They were first interviewed by HMRC in 2006 in relation to the scheme which was being promoted as recently as 2004.

Reports of the case suggest that:

• Roy Faichney and David Perrin, two tax advisers, (who were not qualified accountants but who ran the tax practice at Vantis accountants) are accused of setting up a sophisticated scheme which involved hundreds of clients.
• Vikash Kulkar, a financial adviser, helped attract people to the scheme.
• The tax advisers' wives are also accused of involvement in their husbands' dealings at the accountancy firm.

Despite the reports, setting up such schemes is not illegal and, as I have said before, I'm sure that senior tax Counsel had endorsed the scheme in question before it was promoted to, apparently, "an Oscar winning film executive, a celebrity psychiatrist, senior City bankers, top barristers and company directors." As such the advisers were doing nothing different to many other promoters of aggressive tax planning schemes. And was the financial adviser any different to other such advisers who actively promote tax schemes to their clients?

I have explained my views about this case before (see below) and remain confused as to what really prompted what seems to me to be a very heavy handed approach by HMRC. And I say that as someone who is no fan of structured avoidance schemes. But equally I am no fan of discriminatory persecution of professional advisers.

Previous relevant posts:

• Wives of promoters of Vantis tax scheme also facing charges
• Vantis tax advisers to face charges of “cheating" re tax scheme
• Too many marginal tax products are sold to too many unsuspecting people

TV Tax Tease: Avoid CGT by moving to Gibraltar

Fate conspired to ensure that I caught the end of Piers Morgan on Marbella on TV last night. He was talking to a British expat from Sunderland, James Yeung, who is

"living the high life in Marbella after buying a flat in the tax haven of Gibraltar then selling his business in the UK and saving a fortune in capital gains tax."

I listened to the interview and wondered how soon it would be before Mr Yeung receives a visit from the taxman. He told us that he sold his business for £2m and did not have to pay CGT as he had established residence in Gibraltar. The impression given was that this was as simple as buying a small property there. He doesn't live there though. He now lives in Marbella. I hope he left the UK before he sold up and doesn't plan to return.

Oh dear. I imagine a few accountants and tax advisers will be asked to advise clients on this "wheeze" over the next few days and weeks. Possibly even more people will attempt to replicate James' escape from CGT without taking advice. And of course there will be questions in Parliament and demands that the rules be changed to prevent such "outrageous" and "blatent" tax avoidance.

Er. The UK tax rules don't allow it. Which means a number of key issues weren't mentioned in the interview. And if it were that easy to take up residence in Gibraltar I imagine I would have heard about it before now. I note that Piers Morgan has also visited Gibraltar so perhaps we shall learn more when that episode is broadcast.

In the meantime if you want to know about capital gains tax planning that is based on more than simple holiday sand, do contact an independent tax expert.

Taxman targets evasion by Medical professionals

Medical professionals are being encouraged under a new Tax Health Plan to tell HM Revenue & Customs (HMRC) if they have been evading tax. In effect they are being provided with the best opportunity they will ever have to regularise their tax affairs with the promise of a minimal penalty.

The Tax Health Plan is the first initiative in a new HMRC campaign focused on professionals. It seems that more such focused initiatives will follow. Much as with the Offshore Disclosure Facility and the New Disclosure Facility, this initiative promises a 10% cap on the penalty for previous non-disclosures.

HMRC make the point that these terms are in line with those offered for any full and accurate unprompted voluntary disclosure of tax liabilities. So is there really any incentive to come forward during the 'disclosure window' that closes on 31 March 2010?

I think there is. In effect HMRC are giving medical professionals a last chance to make an unprompted disclosure. From April it will be too late as HMRC will be writing to those professionals it believes have undisclosed income from, for example, NHS Trusts, private hospitals and private medical insurers. It seems that HMRC have been collating details of payments made by such entities that it suspects the recipients have not fully disclosed. From April the penalty will rise from 10% to at least 30% and possibly upto 100% - see: The new penalties regime - making tax taxing.

It's worth stressing that in all such cases there is no tax 'amnesty'. The 10% penalty will be by reference to the tax previously unpaid. This will also be payable together with interest on the late payment.

HMRC suggests that anyone interested in taking advantage of this facility should contact them. I disagree. I advice that more objective advice will be provided by an independent tax expert.

HMRC confuse tax avoidance and tax evasion again

On the Spotlights page of HMRC's website they say that 'Spotlights' is "all about tax avoidance".

"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.

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.

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.

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