Were you wasting time advocating this tax scheme?

Yesterday the Government announced they were blocking another structured tax scheme. One of the primary promoters of the scheme later wrote to the accountants whom they had been encouraging to advocate this to their clients saying the following (and yes, I'm being selective). The italics are my interpretation of the statements:

"I am sorry to have to report to you that an announcement has been made today to block the [scheme] income tax strategy". [We've been found out]

"HMRC has extended the sideways loss relief rules to trades, professions and vocations. In addition, a purpose test will now be applied in the future to this kind of structure". [We'll have to find something new or go out of business as promoters]

"Naturally, this is extremely disappointing as the level of interest [in the scheme] was extremely high. For those accountants that have referred clients for [the scheme], can you please now liaise with them?" [We know the clients you talked to were tempted by the hope of sizeable tax savings that are definitely no longer available. If you've been spending time advocating this scheme to clients you'll have to tell them that it's been blocked. ie: Please spend more non billable time talking about schemes that many clients would never have done anyway]

"We could not explain to clients upfront exactly how this worked because of financial services restrictions." [Just to confirm, we didn't expect you to understand what you were encouraging your clients to do. Let's just all pretend that there's a good reason to justify this.]

"The moral of the story is to act early or be disappointed" [Hmmm. Actually the moral of the story is that unless you rush in next time without knowing what you're doing, you could find that future opportunities, that may or may not really enable your clients to avoid tax, are blocked. Don't worry that such an approach wouldn't be professionally justifiable.]

"It is clear that those clients that placed trust in their accountants, [the promoters]and the process have been able to exercise the control and choice over their financial and taxation affairs". [Hmmm. It is clear that clients who placed blind trust in their accountants, who were seduced by the prospective commissions from a scheme they didn't understand, have been able to put funds at risk and may yet be the subject of a long lasting tax investigation].

"I'll be in touch with you shortly regarding the final opportunity for employee benefit trust implementation before the budget". [We have another idea that we hope to persuade you isn't blocked by the recent anti-EBT avoidance announcements. We hope you'll spend time trying to understand it and advocating it your clients so that they go ahead before it's definitely blocked in the Budget or in another announcement like happened yesterday. By the way, don't tell your clients that HMRC will be challenging it anyway.]

In other words, many accountants have previously been encouraged to WASTE a load of their time trying to persuade clients to undertake transactions that neither party really understands. The hoped for tax savings, that were never guaranteed anyway, are now definitely unavailable. And the promoter thinks that clients will be willing to devote more time to hearing about more such schemes that could equally be blocked at short notice.

Indeed the promoter (for whom I will not provide any publicity) seems to be suggesting that accountants should move faster to persuade clients to enter into any future such schemes that his company promotes - before they get blocked - and presumably without first ensuring that the chances of success are sufficiently high to warrant everyone's time and effort.

I would add also that the Financial Secretary's announcement includes the (perhaps inevitable statement) that:

"The Government does not accept that these arrangements have the effect that is sought, but to remove any doubt, and to prevent scheme providers continuing to devise and operate even more contrived schemes that seek to challenge the sideways loss relief rules, I am announcing prompt and decisive action to protect the Exchequer."

Anyway - as ever - you pays your money and takes your chances. I remain of the view that there are easier and less potentially problematic ways to both help clients and to earn good fees than to promote structured avoidance schemes.

Five tips to spot scam emails from 'HMRC'

Many of us are used to receiving scam emails promising us something for nothing. Over the last couple of years fraudsters have been sending increasingly more sophisticated scam emails that purport to come from the taxman (HMRC). Even the Guardian, the Independent and the BBC are now reporting on this. Although they and other media tend to only be repeating the content of HMRC press notices and examples of recipients of scam emails.

Variations on such emails promise enticing opportunities such as tax refunds, the waiver of penalties, prize fund winnings, corrections to your NI record and updates to your HMRC security details. These emails are designed to fool the most suspicious of recipients and include links to what appear to be genuine pages of HMRC's website. In some cases, once you have been tricked into disclosing personal information you are then redirected to real HMRC web pages.

In theory we could all simply set our computer's spam filter to catch all emails that purport to come from HMRC. But the spammers know that many of us cannot do this. We may have registered to file our tax returns, our VAT and/or our Payroll returns over the web. We need to see the emails that confirm these have been received and processed. And although HMRC's press releases contain good advice they do not contain a simple summary.

So here are my five tips to help you identify scam emails that purport to come from 'HMRC':

1. Email asks you to supply bank or credit card details or links you to an HMRC website that asks for this information;
2. Email asks you to supply personal or password details or links you to an HMRC website that asks for this information;
3. Email asks you to complete a form to receive a tax refund or rebate or links you to an HMRC website that asks you to do this;
4. Email asks you to download an application or executable file (.exe) or links you to an HMRC website that asks you to do this;
5. Email does not contain your name, was unexpected and does not relate directly and specifically to any details you have filed online with HMRC in the previous 48 hours.
   

HMRC would never send out genuine emails that do any of the above. Specifically they say:

1. They never send notifications of a tax rebate over email;
2. They never request that you update your security certification by email;
3. HMRC's Online Services are only available to customers who register their details in advance;
4. They never issue emails asking for personal details;
5. If you receive an email requesting such information, please forward it to phishing@hmrc.gsi.gov.uk and then delete it;
6. Never disclose personal information such as User IDs or Passwords in response to email requests;
7. If you do follow a link to HMRC's website that requires you to enter sensitive personal information, only do so if there is a padlock in the bottom right hand corner of your Internet browser when you are on that page;

If you want to know more there is a dedicated and regularly updated page on the HMRC website that contains examples of the scams and frauds. The Tax Advice Network has reported on this in the past and offered practical tips and links in our weekly practical tax newsletter. HMRC also publish guidance on how you can make your online experience as secure as possible. This is aimed at the increasing number of taxpayers who have registered to communicate with HMRC online.

Too many marginal tax products are sold to too many unsuspecting people

Hot on the heels of the Taxation editorial to which I referred yesterday (The beginning of the end for structured tax avoidance schemes?) it seems the world is changing faster than I had anticipated. The following comments are included in a retrospective piece written by Stephen Herring in the 1,000th issue of the Tax Journal:

"I am disappointed that at some time in the early 1990s certain parts of the tax profession 'sold out' to the sales teams seeking to 'roll out' tax 'products/solutions/ideas' across the client base with little regard to their suitability."

"I agree that some products may succeed in the courts and some clients are capable of implementing and willing to defend them as far as is needed but what I'm saying is that too many marginal tax products are sold to too many unsuspecting companies and individuals."

Stephen concludes his piece with the following observations:

"I suspect that before too long, HMRC will come to the conclusion that the only way to restrict the marketing of artificial tax arrangements is to copy the stance adopted by the IRS in the US and seek criminal penalties in some situations to draw a line in the sand between acceptable, even if aggressive, tax planning and purely artificial schemes. This would be a hugely disappointing outcome but one which I consider at the moment to be almost inevitable"

Stephen is a tax partner with BDO LLP and has had a variety of managing partner and other management roles in leading accounting firms over the last 20 years. So he is well experienced in such matters.

As it happens Stephen shared such views with me during a recent BDO alumni party. I did not expect to see them in print. I know a number of other senior tax practitioners who would probably agree with the above sentiments. And I expect to see more serious commentators and practitioners publish their views now that Taxation and Tax Journal have opened wide the door that, I like to think, I unlocked a couple of years back when I explained Why I gave up giving tax advice.

I tend to suspect that we are more likely to see a draft General Anti-Avoidance Rule (GAAR) emerging in the not too distant future. However the developments I noted in my piece about the Vantis tax advisers facing charges of “cheating" re a tax scheme are not a million miles away from Stephen's view of the near future. And of course he wrote his piece well before that latest news leaked out.

Before today I felt almost like a lone voice in the tax profession. Now within 24 hours we have a senior tax partner at one of the largest firms of accountants in the country and also the Editor of the leading weekly tax publication in the country, both commenting publicly that some tax schemes are indefensible even if technically legal. The tax world is indeed moving quickly. Hold on tight. It'll be a rocky ride!

The beginning of the end for structured tax avoidance schemes?

Last month I referenced a watershed speech given by the Financial Secretary to the Treasury which made it clear that: Tax cheats need to think again.

I suggested that the debate is moving to consider whether those who do the deliberate and severe bending of the tax rules are just as much 'tax cheats' as those who consciously evade taxes and break the rules.

It comes as a great delight to note that the editor of Taxation magazine has just published a hard hitting editorial that further evidences the way this debate is moving. Mike Truman makes his view very clear that:

"It’s time to stop defending artificial pre-packaged avoidance schemes".

Regular readers of the TaxBuzz blog will know I am no fan of what Mike also calls "aggressive packaged schemes". And I have long disputed the view, put forward by some advisers, that accountants are at risk of negligence claims if they fail to make their clients aware of such schemes. It simply is not necessary to do this in my view.

Expect to see more debate on this subject and a draft General Anti-Avoidance Rule emerging in the not too distant future. It's inevitable in my view. Such a rule is easier to draft in theory than it will be to finalise and to apply in practice without introducing significant uncertainties in all fields of tax planning advice. I only hope that the Government consults effectively on this rather than rushing ahead with inadequately defined legislation as has occurred too often in the past.

Earlier relevant posts:
- 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

MP could not register his business at Companies House

Sadly I continue to be fascinated and frustrated by the MPs' expenses scandal to which I have referred many time on this blog.

This morning's revelation about MP David Wilshire suggests he blatantly disregarded the rules. However the story also perpetuates a myth about owner managed businesses in the UK.

Mr Wilshire is said to have "used his House of Commons expenses to pay more than £100,000 of taxpayers’ money to his own company." Then we are informed that "there is no official record of the company’s existence and it has never filed public accounts" and that "it had never been registered as a company."

Er, perhaps that's because the business, Moorland Research Services, was a partnership and NOT a company. And of course, this in itself seems to be a clear breach of the Parliamentary expenses rules. It suggests, in effect, that Mr Wilshire was claiming expenses for payments to himself as a partner in the business.

But the implication that there is some further wrong-doing by virtue of the partnership not having been registered at Companies House serves only to perpetuate the myth that 'business', 'partnership' and 'company' are different words for the same thing.

It's important to note that being in business is NOT synonymous with running a company. I would expect most regular readers of this blog are already aware of the distinction, but for the record, there are actually four alternative common forms of business structure in the UK:

• a sole trader;
• a conventional partnership (where the individual works with one or more partners in the business);
• a limited liability partnership - LLP - (this provides the individual and their partners with the protection of limited liability, just as with a company); or
• a limited company.

LLP's are a relatively new innovation and far less common than conventional partnerships.

There is no obligation or facility to register sole trader businesses or conventional partnership businesses at Companies House.

Before you start a business it is important to consider carefully the respective benefits, obligations and disadvantages of each of the alternative structures. And there's a lot more to the decision than simply comparing the respective tax rates. There's a host of other tax, administrative and strategic issues to consider. Sadly many people rush ahead without giving these all due consideration - but that's another subject for another day.