HMRC: 10 tax avoidance danger signs
HM Revenue and Customs (HMRC) has alerted people to the tricks employed by tax avoidance scheme promoters.
The note sets out the risks people face when they sign up to tax avoidance schemes with these including not only the possible monetary costs and reputational damage of tax avoidance, but also a potential criminal conviction.
The list is publish at a time HMRC clamps down on tax avoidance schemes, writing to promoters who could be caught by the new ‘High-Risk Promoters rules. Firm could be publicly shamed and face fines of up to £1 million.
Last month HMRC sent out 600 accelerated payment demands to investors, worth over £250 million of disputed tax.
Speaking at an HMRC stakeholder conference today, the financial secretary to the Treasury, David Gauke, said: ‘On top of a substantial fee to join a scheme that will almost certainly fail a challenge by HMRC, tax avoiders will also have to pay the tax they dodged, plus interest and penalties.’
1. Most schemes don’t work
HMRC claims that most tax avoidance schemes don’t work, which is a fairly bold statement and will probably put the dampner on all those scheme investors.
HMRC said that although you may be told that tax avoidance is legal, if the scheme doesn’t work you will have made an incorrect tax return which is not in accordance with the law.
And no matter what the promoter says, at the end of the day it is you the individual who is legally obliged to pay tax that is due and so you may be charged penalties if you try and avoid it.
2. It could cost you more than you bargained for
Although it seems rather counterintuitive, HMRC said tax avoidance schemes could end up taking a big chunk of your money.
HMRC said tax avoidance schemes are complex, and give rise to unintended additional tax consequences, and the fees you pay the promoter do not count as tax paid.
So you could end up paying much more than just the tax you’re trying to avoid.
3. You may have significant legal fees to pay
HMRC has warned that if your scheme is taken to litigation, you’re likely to have hefty legal fees to pay.
It added your promoter may ask you to pay into a ‘fighting fund’ up front.
Don’t shrug this off as a far-off unlikely situation. HMRC is working through taking several schemes to court, and although investment company Ingenious Media has publicly declared it is ‘confident of success’ ahead of its court battle, it could end in a lot of pocket hurt for its investors.
4. You could face criminal conviction
Here’s where HMRC really puts the frighteners on; if you invest in a tax avoidance scheme you could face a criminal conviction.
HMRC said if you deliberately mislead or conceal information from HMRC, you could be prosecuted and convicted.
5. You could face publicity as a tax avoider
Although many of us dream of fame, the likelihood is no-one wants to become the face of tax avoidance, especially if you remember the flak comedian Jimmy Carr (pictured) got over it.
HMRC said if you are named in court papers when the case is litigated, or in public registers, you could be reported in the media as a tax dodger.
If you are already famous, it’s even worse as it is not a case of if, but when, your involvement in the scheme is reported on, as we have seen many times already.
6. Your scheme is never HMRC approved
HMRC said getting a tax avoidance scheme reference number from it does not mean that it has cleared the scheme.
In fact, it means HMRC believes the scheme has signs of being designed to avoid tax. And will no doubt immediately launch a crackdown on it.
7. You could be marked out as a high-risk taxpayer
No-one wants to be under a microscope and investigated by HMRC, but it is warning that using a tax avoidance scheme could mark you out as a high-risk taxpayer.
This means that all of your tax affairs will be closely scrutinised in the future, not just your claim for relief.
8. HMRC is likely to beat your scheme in court
No-one likes cockiness, but to be fair HMRC probably has a point when it said it will probably beat your tax avoidance scheme if it takes it to court.
HMRC said it wins eight out of ten cases where taxpayers and promoters take avoidance schemes to court.
Those numbers don’t look so great.
9. The risk is all your own
No matter what a tax avoidance scheme promoter might say to you to encourage you to invest, HMRC said it is unlikely they will give you a guarantee that a scheme will work.
HMRC warned that you would really be on your own, as it’s also unlikely a promoter will be around to support you once HMRC starts investigating your tax affairs.
It said some promoters set up simply to sell the scheme then disband soon after.
10. You’ll have to pay the tax upfront anyway
So even if you decide to defy all HMRC’s warnings and invest in a tax avoidance scheme, the taxman might make you pay upfront anyway, if it disputes the scheme in court.
HMRC said investors would not get a cashflow advantage while it investigates a scheme and new legislation means you might have to pay all the disputed tax upfront, those pesky accelerated payment demands again!
Source: citywire-HMRC: 10 tax avoidance danger signs
