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HMRC Spotlights Tax Schemes

Sunday, December 19, 2010

HM Revenue and Customs (HMRC) has warned taxpayers seeking tax planning solutions of the legal risks associated with employing tax avoidance schemes that may fall foul of UK tax law.

In particular, in HMRC’s latest Spotlights consumer protection publication, the taxman has warned that the issue by HMRC of a scheme revenue number (SRN) does not indicate that the tax authority has approved the scheme.

Its publication states: “The issue of a SRN does not mean either that HMRC ‘approves’ the scheme or that HMRC accepts that the scheme achieves its intended tax advantage." HMRC added that even schemes that it deems to be a high risk to the taxpayer receive SRNs, and urged taxpayers that tax planning sites claiming to offer 'HMRC approved' solutions were misleading their customers.

HMRC further detailed indicators that it uses in deciding whether to further investigate a tax avoidance scheme, and warned taxpayers to be vigilant in certain cases, namely where:

  • Artificial or contrived arrangements are involved.
  • The scheme seems very complex given what the taxpayer aims to achieve.
  • There are guaranteed returns offered 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.
  • Offshore 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.
  • The scheme contains exit arrangements designed to sidestep tax consequences.
  • The scheme 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.
  • There is a requirement to take out insurance against the failure of the tax planning to deliver the tax benefits.

HMRC's publication advises that if taxpayers have doubts about a scheme they should check with a reputable tax adviser.