Artificial Tax Schemes

Tax Comments Off on Artificial Tax Schemes

With the ‘outing’ in the Times and then in the press generally of the more aggressive tax planning schemes, the K2 scheme provider which had been exposed said in a conference that far from their business being declining, they had increased sales by 40%!.  The publicity generated made tax payers more aware of the availability of such schemes.

However HMRC have reportedly sent letters directly to 1,500 people who have signed up to one particular avoidance scheme, urging them to pull out and contact the authorities about their tax affairs.

The letters, thought to be the first of their kind, are seen as a pre-emptive strike by HMRC prior to a legal challenge to the as yet unspecified avoidance scheme.  Among the suspected schemes are loss making film partnerships, or the K2 scheme reportedly used by the comedian Jimmy Carr!

HMRC’s tax avoidance spotlights page, meanwhile, includes new details of “highly artificial” share loss relief schemes where shares are interested in supposedly high risk ventures that are subsequently wound up, with the resulting capital losses on the shares set against the shareholders’ taxable income.

A number of share loss relief schemes were under criminal investigation and whether or not charges are ever brought, HMRC warned: “Where an individual uses one of these schemes, HMRC will open an enquiry into the return and won’t make any tax repayment claimed.  If information is concealed, or if incorrect or misleading information is provided, HMRC may also seek civil penalties or – in appropriate cases – consider criminal prosecution”.

While HMRC was unwilling to confirm the specific scheme being targeted, a spokesman said it would be unwise to assume the Spotlighted schemes were the focus of its warning letters.  Nonetheless, the messages were very consistent.

According to the BBC, four different versions of the warning letter went out, with one stating:

“You are in the small minority of people who have made the deliberate choice to avoid tax.  We focus our resources on this small minority.  The choice that you have made changes the way we view your tax affairs.

Our specialist Investigations Unit will be carrying out a full investigation into this scheme and they will open an enquiry into your tax affairs”.

In a statement, HMRC explained: “The letters are designed specifically to get those using  marketed avoidance scheme to contact us and settle up.  We are acting on behalf of the vast majority of people who don’t try to get around the rules.  We are cracking down hard on tax dodging”.

Tax avoidance continues to make headlines, as it has done all year, and this new hardball approach to users of aggressive avoidance schemes looks as though the department has been stung into action by the recent NAO report criticising its lack of action on more than 41,000 schemes reported under the disclosure of tax avoidance schemes (DOTAS) mechanism.

But is should be said that less than 0.1% of these schemes (40) have been successfully challenged by HMRC in the past two years.  Of course this covers a range of ‘schemes’ for relatively conventional planning to highly aggressive and artificial.

If you would like any more information please do get in touch.


John Elliott

Tax Partner