Tax avoidance is the latest ‘bête noir’ for HMRC, and we have already discussed issues raised by film tax partnerships, for example (Latest Developments on Film Partnership Schemes & the Authorities – by Siobhain Egan 2014-02-15; HMRC & Film Tax Partnerships: Important Update – By Siobhain Egan 2013-04-04), and the highly aggressive approach taken by the authorities.
The latest manoeuvre, backed heavily by the Treasury, is legally breathtaking. There is a backlog at HMRC of over 65,000 case investigations into suspected tax avoidance scenarios. It has come to the attention of the Treasury that investors, subject to investigation, are benefitting financially from this backlog of lengthy investigations; in short they have an ‘unfair economic advantage’. The Treasury and HMRC believe that it is the ‘legal tactics’ of the investors and the organisations who sold these tax avoidance schemes that are causing the delay.
The arrogance of such a statement is, frankly, beyond belief. Most of the investors are not extraordinary wealthy, many are professional or small business people who, having been sold these schemes (often upon advice from their professional advisers), believed that tax avoidance is legal (it still is) and the schemes were HMRC compatible.
They now find, some ten years later, that these schemes are deemed by HMRC as aggressive tax avoidance and that the only purpose of these schemes was to avoid tax. This even applies to those schemes that were originally ‘signed off’ by HMRC or registered under DOTAS rules, backed by a QC’s opinion.
This change of policy (supported wholly by the government) has been reflected in a number of First Tier and Upper Tribunal decisions, supported by the Court of Appeal. In fact HMRC has won 80% of their litigation in this area, and have not been slow to publicise the issues that they have with organisations such as Ingenious and Future Capital Partners.
The Treasury has estimated that by demanding ‘accelerated payments’( i.e. upfront payments) from the investor, it could earn, for its stretched coffers, an additional £800 million by 2015/16. It would also assist with the problem of 65,000 cases as yet to be resolved.
The real explanation for the delays in the HMRC investigations lies in the late change of approach to these schemes now deemed to be ‘aggressive tax avoidance’, huge budget cuts, and an exodus of experienced HMRC staff to the private sector.
The idea is that an ‘accelerated payment’ would be demanded from an investor where a ‘similar scheme’ has been ruled against by a court. Interest would be payable on the sum repaid by HMRC if the scheme is ruled to be valid.
Let’s think this through for a second. Who actually determines what a ‘similar scheme’ is? There is a whole range of these schemes; some are based on the principle of ‘sale and leaseback’, others are not.
Which court? There is a right of appeal from the First Tribunal to the Upper Tribunal and from there to the Court of Appeal; does this mean that any ruling against the scheme, whether subject to appeal or not, means that an accelerated payment can be demanded?
What of the investors? They may not be able to pay for legal or tax accountancy advice, let alone find a large sum demanded up front of any determination vis-à-vis their particular scheme.
This also puts all the discretion in the sole hands of HMRC, who will act as investigator, judge, jury, and ‘executioner’, and puts the balance of power firmly in the hands of the executive.
If you are facing any of these issues contact either Jeffrey Lewis or Siobhain Egan on 020 7387 2032 or complete our online enquiry form here.
