Resolution of Tax Avoidance disputes
Tom Maple considers the latest crack down by HMRC detailed in Spotlight 58.
The great physicist and one time patent attorney, Albert Einstein, is on record as saying “The hardest thing in the world to understand is the income tax.”
I am not sure if Mr Einstein’s comments led him to engage in a Remuneration Trust, or perhaps an EBT, but one thing is for certain, over the years thousands of people have tried to avoid paying tax and continue to do so.
With my Dispute Resolution hat on, tax avoidance is a byword for litigation, be that against promoter, accountant, IFA, bank, overseas trustee any number of other potential targets.
The usual issue complained of by those engaging in tax avoidance schemes is that the advisor did not properly advise about the merits and risks of the scheme, and, in certain instances they profited by way of secret commission. In that regard, the client is unaware that the advice is defective for 4 – 6 years, at which point the taxpayer gets a significant bill for not only the tax but penalties and interest as well.
The most common types of schemes we have advised upon, and obtained significant settlements for individuals, partnerships and companies, relate to Remuneration Trusts, Contractor Schemes, EBT’s, EIS Schemes, EFRBS, and various specie of Film Schemes.
The most common claim is that the adviser was negligent, breached their contract or breached their fiduciary duties, having received a secret commission. We continue to receive regular instructions in relation to these schemes and are advising on a number of ongoing cases. Each case turns on its merits and matters such as the terms of engagement, limitations of liability and matters of whether the investor would have gone ahead whatever the advice (“causation”).
HMRC Spotlight 58
HMRC put out regular “Spotlights” in which they provide information about tax avoidance schemes that HMRC believe are being used to avoid paying tax due. Spotlight 58 focuses on tax avoidance arrangements attempting to avoid Corporation Tax, Income Tax and National Insurance contributions by using unfunded pension arrangements.
HMRC explain that these schemes involve arrangements used by owner managed companies and their directors and are used to reward a director for the services they provide to a company. This is done in a way that seeks to avoid paying Income tax and National Insurance contributions, while obtaining Corporation Tax relief at the same time.
HMRC strongly believes these arrangements do not work and that they will seek to challenge anyone promoting or using these arrangements and we’ll make sure the correct tax is paid. Those promoting and selling the Schemes will no doubt disagree.
Whether an individual has a claim against their advisor (or some other third party) in respect of the schemes highlighted by Spotlight 58 (assuming HMRC are correct that they do not operate to avoid tax) or any other tax avoidance scheme, depends on a number of factors.
Fundamentally, each case turns on its facts, but it often boils down to the whether the advice that was given highlighted the risks of entering into the scheme considering that individual client’s needs, wealth, risk profile, age, what other options were available and other related matters. Part of that process involves analysing the cost/ benefit of entering into the scheme doing so, particularly when one considers the not inconsiderable fees which are charged by advisors which often continue for life in the form of trustee fees in certain types of scheme.
If you feel you have been badly advised, please contact us. If possible please do so well in advance of 6 years of the date you signed up to the scheme given that you may well be out of time to bring a claim if you do not. If you have not paid the tax, that is not a barrier to contacting us, especially if the “clock” is approaching 6 years.