Icebreaker tax avoidance scheme crushed

HMRC has won a landmark case in which the Icebreaker partnership schemes were shut down, after a first tier tax tribunal ruled it was set up solely to shelter more than £130m in tax. 

Around £336m was invested into the scheme, which was developed by entertainment firm Icebreaker Management and adopted by 51 partnerships. The scheme purported to find finance for creative projects within the music industry and offer a return for investors, but in fact generated losses. 

Included in the investors were singer Gary Barlow, and two of his Take That bandmates Howard Donald and Mark Owen. The band's manager, Jonathan Wilde, was also involved in investing more than £66m into partnership Larkdale LLP. 

Their partnership then reported losses of £25m, which was used to avoid tax on £63m the band had earned from their 2005 reunion world tour and CD sales. They are said to be considering undertaking a world tour late this year to raise the estimated £30m they owe in tax as a result of the scheme’s failure. 

They and around 1,000 other investors may have to...

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Comments

Sheepy    1 thanks

Justin Bryant | | Permalink

There's a very simple solution to all this. If HMRC are happy to bring in retrospective tax legislation to tackle small-fry SDLT schemes in breach of their own Protocol on such things, then why on earth do they not do the same with these flagrantly aggressive loan based IT schemes, when it would clearly not be in breach of their Protocol? It’s just bonkers! See:

http://www.accountingweb.co.uk/article/treasury-closes-900m-utility-firm...

 

 

 

 

Tax avoidance is the word?    2 thanks

adambl | | Permalink

 

I don't know the exact details of how the Icebreaker scheme worked but the similar sounding schemes I have come across are DEFERRAL schemes. In other words Barlow and the others would have had tax refunds which it would have been made clear to them by their advisers they would have to pay back over 15-20 years. They should therefore have the refunds sitting somewhere or spent them on buying something like a property which they will have to liquidate and pay the tax refund back to HMRC.

Therefore they will "only" be out of pocket for the up front amount they paid to the promoters, normally up to 20%, plus of course interest to HMRC.

 

Am I wrong?

 

Yes, you are wrong    2 thanks

Justin Bryant | | Permalink

This was a highly aggressive and artificial tax "wipe out" scheme (using circular loans with GAAP P&L accounting arguments to get sideways loss relief). The following bit on p60 of the judgment sums it up:

“We are, indeed, quite satisfied that no serious and even moderately sophisticated investor, or one with a competent adviser, genuinely seeking a profit, even one willing to engage in a high-risk venture, but unmindful of any possible tax advantage, would rationally have chosen an Icebreaker Partnership. The prospect that substantial trading profits would be earned was so lacking in evidential foundation that a belief in it could be nothing more than wishful thinking, and the individual referrers, despite their claims to the contrary, could have had no rational expectation that they would see any return on the personal contribution, still less that the money would ever be returned to them, and we find that they did not.”

https://www.gov.uk/government/news/icebreaker-tax-avoidance-scheme-crushed

 

 

About time    4 thanks

shaka198 | | Permalink

It is about time that tax avoidance schemes devoid of sensible commercial justification are outlawed so as to protect the rest of the legitimate tax payer classes and the overall tax base.

SDLT schemes

hiu612 | | Permalink

To be fair, the chancellor gave clear warning from his soap box that SDLT schemes were being closed and that retrospective legislation would be used to close any new ones dreamt up subsequent to the announcement. The promoters could hardy cry foul play having been given this warning. That is very different to advance payment notices introduced and potentially affecting schemes entered into 10 years ago. Regardless of your view on 'schemes' I can't justify retroactive legislation, and I certainly wouldn't want HMRC dipping into my bank account. It is the thin end of the wedge, and assurances that it will only be used where ... do little to reassure me.

SDLT schemes

hiu612 | | Permalink

To be fair, the chancellor gave clear warning from his soap box that SDLT schemes were being closed and that retrospective legislation would be used to close any new ones dreamt up subsequent to the announcement. The promoters could hardy cry foul play having been given this warning. That is very different to advance payment notices introduced and potentially affecting schemes entered into 10 years ago. Regardless of your view on 'schemes' I can't justify retroactive legislation, and I certainly wouldn't want HMRC dipping into my bank account. It is the thin end of the wedge, and assurances that it will only be used where ... do little to reassure me.

Solution    1 thanks

richards1 | | Permalink

Barlow and co have no doubt moved the IPR of their output offshore in any event. PLUS they could move out of the country to Jersey and pay only 20% tax and no IHT so why didn't they do that instead?

They could of course do a Philip Green and send the wife to Monaco owning all the assets, risky strategy of course if she decides to ditch him!!!!

 

 

Or spend it all

hiu612 | | Permalink

plenty to buy in Monaco

SDLT schemes

Justin Bryant | | Permalink

Based on your comments, you have clearly not read (or understood) the Protocol in the link below re the 4.6.13 announcement:

http://www.hmrc.gov.uk/avoidance/protocol-changes-taxlaw.pdf 

 

 

jon_griffey's picture

Tax evasion?

jon_griffey | | Permalink

I have seen much of the publicity surrounding this case and commentators are quick to add the caveat that what was done by the participants was completely lawful, merely that the scheme didn't work.

There is tax avoidance and tax evasion.  Is there a third, in-between category called 'tax avoidance that doesn't work'?

If a person takes part in a tax avoidance scheme that does not work, then why does that not amount to tax evasion? Surely someone will have filed an incorrect return that either understates their income or claims a relief that is not due.

I have not fully digested the decision but it refers in places to accounts being non GAAP compliant and so not satisfying ITTOIA ss25 and 26, and refers to their being no reasonable expectation of realising profits of the trade and thus not satisfying ICTA ss381 and 384.

Can someone ellighten me as to where the distinction lies?

 

The distinction

Justin Bryant | | Permalink

In practice is if there is a supporting tax counsel opinion and/or there are professional advisers acting, as in NT Advisors "working wheels" scheme. The Vantis tax scheme clients (Google it) were not done for fraud for these reasons.

I would say    2 thanks

The Black Knight | | Permalink

jon_griffey wrote:

I have seen much of the publicity surrounding this case and commentators are quick to add the caveat that what was done by the participants was completely lawful, merely that the scheme didn't work.

There is tax avoidance and tax evasion.  Is there a third, in-between category called 'tax avoidance that doesn't work'?

If a person takes part in a tax avoidance scheme that does not work, then why does that not amount to tax evasion? Surely someone will have filed an incorrect return that either understates their income or claims a relief that is not due.

I have not fully digested the decision but it refers in places to accounts being non GAAP compliant and so not satisfying ITTOIA ss25 and 26, and refers to their being no reasonable expectation of realising profits of the trade and thus not satisfying ICTA ss381 and 384.

Can someone ellighten me as to where the distinction lies?

 

If someone knowingly enters into a scheme that they ought to know (or their advisers ought to) does not work on basic principles.

Is that similar to claiming non business expenditure or providing false accounts when you should know better i.e. evasion

We won't steal it, we will borrow it until they notice. If they do we will give it back if not it's finders keepers.

bookmarklee's picture

2004    1 thanks

bookmarklee | | Permalink

Many commentators and critics seem to forget that there is a long time lag between investments being made in 'tax avoidance' and them coming to Court and the decision being made public.

In this case I understand that the scheme dates back to 2004. Of course the rules have been tightened up since then and I am suer that 'leading Counsel' are less bullish now about the likely success of schemes than they were ten years ago.

A year ago I wrote what has become a popular post here on AcocuntingWeb: 

Tax schemes: What do you tell clients?

I said then: 

"Some of the comments [in Any Answers] suggest a degree of naivety, for example: “if these schemes are legal, why doesn’t the Government shut them down?”

The point often overlooked is that there is a difference between the legal right to try to reduce one’s tax liability, within the law, and the likely outcome of such efforts.

It may be legal to take part in an avoidance scheme, but that doesn’t mean the scheme will be effective. The effectiveness of a scheme will not be known with certainty for between five and 10 years, or longer." 

Mark

Ramsay principle and substance over form

The Black Knight | | Permalink

The Ramsay principle and substance over form were around long before 2004

As was false accounting.

I have always been wary of these schemes because when I asked the above question I got Coy or overly bold responses that these principles were outdated.

What astounds me is how useless these schemes were.

Those of us who advised on that basis are being vindicated.

We did not get rich on the commissions though.

Is anyone going to answer how these commissions were dealt with?

Did the accountants:

1. Disclose them to their client - as required by professional rules

2, Account to their clients for them - as required by professional rules

3, or charge a fee for advice - whoops PI claim

johnjenkins's picture

Surely if    1 thanks

johnjenkins | | Permalink

there is an artificial element in the scheme, then HMRC shouldn't have to wait any length of time before the outcome is known. It has to be Evasion. There is no middle between evasion or avoidance, however I do believe a poster called it avoision some time ago.

The scenario I always use is putting the wife on the books. If she works gets paid (the amount is immaterial) then the amount over and above the going rate that she is paid is avoidance. If she doesn't work and doesn't get paid but a claim for her wages is made then that is evasion. There are no grey areas.

 

Old Greying Accountant's picture

That would mean ...

Old Greying Acc... | | Permalink

jon_griffey wrote:

There is tax avoidance and tax evasion.  Is there a third, in-between category called 'tax avoidance that doesn't work'?

If a person takes part in a tax avoidance scheme that does not work, then why does that not amount to tax evasion? Surely someone will have filed an incorrect return that either understates their income or claims a relief that is not due.

Every lost investigation means the tax payer is evading tax.

the law is not always clear, sometimes the court backs HMRC interpretation, sometimes the tax-payers. As long as the tax is paid and any interest I don't have a problem, and with the new legislation less so - pay up front and see if you win it back!

Nobody can change history and

KIKISROSSIDES | | Permalink

Nobody can change history and I do not know why the Revene or anybody else for that matter should have the right to change things retrospectively. If taxpayers had done something within the law as it stood at the time so be it. I am sure on hindsight a few people would have done some things differently but alas this is not possible. Therefore this right should not exist for anybody even the Revenue or the government of the day. 

Problem is we are all taking such rulings without any resistance or complaints hence we are being taken advantage of.

Just for the record, I can

ianehayes | | Permalink

Just for the record, I can find no record of any professional accountant involved in this scheme, only persons with careers in banking, law and management of schemes.

The vast majority of professional accountants in my experience pride themselves on ethics at the heart of their professional activities and have a clear awareness of what is commercial and what is artificial.

Colin Bishopp's judgment would seem to be clear recognition of what to most is probably blindingly obvious.

But

Justin Bryant | | Permalink

Certain supporting tax counsel opinions are mentioned in the judgment, so there is no risk of a fraud charge in my view.

Icebreaker

rdrtaxwizard | | Permalink

The first intelligent comment in this thread was made by Mark Lee.  Times have changed both legislatively and as regards public perception to tax avoidance.  Was this a tax avoidance scheme?  To the extent that the tax relief would not be repayable if the business failed, then I suppose yes.  But the scheme was put to members (read the Information Memorandum, folks) that it was a business proposition with tax breaks.  As it happened, I could see at the time that it was going to fail, not so much because of the poor business prospects but because of the ten hour rule. It must be the case that most of the investors had no experience of the "creative industries" and so could bring no real value to the party.  Could anybody honestly believe that say a banker, insurance executive, or company director in some entirely unrelated business, probably working full time, could find ten hours at the weekend to provide real work in managing the business?

I have a client in the scheme.  He is a dentist, and there are lots of others.  Dentist seem to be pretty financially unsophisticated so were easily taken in.  I don't suppose that the likes of Barlow were any more sophisticated.  They were all led into this by advisers who now are going to be sued en mass.

One interesting point; although the IM claims that the members have day to day control over the business and affairs of the LLPs, I doubt that this was the reality. It seems to me that these LLPs must have been unregulated collective investment schemes.  That being the case any member sold it by an unauthorised adviser has a statutory right to compensation under Section 30 Financial Services and Markets Act 2000.

 

Are we driven by the telegraph reports?    1 thanks

The Black Knight | | Permalink

rdrtaxwizard wrote:

The first intelligent comment in this thread was made by Mark Lee.  Times have changed both legislatively and as regards public perception to tax avoidance. 

They were all led into this by advisers who now are going to be sued en mass.

Only public awareness or the political bandwagon has changed surely.

Why should there be any difference in the nature of advice given today as opposed to yesterday. There have been a few tweaks but that would not have affected this.

The conclusion seems to indicate that if it hadn't failed on all the other points the Ramsay line of cases would have applied.

the first paragraph of the summary of conclusions on page 143 uses words such as "unnecessary borrowing" "purported payment"  "illusion"

read in context.

The conclusion is quite strongly worded, capital versus revenue treatment and "the treatment of the payments in the appellant partnership accounts was incorrect"

Who prepared these accounts?

Perhaps now we will NOT get marketing letters from low grade firms telling us we are all going to be sued if we don't sell their schemes.

 

 

 

 

Nasty little persons    2 thanks

Donald6000 | | Permalink

Can I ask why these nasty little persons don't pay their taxes like the rest of us? In addition I heard Cameron say that this is not a reason for asking Barlow to hand back his OBE?

What we are doing is bringing up kids and teaching them that this is acceptable behaviour and even endorsed by the British Prime Minister, who sympathetically suggests that this pretty little band just reimburses our Exchequer and everything will be alright. 

The message is that popsters will be given an OBE and blessings by the PM whilst Mrs Jones who diddles £40 of benefit will end up inside.

 

Ludicrous behaviour from all concerned.

 

Public spending    2 thanks

the_Poacher | | Permalink

I guess Messrs Barlow and Co think that public spending can be funded by OBEs - Other Buggers Efforts

Elliot Green's picture

Tax Avoidance Scheme T's and C's    2 thanks

Elliot Green | | Permalink

In my experience the Scheme provider's terms and conditions need to be carefully considered as the actual contract often will be well drafted to note the potential for the Scheme to fail. Perhaps those who set up these Schemes where the sole purpose appears to be an artificial series of transactions with the apparent sole purpose to avoid tax, should have their contractual disclaimer's quashed as offending statute. This might assist in that those who then have to pay out can at least claim back the fees they have paid for the Scheme from advisers who might be encouraging rather dubious and ineffective tax planning.  

It's called the GAAR

VIOLA26 | | Permalink

They have - it's called the GAAR. 

Tax advisors & the take that 'Tax Man tour'

AndrewV12 | | Permalink

I think such schemes go right up to the boarder line of legality, and i mean real close.

What i need to know is can the government lean on HMRC to come down on the side of the treasury, do they appoint the tribunal, do they lobby and send HMRc directives etc.   

I bet there was some frantic phone calls between 'Investors' and the creators of the schemes, i would like to think the 'investors were asking what the hell is going on, you said.........., . i also bet the creators of such schemes were un-available to take calls. 

I dont think they should be stripped of their OBE's just made to cough up outstanding tax, mind you L Piggot was stripped of his title and sent to jail., just think of all the money they have given to HMRC over the years and all the tax they will pay going forward.

 

Could Take That be on a loop, they go on tour to pay O/s tax, in turn they will have to pay tax on the latest tour, do they invest in another scheme, when it fails back on the road again to clear further tax liabilities, if could be never ending.

 

BKD's picture

L Piggot

BKD | | Permalink

OK, let's go for it:

Name the only 16-stone man to ride a Derby winner ...

 

 

 

 

... L Piggot's cell-mate

Hee hee

AndrewV12 | | Permalink

you saucy ghittt

You pay your money!    2 thanks

North East Acco... | | Permalink

I have been in practice for over 25 years and have regularly come across these scheme peddlers touting their wares to our clients.

When we have asked even fairly basic tax questions eg. how do you get around the transfer of assets abroad rules? in most cases they did not have a clue.

They are fancy suited salesmen flogging uneconomic paperwork for gigantic fees.

Example: 17 years ago
Client: What do you think NEA?
NEA: In my humble opinion it doesn't work and I wouldn't touch it with a barge pole.
Client: But my pal has saved a fortune.
NEA: Good luck to him.
Client: I am going to do it.
NEA: You pay you money and it is entirely at your own risk. (Letter in no uncertain terms).

If he does it: Resign from acting.

17 years on:

Ex-Client who did it rings up. I wish I had listened to you NEA. Its cost me more than double original tax with interest and penalties. Legal costs now in 6 figures suing ex advisor who sold scheme and he just gone into liquidation. Also 17 years of hassle, stress and grief not to mention wife who divorced him because of all of it.

Clients who didn't do it:

Still clients, still paying tax and years of hassle free living.

Gary Barlow - you paid your money and took your chance!

johnjenkins's picture

I always like    1 thanks

johnjenkins | | Permalink

the Paul McCartney scenario.

Many years ago he was asked if he would hide his money in the Caymens or Lybia and he said. My Accountant has told me that I wouldn't be able to spend the money I've got now, never mind what I will earn in the future.

So Mr Carr, Barlow et al take note.