Patent investors face investigation

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Wealthy investors who bought shares in intellectual property companies could face criminal investigations as HMRC increases pressure on aggressive tax planning.

The UK tax authority recently sent letters to clients of BlackStar, a UK tax and investment adviser, warning them that “arrangements relating to subscription of shares” in two companies were the subject of a criminal investigation. Suspected offences include conspiracy to cheat the public revenue and offences contrary to the Fraud Act, HMRC said in its letter.

The investors bought shares in two companies (Luxpand Limited and Showcase Booths Limited), which HMRC suspects were designed to create artificial losses for tax relief.

BlackStar responded in an email to its clients that HMRC’s threat of criminal investigation was a “disruptive and intimidating tactic” to obstruct legitimate investment schemes. In the email , seen by AccountingWEB..

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Comments

why are they allowed to do this?    3 thanks

The Black Knight | | Permalink

I am all in favour of aggressive tax avoidance being dealt with and if evasion is involved then criminal charges should be brought.

BUT surely allegations of criminal conduct when there is insufficient evidence for a trial cannot be right either.

Can a fair trial be achieved after this publicity or have HMRC deliberately scuppered their own case?

I think some of the cultural behaviour of HMRC staff needs looking at too, as some of it falls very short of ethical.

Scaremongering headlines make fundraising more difficult    2 thanks

taxtroubleshooter | | Permalink

The headline suggests that investors in patents in general will be investigated, which is clearly not the case. As many fund-seeking businesses and their advisors will tell you, it is difficult enough already to talk about tax-advantaged investment or tax structures (such as a Patent Box  or SEIS-compliant company) without being unfairly tainted by the activities of those allegedly stretching the rules on those tax breaks to breaking point and beyond, so we don't need this sort of scaremongering. It's what I would expect from a certain tabloid with Daily in the title, but not from the usually measured and always informative AccountingWeb.

It made me read the story, but I'd like to think I would have anyway even if it hadn't been so provocative and - for me at least - misleading. May I suggest that you change it to something more representative of the HMRC attack on a specific alleged abuse of approved tax advantages?

 

Why would you want to lose money

why always me | | Permalink

Excuse my ignorance, but if these people lost money, surely entitled to relief. Why would you lose money to 40% on tax??

Bemused!!

Thugs

Shay Daly | | Permalink

This is blatant abuse of position by HMRC.Effectively,they are trying to bully taxpayers into submission.HMRC are charged with enforcing the  relevant tax rules.This should not be interpretated as extending to gutter-tactics such as in the instant case.Bullying taxpayers from participating in tax avoidance  is happening on a daily basis.Such behaviour is illegal,unfair and inappropriate  clearly marking out a need for taxpayer protection from thuggery by the law enforcers.

HMRC's approach will make all equity fundraising which has a TAX deduction element more difficult and will have a negative effect on economic behaviour.

An effective watchdog is required to protect taxpayers from this type of institutional abuse.

Why would you want to lose money?

hiu612 | | Permalink

I have no knowledge of the particular structure of this investment, but the usual approach is that the patent application is a long game. Year one costs are often impaired on grounds of prudence, giving a year one loss, and tax relief from sideways set off. But there remains the potential to benefit from any sucessful applications in year 2 / 3 . 4 or beyond. If you throw in a bit of creative loss allocation, your investors can pay a little less to buy the investment than the tax charge they save. If it goes down the pan, nothing lost. If it goes well, they get a good result. That'd be my guess at why people buy into these.

ShirleyM's picture

Maybe it was a loss on paper?    1 thanks

ShirleyM | | Permalink

There have been a few successes by HMRC recently, where people claimed massive losses to get tax relief, through various schemes, but there was no actual financial loss.

I doubt HMRC would pursue any schemes unless they thought they had a chance of success, so maybe these losses are not real losses and are a result of creative accounting, or moving money around?

I guess we will find out if/when it gets into court.

This makes a change    1 thanks

TaxMatters | | Permalink

For decades we have been inventing things and putting them on the shelf so that the Americans, the Japanese or lately the Chinese can produce something similar, better and cheaper. Thank god we have now found a solution! All we have to do is get the government to offer incentives to invent things them persuade the Revenue to prosecute these criminals for doing it. There is a downside though - the Americans, Japanese and Chinese will be as pissed as hell that we are supplying fewer products for them to imitate - how thoughtless of us Brits. Maybe we should compensate by increasing the aid to the poor poppy farmers in Afghanistan.

The answer is simple?

The Black Knight | | Permalink

The answer is simple?

1, Take it to the tribunal and see if it fails as many have.

2, no resources 38 year tribunal waiting list? Divert some resources from CCTV, speed cameras and other repressive expenditure.

3, If it's criminal prosecute, otherwise it was clearly not criminal and everyone is allowed to do it?

4, refill the bucket and spend the cash in getting Britain moving.

It's not rocket science but we do have retards in charge.

what?

The Black Knight | | Permalink

"Since 2010, HMRC says it has prosecuted more than 1,560 individuals for tax crimes, with a 91% success rate in court. But politicians have criticised HMRC’s record on challenging tax evasion."

Is this benefit fraud? and or missing trader fraud and a spin on tax evasion? Like the bedroom tax and the pasty tax and the tax on old age?

Has anyone else seen these 1500 cases or do you feel like a mushroom too? (kept in the dark and fed on bullshit)

I know there were 3 very stupid plumbers (hardly complex) but then they lost interest after telling us they had caught 600.

The deliberate defaulters list is rather short and shows they are not prosecuting and probably not collecting either.

The Fact is HMRC do not prosecute!! Do not carry out effective investigations. Are blind to the amount of tax going walkies.

They will spend hours and hours on trivial private use add backs though?

Trial by exposure?

Ian McTernan CTA | | Permalink

This seems to be HMRC's new tactic- to write to all the clients telling them there MIGHT be a criminal investigation and to settle up their tax now- before they have proved anything.

Basically damning the advisor in the eyes of the public before anything is proven and hoping to put enough pressure on them that they fold, as they will find it hard to attract new clients whilst this sword is held over their heads, and they are forced to spend millions on legal fees.

I wonder what the chances are of Blackstar claiming against HMRC for defamation and lying to their clients if a criminal prosecution does not now go ahead or it goes ahead and Blackstar wins.

This is no different than an electricity company writing to you and saying you might be subject to a criminal investigation unless you pay them an extra £1,000 which they will hold against your account defaulting, on the off chance.  No basis in fact (yet), and just as wrong.

HMRC aren't winning any friends with this sort of scattergun approach, and one day they will pick the wrong firm to try it on with and will end up paying millions in compensation when their accusations prove completely groundless.

I'm all in favour of ending tax avoidance schemes and catching tax evaders, but it should be done in co operation with the profession who would be able to write much better, simpler legislation that would close so many of the loopholes that exist and are exploited these days.

Blackstar have won    1 thanks

The Black Knight | | Permalink

Ian McTernan CTA wrote:

I wonder what the chances are of Blackstar claiming against HMRC for defamation and lying to their clients if a criminal prosecution does not now go ahead or it goes ahead and Blackstar wins.

Do you get the feeling a deal was done before the press release? Its a bit like public accounts committee enquiry just to make it look as if something is happening for media purposes when we all know that nothing will happen.

How could Blackstar now get a fair trial if this was criminal?

Blackstar will not pursue defamation case because HMRC have a defence?

Whichever way you look at it it appears it is an engineered stalemate?

I wonder if cash changed hands as is common with government corruption?

 

It's clever as the users of the schemes are driven to accountants that are paid up members of the dodgy club (often the unqualified) and we will never know whether the scheme worked or didn't or whether clients paid up on the threat or took the advice of those with the inside track knowledge.