Tax boutiques: Costly legacy of a dying breed

It used to be one of the UK’s growth industries but now the tax avoidance industry may be in its twilight years because of new laws and greater powers for HMRC.

The landscape is looking bleak for specialists. But leading figures within the profession fear the fallout from their schemes could rebound on many non-specialist advisers as disgruntled clients seek redress for being lured into schemes that went wrong.

In the March Budget, Chancellor George Osborne said taxpayers will have to pay upfront if their tax avoidance scheme has been registered under the Disclosure of Tax Avoidance Schemes (DOTAS) introduced in 2004. Individuals and businesses using avoidance schemes that fall under the General Anti-Abuse Rule (GAAR), introduced in July 2013, will also have to pay their tax upfront.

HMRC estimated that the tax change will raise £340m in 2014-15, £1.2bn in 2015-16 and £1.3bn in 2016-17. The requirement to pay upfront is backdated to 2004 when DOTAS began.

HMRC will send “accelerated payment” notices to approximately 33,000 individual taxpayers for £5.1bn of tax under dispute and to around 10,000 companies for corporates for £2.1bn of tax under dispute.

The change will force people to pay tax debts immediately once avoidance schemes have been found illegal.

Previously individuals could delay paying tax until after the end of legal appeals.

Of course, taxpayers can still challenge HMRC by taking the case to a tax tribunal.

The changes will “kill any tax avoidance schemes that are still limping on,” says Simon McKie...

Continued...

» Register now

The full article is available to registered AccountingWEB members only. To read the rest of this article you’ll need to login or register.

Registration is FREE and allows you to view all content, ask questions, comment and much more.

Comments
jon_griffey's picture

Its a bit ironic    3 thanks

jon_griffey | | Permalink

Its a bit ironic that surrounding this article there are several Google ads from various outfits proclaiming 'take home 90% from your contracts'.

ShirleyM's picture

I get those ads too    3 thanks

ShirleyM | | Permalink

The tax avoidance industry is still live & kicking.

I would be happy for them to go extinct, and hopefully suffer financial loss, along with all the other taxpayers (including those on much lower earnings) who are indirectly funding their massive fees and commissions, and also bearing the cost of shutting them down.

These artificial schemes are the equivalent of insurance/investment scams. They are not victimless crimes. The country, and the majority of its population, are the victims.

PII implications

malcolmrichards | | Permalink

Renewal declinatures rising, Premiums rising,' but we had no direct engagement letter, we were only introducers,' so a few 000's intro fee will be used to pay your increased premium if you are offered terms then?

Interesting times ahead!

TaxTeddy's picture

Lose the ads.......    1 thanks

TaxTeddy | | Permalink

Run Firefox with AdblockPlus. It's free.

http://adblockplus.org/en/firefox

TaxTeddy's picture

Good news or bad?

TaxTeddy | | Permalink

Reading this article I am in two minds.

On the one hand this should be a welcome trend for 'mainstream' practitioners who don't advocate aggressive schemes.

However, I have been in this business a long time and over the years I have sensed that there will always be a certain proportion of taxpayers who are prepared to go to any lengths to evade tax. I don't see this changing any time soon so the conclusion must be that tax avoidance will be driven underground.

So for the ordinary practitioner, will there now be a greater proportion of clients who will lie to them? Probably.

Be careful out there.

Future Capital Partners    1 thanks

Sarah T | | Permalink

So on the same day that I get an email from a director at FCP claiming they are no longer offering new schemes I get an email from the same guy who's left FCP and is now a managing partner of an LLP offering new schemes... These promotors aren't just going to go away, they'll keep rearing their ugly heads under a different name!

Have you read the draft legislation?

howardwalters | | Permalink

If you have I'm surprised that you are confining yourselves to having digs at the promoters et al rather than being extremely concerned with the outrageous new powers given to HMRC. I don't trust HMRC to be judge, jury and executioner with no right of appeal. Sometimes we must be careful what we wish for because I fear this may be the thin end of a wedge and I for one will be fighting against it.

I have indeed    1 thanks

Sarah T | | Permalink

read the draft legislation I was merely pointing out that FCP have claimed they are no longer promoting new schemes "Future Capital Partners, which used to sell tax planning to rich clients has said it won’t be offering any more tax schemes, blaming new anti-avoidance laws." and yet the same person who sent that email sent me a further email on the same day from a different firm now offering these schemes. 

ShirleyM's picture

@Sarah

ShirleyM | | Permalink

Once the scheme gets 'challenged', or fails, the promoters will just dump the company. Their rich clients will be left high & dry to pay the tax they should have paid, but their 'fee' to the promoters will be lost forever.

Howard Walters is Correct

Trethi Teg | | Permalink

I think Howard Walters is spot on. It seems HMRC and the Government now feel that they can do exactly what they want and when they want to. If the powers they are driving through are allowed i.e. retrospective legislation, raiding taxpayers bank accounts and removing one of the basic tenets of the law i.e. innocent until proven guilty then we are on a very slippery slope. There is no difference in law to hiding money offshore to paying your local builder in cash. Its just a matter of scale. Presumably paying the local builder in the folding stuff will be an automatic criminal offence in the near future.

They are relying on the fact that the 99% of the public are happy to see the other 1% taxed to the hilt, to get this through.

Lets wait until Joe Public starts having his bank account emptied.

I think that we will now see HMRC and the Government trumpet their success when there are no DOTAS arrangements registered by end June.

Of course any new arrangements will now not be disclosed and HMRC will spend the next 18 months working out whats going on. It will also have to identify each arrangement individually and challenge them in the courts, individually.

With a backlog of 65,000 cases at the moment, I am sure that HMRC will have loads of resources to do this.

By bringing in the new retrospective legislation based on DOTAS registrations and claiming a success they could well lose an even greater amount than they currently do.

Another Lyn Homer success!!!!! However by the time she is found out, she will probably be working for PWC as an "adviser" and would have "moved on".

 

 

in the olden days!

MARKJET | | Permalink

An old partner of our said that years ago a wealthy client of ours was offered a tax saving scheme. It looked dodgy and we told him to talk to a tax barrister , he said 

"there isn't enough room in the prison system for all the city traders involved in these type of schemes"

 

Basically is didn't work but the government turned a blind eye!

The Minion's picture

I can't help but feel that Shakespeare had it right

The Minion | | Permalink

By the pricking of my thumbs, 

something wicked this way comes

Macbeth - ironically enough spoken by the second witch:)

@trethi

justsotax | | Permalink

joe public already does as most are on PAYE - indeed they get their salary emptied before it hits their bank account.

.    1 thanks

mbdx7ja2 | | Permalink

Trethi Teg wrote:

There is no difference in law to hiding money offshore to paying your local builder in cash.

 

Yes there is a world of difference.  One is tax evasion and illegal.  The other is perfectly legal - it is not the job of the customer to ensure the builder complies with his tax obligations and cash is a perfectly acceptable way of paying for services performed.

My concern

mbdx7ja2 | | Permalink

My concern is from the ConDoc:

"2.29 Concern was also expressed that once the tax was in the hands of the Exchequer there would be no incentive for HMRC to act with expedition to resolve the dispute. The Government agrees that these disputes should be resolved quickly and effectively. HMRC will, as part of its plan to deliver these measures, commit additional resources to progress cases to resolution more quickly."

What a load of (expletive deleted). Just look at the Littlewoods case - they've been after their money from HMRC for over a decade now - winning case after case.  Bet they still haven't been paid....

There is no way on God's green Earth that HMRC will not use tactics of excessive delays once they have the tax to try to get taxpayers to settle rather than fund further legal dispute (potentially throwing good money after bad).  

Whilst for schemes like Chris Moyles' this is no bad thing (I still don't understand how anyone thought that was supposed to succeed), the point is it should be a Court deciding and by withholding the tax this is the only carrot a taxpayer has to force HMRC to attempt to resolve disputes through the Courts in anything like a timely manner.

The Minion's picture

So would it be better

The Minion | | Permalink

if instead of the disputed tax being paid to the taxman and squandered on whatever they squander it on these days, it was paid into the court?

 

That way it could be accepted as paid and no penalties or interest chargeable, no one gets an advantage and there is an incentive for both parties to get on with sorting it out.

@ Minion

mbdx7ja2 | | Permalink

Yes - to an extent.

 

My view is the problem is this (this is not a scenario I am involved in - purely a hypothetical one):  I have obtained a tax advantage.  HMRC disagree with this.  I want certainty of outcome (naturally I think I'm right).  Either way, I'd like a ruling ASAP and to get on with my life.

Currently, by holding onto the cash, I am not disadvantaged by HMRC's interminable delays in bringing disputes through tribunal and Courts.  I would prefer early closure, as it will reduce my legal and professional costs, but HMRC are a law unto themselves and will not be hurried.

By paying the cash to HMRC or to the Courts I am inconvenienced by the opportunity cost that cash could have been put to use for (on the assumption I win).  Therefore if the process were indeed quick, say 12-18 months at the most, I don't think I'd have a problem.  But when I am deprived of my money for over a decade, that is not fair.  I will not receive any form of reimbursement which in any way makes up for the lost opportunity cost of not having those funds available.

If I hold onto the cash, I still have an incentive to settle quickly - reduced legal costs and certainty of outcome.  But generally HMRC don't have the same drives for these incentives, after all their costs are simply someone else's money.

Bottom line is I don't have a problem with the new rules - but they need to sort out the length of time Court/tribunal decisions take first.  Alternatively the money is automatically paid back to the taxpayer, with interest at HMRC's underpayment rates (not the derisory sum they offer on overpayments), if the case is delayed beyond an acceptable period.  I leave it to others to argue what is acceptable.

The Courts

howardwalters | | Permalink

I agree with mb's earlier comment; the Courts should decide - not HMRC.

Parliament can introduce just about any laws it deems fit but, should there be a dispute arising from those laws, for the sake of justice it must ensure the final arbiters be totally independent of either one of the parties to that dispute.

There is an old case dating back to the 17th century from which the saying “no one is to be a judge in their own cause” comes from. Unfortunately, this appears to be exactly HMRC’s aim.

Imagine what would happen if MP's were able to meddle with the result of an MP's expenses enquiry? Hmmmm.......

 

A world of difference????

Trethi Teg | | Permalink

So what you are saying is that everyone you have paid in cash has a) paid the right amount of tax and NI and b) has paid the correct amount of VAT.

I would respectfully suggest that if you say that you know you are not telling the truth.

We all know what paying cash means so lets not hide behind some false legalistic argument.

 

 

.    2 thanks

mbdx7ja2 | | Permalink

Trethi Teg wrote:

So what you are saying is that everyone you have paid in cash has a) paid the right amount of tax and NI and b) has paid the correct amount of VAT.

 

No - I'm not saying that at all.  But why is it my responsibility?  Oh, that's right.  It isn't.  Surprisingly enough we are not responsible for policing other people's behaviour and ensuring they comply with the law - that is the job of the authorities.  Either way - you seem to assert that every single tradesperson who accepts cash must be on the fiddle from HMRC.  I would respectfully say you are talking out of your hat.

 

You might as well argue that any car salesman who sells a car which has the capability to exceed the top speed limit of 70mph should be prosecuted should the buyer speed in the car - as he must have known he would speed as why else would they buy a car capable of exceeding the top speed limit?

stepurhan's picture

Turn about    3 thanks

stepurhan | | Permalink

Say I prefer to pay a tradesperson in cash for whatever reason. Cash is legal tender so they cannot realistically refuse that way of paying their bill. Do they automatically become a tax evader through my choice? Should they be reporting me for the fact that I want to pay cash?

Cash receipts make it EASIER to evade tax, as there is less of a trail for the taxman to follow. It is still a big leap to say that cash payment automatically means tax evasion. My local shops and hostelries must be serial tax evaders in that case, as cash is indeed my preferred means of payment. I just find limited funds (what I have in my wallet) visibly diminishing makes it easier to keep a rough track on my spending. Especially if, as is the case with the hostelries, that spending impairs my facilities in some way.  ;-)

The law is an Ass    1 thanks

mikefleming3028 | | Permalink

Can someone remind me how the members of Tax Chambers will stand if their "opinion" is found to be in some way at fault? Let us not forget that the GAAR was drafted by Mr Aaronson who at that time was a very eminent member of one of the largest Tax Chambers in London. Should the barrister who actively supported what turns out to be a failed scheme be immune from  any kind of financial penalty, in the interest of fairness I think not.  If this particular Pandora`s Box is opened who knows where the "pain" will spread, lawyers litigating against lawyers with the costs being passed down to innocent professionals via a hike in Professional Indemnity premiums. The only way to bring to  heel  this industry is to hold every one involved in the  formulating of, giving and supporting dodgy tax advice to account for their actions. No legal exemptions to hide behind and no boundary to far to pursue.

Its simple really just make people responsible for their actions no matter who they are and no matter what profession they ply, simples!!!        

Two key tenets...    1 thanks

gilderda | | Permalink

...of the tax and legal system are the concept of self-assessment and the assumption of innocence until proven guilty (or guilt is accepted by the accused).

If I self-assess that my tax liability for a particular period is X amount and HMRC can arbitrarily decide that it's something else then send the debt collectors after me, what's the point in me self-assessing?

Even worse, if I decide that I don't agree with their figures, I'm legally bound to pay the amount they think is due and wait for the courts to make a decision one way or the other - an assumption of guilt on my part.

It's like sentencing someone to life in prison before their trial, then only letting them out if they are successful on appeal years later having delayed and prevaricated throughout the entire process.

 

 

 

 

 

Judge and Jury http://onlinelibrary.wiley.com/doi/10.3982/EC

mikefleming3028 | | Permalink

I share your concerns and if you are interested where I think we will end up check out the above link to an explanation of an experiment done recently in Denmark. This is where HMRC are aiming for and intend to sell it to the public "as giving us all access to our own HMRC account/ file so that we can update our records" What its about of course is ensuring compliance by stealth and fear and  the report linked above makes this absolutely clear.

The document is a bit of  a heavy read but the conclusion section is worth a visit.  

 

But how can you equate these two scenarios?

Justin Bryant | | Permalink

Say I prefer to pay a tradesperson in cash for whatever reason. Cash is legal tender so they cannot realistically refuse that way of paying their bill. Do they automatically become a tax evader through my choice? Should they be reporting me for the fact that I want to pay cash?

Cash receipts make it EASIER to evade tax, as there is less of a trail for the taxman to follow. It is still a big leap to say that cash payment automatically means tax evasion. My local shops and hostelries must be serial tax evaders in that case, as cash is indeed my preferred means of payment.

 

There are likely to be little or no controls & checks in the former situation of a sole trader receiving cash yet there are bound to be fairly strong controls & checks in the latter situation of a shop or pub receiving cash - precisely due to the very fact that there is obviously a high risk of loss (and non-declaration) with cash receipts.

 

 

Already happens

secondhand_22 | | Permalink

gilderda wrote:

...

It's like sentencing someone to life in prison before their trial, then only letting them out if they are successful on appeal years later having delayed and prevaricated throughout the entire process.

 

That happens to a lot of people - they are locked up before trial - ie whilst presumed innocent. 

Police bail is punishment enough and can last for months whilst the police/CPS muck about and decide whether to prosecute. 

The system isn't fair you know - it never has been.  But what can you do?  Change where you were born?

stepurhan's picture

Checks and controls

stepurhan | | Permalink

Justin Bryant wrote:
There are likely to be little or no controls & checks in the former situation of a sole trader receiving cash yet there are bound to be fairly strong controls & checks in the latter situation of a shop or pub receiving cash - precisely due to the very fact that there is obviously a high risk of loss (and non-declaration) with cash receipts.
Please clarify what checks and controls that HMRC can rely on legally HAVE to be in place for a shop taking cash. We are not talking about any controls a proprietor might put in to prevent their staff taking cash. That is a different matter entirely.

The absence of checks and controls still does not automatically lead to tax evasion anyway. If a person is inclined to behave honestly, then checks and controls are superfluous.

Checks and controls

Justin Bryant | | Permalink

I was obviously talking about checks and controls a that a proprietor puts in place to prevent their staff taking cash or to prevent under declarations which obviously do not arise in the case of a sole trader (as how can you properly "check" and "control" yourself?).

 

As interesting as this is

howardwalters | | Permalink

we seem to have drifted off the original theme and are now discussing checks and controls over cash. It's the checks and controls (or lack of) over HMRC's new powers that concern me more. Removing the right of appeal is a scandal and a giant step too far.

This seems to be a case of the ends justifying the means and that never makes for good law.

stepurhan's picture

Getting back on subject    2 thanks

stepurhan | | Permalink

Justin Bryant wrote:
I was obviously talking about checks and controls a that a proprietor puts in place to prevent their staff taking cash or to prevent under declarations which obviously do not arise in the case of a sole trader (as how can you properly "check" and "control" yourself?).
Then that is even less relevant to the discussion than the original assertion that builders paid in cash were automatically fiddling tax.

Getting back to the subject, this is an attempt at balance that is going too far the other way. At present someone found to have engaged in an abusive tax scheme suffers no penalty. They simply end up paying the tax later. Subject to how high their legal fees are, it is worth their while keeping the dispute going as long as possible, because they have the benefit of the cash saved for that whole time.

Having a court holding the cash would potentially be a good compromise. Neither side gets the benefit of the cash, so both sides arguably have an incentive to resolve the matter quickly. However, HMRC have been known to launch cases entirely without merit. Should innocent taxpayers be deprived of their cash, even temporarily, in such circumstances?

Far better to bring in a penalty system for those schemes ultimately judged to be abusive. A percentage of the tax no longer saved seems appropriate. Perhaps a few of those tempted by such scheme may be put off by a genuine downside that is currently missing. Those that take the risk anyway would end up paying more into the system they tried to avoid.

It's not the taxpayer    1 thanks

howardwalters | | Permalink

that is keen to keep the dispute going as long as possible. Having seen marketing material, the fact that there may be no resolution to a dispute for many years is stressed by the promoters as a disadvantage of entering into one of these arrangements - not the other way round. I believe HMRC are disingenuous in postulating that it is taxpayers that are deliberately keeping cases going as long as possible and that parliament have probably been misled as a result.

I think Stepurhan is on the right track though; an independently applied penalty regime for abusive schemes might do the trick. But hang on, isn't that the GAAR?

 

stepurhan's picture

Research on actual    1 thanks

stepurhan | | Permalink

howardwalters wrote:
Having seen marketing material, the fact that there may be no resolution to a dispute for many years is stressed by the promoters as a disadvantage of entering into one of these arrangements - not the other way round.
A lot of people find being investigated by HMRC stressful, so it is a disadvantage from that point of view. However, it seems to me that the sort of person willing to engage in a really abusive scheme is also the sort to see investigation as an occupational hazard of sorts. If they view it as just part and parcel of the arrangements, are they then not likely to be bothered how long it runs? I wonder if there is any research on this area.