Taxpayers negligent in avoidance scheme

A first tier tribunal has ruled that two taxpayers negligently submitted tax returns because of their failure to verify a tax avoidance scheme was not a sham.

The married company directors, Bernard Litman and Ann Newall challenged the view they were negligent and HMRC penalties arising from what the Revenue deemed "negligently submitted tax returns" for tax years 2004/5 in Litman V HMRC [2014] UKFTT 089 (TC).

The couple had adopted a tax avoidance scheme from Isle of Man-based consultancy Montpelier Group. Under this they took out a £400,000 loan to buy capital redemption policies that they then repaid.

This loan created a...

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Comments

Informed consent    3 thanks

mikefleming3028 | | Permalink

This decision will put the wind up anyone involved in any scheme the results of which produce a tax saving or reduction. As for the providers of these schemes how will they be able to defend a claim against a result like this unless they can demonstrate that their client fully understood the nuts and bolts of the scheme. One is left wondering what if anything will Messrs Litman and Newell will do to reclaim the penalty from   Montpelier Tax Consultants. The penalty here is relatively small but in larger cases providers will be seriously at risk AND ABOUT TIME TO !!!  It`s  about time that purveyors of such artificial money merry- go- rounds were held to account for the poor quality of their products.

PS I wonder which QC and which  Chambers were involved (if at all ) in the creation of the whole concept, should they to not be held culpable in the penalty stakes as their level of understanding must surely be greater than the taxpayers?       

ShirleyM's picture

About time the promoters & introducers were held to account    4 thanks

ShirleyM | | Permalink

They keep their generous fees (usually based on a hefty percentage of the clients income) even when the scheme fails. I suspect they have T & C's that exonerate them in the event of a scheme failing.

There is no disincentive for promoters & introducers to push these artificial schemes, as they are winners even when the scheme fails.

Great result!    4 thanks

the_Poacher | | Permalink

This is a great result for those of us who who stear clear of agressive tax avoidance schemes.  Until now it always seemed that HMRC settle for the tax and interest only in such cases.  Shame it was only a 10% penalty though

jon_griffey's picture

Joint & several please    3 thanks

jon_griffey | | Permalink

It is offensive that firms that peddle these schemes get to keep their fat fees whatever and seemingly get away scot free.  The law should be changed such that the advising firms and the individual advisers personally shall be jointly liable with the taxpayer for the consequences of failed schemes.

Explain it to my like I'm a 6 year old

Tickers | | Permalink

Apologies here but I didn't get the nuts and bolts of the scheme from the article. The loan they took out and repaid, is this an actual loan from the bank that they redeemed shares in their own company and then the company immediately repaid the loan???

At 10%    1 thanks

cbp99 | | Permalink

a lower penalty for negligence, prompted disclosure, than would apply to the same returns today.

deliberate tax defaulters

mikefleming3028 | | Permalink

I have just seen HMRC`s list re above published today and it makes interesting reading. of the 56 names/ businesses who have been "named and shamed" 21 have names that would indicate none UK origin. This equates to a whopping (approx.). 38% of the cases published and leaves me wondering if HMRC investigation policy has some bias built in or is there something else going on here? Any thoughts anyone? Any comments HMRC? 

TaxTeddy's picture

Understanding HMRC's Position

TaxTeddy | | Permalink

I guess HMRC have no choice but to oppose the taxpayer's argument that they had relied on their adviser. Had the taxpayer won it would have been very hard for HMRC to prove culpability in any enquiry.

TaxTeddy's picture

How do they do it?

TaxTeddy | | Permalink

I agree. How on earth do they manage it? Do the clients sign an agreement absolving the firm of any responsibility? Seems unlikely anyone would agree to that - but I guess they do.

I don't encourage tax schemes    2 thanks

Sheepy306 | | Permalink

I don't encourage tax schemes of any sort (choosing instead to rely on more sensible planning) however I do have clients who have sought advice elsewhere and entered into these schemes (some may only put £10k-£20k in, whilst others are a few hundred thousand £'s). They pay their fees, obtain the benefit, but do so with their eyes wide open and with full knowledge, they are businessmen (people) who are making a commercial decision based on risk, benefit and cashflow. To ensure that they fully understand the potential downfall and have been fully advised by the 'tax expert', I make sure that they know that the scheme is likely to fail and what the outcome may be. There are so many schemes with such varying degrees of risk that it is misleading to group them all together. Some are very complex schemes which HMRC will a long time to try and challenge, some are quite genuine whilst others such as those often used by IT contractors are simple and blatant abuse, yet HMRC still take forever to clamp down on them, or do anything about at all.

I dislike the promoters and the way that they make such vast amounts from these schemes with very little risk, however if the client signs the agreement which states that there is no liability of the promoters then so be it. The agreements, in the promoters defence, do usually state that as soon as a tax return is submitted then HMRC will open an investigation almost immediately.

I agree with Shirley that there is no disincentive for the promoters/introducers, infact with 'fighting funds' usually in excess of £1million it is often in the interests of certain parties for the schemes to be investigated.

I would like to see regulation of the promoters to ensure that there is no mis-selling, however my experience is that the products are not mis-sold at all.

I strongly oppose HMRC's recent intentions to make tax-payers pay the tax liability in advance and then prove innocence afterwards, it is likely that this would only be fair in a minority of cases where schemes are identical. We shall await the outcome of consultations however giving HMRC that much power, when they so often prove themselves to be incompetent, is very dangerous.

Just to clarify......in the    1 thanks

Sheepy306 | | Permalink

Just to clarify......in the event of genuine mis-selling of these schemes by promoters, where there has been no information explaining the potential risks to the client, then I would fully expect the client to sue the promoter for any penalties. The promoters should be no different to any other regulated business (accountant, solicitor, IFA, bank), and therefore a PI claim would resolve the dispute, albeit with cashflow implications for the client in the meantime.

Most wanted

the_Poacher | | Permalink

I noticed a similar thing about HMRC's most wanted list. Makes you wonder....

Makes you wonder?

mikefleming3028 | | Permalink

It certainly does, is this an issue that could be described as HMRC`s Elephant in the room? Either way HMRC should have a view on this and the fact that they are steering clear of a discussion smacks of both moral and Political cowardice!