Don't tell clients their tax scheme is aggressive

https://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j12825/TC%2008912.pdf

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paddle steamer
By DJKL
05th Sep 2023 11:21

Or it can be construed as, "When your retained accountant expresses reservations, listen and heed"

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Replying to DJKL:
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By Justin Bryant
05th Sep 2023 12:26

No, that's not necessarily correct. My above point is necessarily correct - rather than using the pejorative word "aggressive", he should have just said HMRC may take a contrary view (as they do more often than not in any tax planning) à la Mehjoo and left it at that. My fuller analysis of this judgment is as follows.

Clearly, recommending that a client gets a second independent counsel opinion to minimise potential penalties for carelessness (as many (but not all) good tax advisors do in cases like this involving large sums), a point accepted by HMRC (para 245(3)(d)) and the judge (para 221(11)) and then the client deciding not to get such an opinion is not of itself careless re causation re the inaccuracy of the tax return (as it merely concerns potentially minimising the risk of penalties in case non-independent counsel’s view on the correctness of the tax return is wrong and non-independent counsel’s view on the correctness of the tax return has usually been sufficient to avoid penalties for negligence where the advice is not straightforward - as in this case).

Also, the burden of proof on carelessness and causation is on HMRC, but they led no evidence on what other tax barristers would have said re PAYE/NIC under the scheme (indeed at paras 191 and 208 HMRC seem to accept the non-independent opinion was a tenable view and see para 8 here re that https://www.bailii.org/uk/cases/UKFTT/TC/2022/TC08483.pdf ).

The CT issue seems to be irrelevant to that (it was arguably no more relevant than the VAT issue on the consultant’s invoice – which some other advisers found a way to avoid I recall) and in fact the CT side of the scheme worked (since they would not otherwise have got a CT deduction as it would have been too late to claim that CT deduction under Rangers if it was not claimed at the time).

Yet the judge used that additional CT planning as an excuse to say that there was no evidence that other counsel would have endorsed the planning at all, ignoring the fact that (under para 110(2),(3),(5) and (6)) they would have likely endorsed the planning re there being no PAYE/NI, as it makes essentially no difference as to how the money gets put into the EBT under both Rangers and the previous contrary authorities re that PAYE/NI point (Rangers was new and novel law of course and more or less ignored the EBT loans as being determinative re the acquiescence principle).

The judge appears to be biased against the taxpayer (which would be unsurprising as she was the dissenting judge in FTT Rangers) e.g. shown by the fact she could not be bothered to check para numbers of leading cases on this £1.5m+ penalty case (would she have said the same thing against HMRC? I doubt it). She latched onto the word “seems” in the sentence “seems to be most effective” and more or less ignored the words “most” and “effective”. What if the advisor had said “the scheme seems to be utter rubbish”? Would she then say that was qualified rubbish and so it was impliedly a good scheme or at least not unambiguously rubbish?

This was the opposite to the penalty situation in this other recent failed scheme case, where there was no supporting case law at all and it was the scheme provider that recommended independent advice (i.e. not just to minimise the potential penalty risk if the scheme did not work): https://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j12822/TC...

Furthermore, the decision contrasts heavily with this recent judgment on the same planning (where there was no recommendation from the tax adviser for a supporting independent opinion to minimise the risk of potential penalties for carelessness and Judge Poon overlooked that category of competent tax adviser in para 223 and appeared to wrongly assumed such an advisor would necessarily be incompetent): https://www.bailii.org/uk/cases/UKFTT/TC/2023/TC08892.html

I could go on about other errors by the judge here. Surely this will be appealed.

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Replying to Justin Bryant:
paddle steamer
By DJKL
05th Sep 2023 12:56

Until they win their appeal (if they win their appeal is maybe more to the point) it surely is, by definition, aggressive, having currently failed.

( You will never get my acceptance of these types of arrangements as I am prejudiced- I detested Glasgow Rangers (and still do Glasgow Celtic) and I detest the successors to Glasgow Rangers, however I expect I am not alone in this as possibly all those that support other clubs in Scotland detest them both)

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By ireallyshouldknowthisbut
05th Sep 2023 14:02

The moral is always, don't do dodgy tax schemes.

And if a tax barrister engaged by a scheme promoter expresses an opinion you can be almost certain its dodgy as they have been explicitly been paid to say it works in their opinion, not matter how unlikely it is HMRC might agree. Safe in the knowledge there is zero come back on their worthless opinion.

Moreover if it worked you would not need a tax barrister as it would be normal practice.

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Replying to ireallyshouldknowthisbut:
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By Justin Bryant
05th Sep 2023 14:22

But my comments only concern the penalties here, not the effectiveness of the scheme. That said, you'll note that the scheme actually worked re CT, albeit accidentally, so ignoring the penalties (which I believe were wrongly imposed as explained above) the taxpayer was better off in this case doing the so-called "aggressive" CT deduction version of this EBT scheme than the plain vanilla version (without any CT deduction).

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Replying to Justin Bryant:
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By Justin Bryant
05th Sep 2023 16:21

Also, aggressive tax schemes can succeed in bizarre ways. See paras 5 & 6 here for an example (that HMRC would presumably not publicise): https://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j12823/TC...

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Replying to Justin Bryant:
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By Justin Bryant
29th Feb 2024 10:59
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By Tax Dragon
05th Sep 2023 15:23

I agree with Justin. If taking personalised (aka bespoke) Counsel's Opinion isn't taking reasonable care, what is?

Conversely, I would say that taking generic, non-bespoke commentary on an internet forum as quasi-advice could never constitute reasonable care, whether the comments are caveated (as the most recent I've seen of Richard's comments has been) or not.

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Replying to Tax Dragon:
paddle steamer
By DJKL
05th Sep 2023 15:30

Tax Dragon wrote:

I agree with Justin. If taking personalised (aka bespoke) Counsel's Opinion isn't taking reasonable care, what is?

.

I thought the point was they were so advised by their accountant but didn't seek personalised opinion from Counsel.

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Replying to DJKL:
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By Justin Bryant
05th Sep 2023 15:33

Yes; that's right. (TD is asleep as usual.)

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Replying to Tax Dragon:
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By Justin Bryant
05th Sep 2023 15:32

Unfortunately none of what you say above is relevant to any of my above points.

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Replying to Justin Bryant:
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By Tax Dragon
05th Sep 2023 15:58

Then is my point fresh? I thought you had made it before, whether here or elsewhere. I agree with myself, anyway.

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Replying to Tax Dragon:
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By Justin Bryant
05th Sep 2023 16:01

You make a bleedin' obvious (arguably pedantic as is your style) point that I wouldn't ever bother making for that reason.

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Replying to Justin Bryant:
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By Tax Dragon
05th Sep 2023 20:47

I agree with Justin (2/2!) that my point is obvious(ly correct); I disagree with ireally.

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