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What Lord Sugar could or should have done

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Lord Sugar is about to sue his advisers over a failed tax scheme. If he was that desperate, there are better routes.

22nd Sep 2023
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Readers of an AccountingWEB article about a failed tax avoidance scheme last week were unduly exercised about the plight of Alan SugarThe Apprentice star and business magnate is allegedly threatening to sue his tax advisers after landing himself with a £186m tax liability when a foolproof scheme made him look like a fool.

As last week’s report explained, after taking professional advice His Lordship emigrated to Australia in the comfortable knowledge that he had escaped the gigantic tax liability on a dividend payment estimated £390m. Unfortunately, his advisers allegedly neglected to note that, by definition, members of the House of Lords are UK tax resident, meaning that relocation to the other side of the world does not negate any tax liability.

In case anyone else finds himself in the same or similar position, it may be wise to consider a few possible solutions that might have been more effective. Please note that this article is not intended to give definitive advice and, should anyone be seeking to save a couple of hundred million in taxes, it is strongly recommended that they commission experts who know what they are talking about.

Ensure that advice is effective

In this particular case, it appears that Lord Sugar received guidance which neglected a key point and was therefore incorrect. With this much at stake, a second opinion might have been a good idea.

Alternatively, he might have chatted with fellow Lords during a break in proceedings, especially those with a legal background, since the odds are that many would have remembered the law change in 2010 designed to counter the tax-minimising activities of the Belize-domiciled, Conservative Party Deputy Chair Lord Ashcroft.

The family trick

A tried and trusted method of reducing taxes is to split assets with a spouse, partner or perhaps minor children.

From long experience, this has a nasty tendency to backfire viciously. While it often has the desired effect from a tax perspective, although may be subject to HMRC challenge, during messy divorce proceedings, such planning can lead to unpleasantness and the sacrifice of more money to a hated former spouse/lover than you are trying to hide from HMRC.

Alternatively, you could turn your kids into hedonistic drug addicts but only after they have trashed the family company.

The latest scam

There is always someone out there selling snake oil disguised as a surefire tax avoidance scheme supported by a QC’s opinion. Before anyone points out that the King has been reigning for over a year, they should recall that opinions of this type are always way out of date.

This will guarantee that if you invest in a movie that is never made, some kind of scheme involving back-to-back loans, shares in non-existent companies and or at least five tax havens, then you will pay no tax at all. In return, the promoter will seek a very healthy fee based on a percentage of purported savings and offer scant support when the scheme fails.

Death is always a good bet

Benjamin Franklin is reputed to have said “in this world nothing can be said to be certain, except death and taxes.”

Tax advisers should be able to confirm that these are usually mutually exclusive (with the exception of inheritance tax) and therefore this is a brilliant way of exempting yourself from a hefty tax charge.

Once again, it may be a good idea to take professional advice, since it would be a shame to pass into the next life and still be landed with the tax liability.

Memory lapse

If HMRC had infinite resources and checked each entry in every single tax return, along with those that are missing, it might discover that many people suffer severe memory lapses when attempting to complete returns.

To put it politely, they somehow “forget” to enter sources of income or understate the amounts involved. Strangely, memory lapses are less common when it comes to recording expenses.

Clearly, there is a risk in failing to complete a return correctly but, if you can save £186m by an omission that may never be picked up given the lack of resources HMRC these days, it might be worth taking a flyer?

Numerical dyslexia

When typing large numbers into tax returns, it can be easy to inadvertently get the number of zeros wrong. If Lord Sugar or his advisers were to make this kind of mistake at the whim of an imprecise finger, his liability might have reduced by £167,400,000 or, if the individual involved got really enthusiastic, increased by close to £1.7 billion.

Charitable donation

Some years ago, the government of the time helpfully permitted the donation of shares and re-direction of dividends to charities to negate the tax charge.

Lord Sugar may well be kicking himself, since by taking appropriate action he could have remained UK resident and not paid a penny of tax. There is a downside to this approach.

Last but not least

Like the vast majority of the populace, by far the best solution is to take a tax liability on the chin. You can sleep comfortably, have no need to sue advisers and will not face any risk of paying what could be over twice as much by the time that interest and penalties have been taken into account.

In the case under review, if the reports are accurate, Lord Sugar would still have taken away a cool £204m. Surely that is more than enough for anybody?

Replies (7)

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By Andrew Griffin
22nd Sep 2023 09:50

I would really like to have the problem of a potential £186m tax liability. I am sure I could manage comfortably on what was left after paying it.

Thanks (4)
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By HLB
22nd Sep 2023 10:04

I’m sorry but this doesn’t sound like one of those dodgy tax schemes that have done the rounds over the years. It sounds like pretty standard tax advice regarding residency that failed to take account of the 2010 change of rules.

That’s negligence and I think Lord Sugar has every right to seek compensation.

Thanks (2)
Replying to HLB:
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By Justin Bryant
22nd Sep 2023 10:06

Yes; it looks like the tax avoidance story is quite old from July 2022. See: https://www.ft.com/content/a92aafc0-5136-489b-8572-0944518e5158
https://www.thesun.co.uk/tv/19278838/lord-sugar-tax-390-million-dividend/

It's only the revelation of the apparent c ock-up in this otherwise standard tax avoidance planning that is recent.

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By JustAnotherUser
22nd Sep 2023 12:01

Hold on, the 2010 change of rules came in the year after Sugar was made a Lord in 2009.

In 2010 Sugar voted on 3 bills in the house, there is zero chance this guy wasn't aware of this when it went on.

Thanks (3)
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By richard thomas
22nd Sep 2023 21:03

I would like to understand why the dual resident provisions of the UK/AUS DTA wouldn't have applied to make him a resident of AUS for treaty purposes if he really had emigrated and set up in AUS, so limiting the tax on any UK dividends to ? 15%.

Thanks (2)
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By Mr J Andrews
25th Sep 2023 10:55

Were his advisers participants in 'The Apprentice'' by chance.

Thanks (1)
paddle steamer
By DJKL
25th Sep 2023 17:36

"Death is always a good bet"

Yes, the Hotblack route.

For those unfamiliar with the HHGTTG (where have you been, really!!!)

https://en.wikipedia.org/wiki/List_of_The_Hitchhiker%27s_Guide_to_the_Ga...

"Hotblack Desiato is the guitar keyboard player of the plutonium rock group Disaster Area, claimed to be the loudest band in the universe, and in fact the loudest noise of any kind, anywhere. So loud is this band that the audience usually listens from the safe distance of 37 miles (60 km) away in a well-built concrete bunker. Disaster Area's lavish performances went so far as to crash a space ship into the sun to create a solar flare. Pink Floyd's lavish stage shows were the inspiration for Disaster Area. In the book he is described as being connected to a "death support system" and communicates only by supernatural means. At the time when the main characters meet him, in the novel The Restaurant at the End of the Universe, Hotblack is spending a year dead "for tax reasons". This is likely a spoof of the prominent UK performers who lived outside the country as tax exiles during the 1970s due to the laws that could result in a marginal tax rate over 90% for high income earners.[9] Such tax exiles included singers Cat Stevens,[10] David Bowie[11] and Shirley Bassey;[12][13] members of the rock groups Pink Floyd[14] and Bad Company;[15] and actor Michael Caine.[16]

The character is named after an estate agency based in Islington, with branches throughout North London.[17] Adams said he was struggling to find a name for the character and, spotting a Hotblack Desiato sign while driving, liked the name so much he "nearly crashed the car" and eventually telephoned to ask permission to use the firm's name for a character. Apparently, the firm later received phone calls telling them they had a nerve naming their company after Adams's character.[7]

The Disaster Area sub-plot was first heard in the LP album adaptations and later in the novel The Restaurant at the End of the Universe. It replaces the Haggunenon material from Fit the Sixth of the radio series. The character appears in episode 5 of the TV series, and his ship in episode 6 of the TV series. He does not have any lines (due to being technically dead), and is played by Barry Frank Warren.

The B-side of the 7-inch single of the Hitchhiker's Guide TV Series theme music featured a performance of a song entitled "Only The End of the World Again", credited to 'Disaster Area'.

Thanks (5)