According to HMRC, the fine line between tax avoidance and tax evasion has been crossed and deliberately so. HMRC’s unit known as Offshore Corporate and Wealthy (OCW) was established in the wake of the ‘Panama Papers’ scandal in 2016 to investigate serious non-compliance by businesses and the wealthiest taxpayers. Today, the OCW is revisiting a number of tax avoidance schemes where there is a suspicion that there has been a “misrepresentation of the true nature of events”, i.e. tantamount to fraud.
Nobody likes to be misled. But is it tax evasion and who is doing the misleading?
Is HMRC pointing the finger at taxpayer incorrectly?
Which tax avoidance schemes?
Naturally HMRC will not say but a number of common themes are developing. There is no question that the taxpayers are all based in the UK. The scheme promoters are also based in the UK.
What sort of facts have been misrepresented?
Anything from dates when key stages should have taken place, the sequence of events, even a suggestion that some documentation has been backdated. Moreover, there has even been assertions that some documentation may be totally false.
If this is true, if, then I am surprised. Normally the amount of documentation handed out to taxpayers by the scheme promoter is kept to the absolute minimum. So if any documentation is misleading HMRC, it is unlikely to have originated from the taxpayer.
Is it more the case that HMRC can still communicate with the taxpayer whereas the scheme promoter may have disappeared?
Nevertheless the direction of travel is clear.
Where is it being kept on a civil basis, HMRC are starting to levy penalties (something originally unheard of in cases of tax avoidance). In other situations, HMRC are seeking Warrants in order to target raids on premises in order to seize documentation.
The true extent of any “misrepresentation of the true nature of events” is still being identified. No doubt prosecutions will follow.
But prosecutions are expensive. HMRC often prefer cash instead!
Who might be targeted by HMRC?
Its not just the taxpayer. It can be anyone or everyone in the chain involved in the providing the responses to HMRC.
HMRC will consider each matter on its own merits in terms of who did what, when.
Perhaps this is a timely reminder for professional advisers to check any information and/or documentation before it is submitted to HMRC.
Then there can be the question of penalties.
Who will pay the penalty?
For many years, penalties and tax avoidance have not been included in the same sentence. Times are changing. HMRC are regularly saying that “we consider a penalty is due”.
Because penalties are possible, it is even more important that the correct strategy is invoked before any response is conveyed to HMRC.
In the civil arena, was the act deliberate or was it careless? The penalties vary greatly.
Is a change of direction called for?
Who wants to be caught up in misleading anybody, including HMRC?
Nobody. So what can be done?
The positive news is that there is still a willingness by HMRC to conclude matters by reaching a Settlement with them. But it all needs to be dealt with in a correct way with an outcome that is acceptable to all.
A fresh pair of eyes
Sometimes you can be too close or too involved in a particular client matter to see things objectively and for what they are. Particularly where ultimately somebody’s professional integrity may be in question. You need to stand back and look at things afresh and from all angles.
What may have brought a smile to one’s face at the outset as “stretching a particular point (to the extreme)”, can now coming back to haunt them.
Say what you mean and mean what you say
The number of times I read letters to HMRC that read “Please find enclosed … … …” rather than perhaps “We have obtained the documentation requested from XX (the scheme promoter) which is enclosed”. The second version leaves the reader in no doubt that the source of the documentation is not the taxpayer or the sender.
Its not a game – its serious!
The case of Anthony Ashbolt and Simon Arundell v. HMRC saw HMRC saw the challenge against the issuing of search and seizure warrants being dismissed. HMRC believed the Fiduciary Receipts Agreement (FRAs) might be destroyed. The FRAs had been submitted to HMRC “on which they have knowingly made false representations in order to circumvent legislation brought in to make loans received through these types of scheme taxable”.
In short, HMRC believed that there had been attempts to avoid the Loan Charge by some form of restructuring, recharacterisation of transactions, relabelling of payments, or other such similar mechanisms.
Fraud can have criminal sanctions. If the letter from HMRC to the taxpayer is on a civil basis using perhaps Code of Practice 8 or 9, very few taxpayers will want any response to escalate the matter to being a criminal matter.
It may be time to bring in a specialist to discuss what options there may be to still reach a civil Settlement with HMRC.
If any of this strikes a chord, please give me a call on 07979 313 010 or email me at firstname.lastname@example.org.