fbpx

Tax planning: HMRC’s dis-approving look

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

A Wolffe in sheep’s clothing

I noted with some interest recently a more leftfield line of attack from HMRC on a tax planning scheme. The details of the scheme, called the ‘income trust’ and operated by a firm called Knight Wolffe, are largely irrelevant. It is how it was attacked that is of interest.

Indeed, rather than challenge the technicalities of the tax planning scheme (I am sure that is just a matter of time) HMRC challenged the presentation of the product. Specifically, they took umbrage at:

  • the use of HMRC’s logo on their marketing materials. Clearly, they were keen to ensure that potential punters did not think HMRC had approved the scheme;
  • The statement that the ‘scheme was known and accepted by HMRC since 1994’; and
  • The statement that the scheme was approved by the House of Lords in 2005

As the mantra goes, HMRC (and the House of Lords, now Supreme Court) never approves tax planning or avoidance schemes.

As a result, the Advertising Standards Agency ruled against the firm instructing them to remove such claims from their website (as of this morning this their website was under maintenance).

This could be an interesting extension to HMRC’s enforcement activity. The website targeted could just as easily have been one of the many which exist making similar bold claims on what are, in essence, plug and play tax avoidance schemes.

I wonder if this could be the first of many such challenges.

Provider of recognised schemes rather than a recognised provider?

However, these claims of ‘approval’ and ‘recognition’ also extend to other types of business and other tax planning.

For example, this week I have seen providers of offshore pension schemes (QROPS and QNUPS) claiming that they are ‘HMRC recognised providers’. Now, both of these schemes could well accurately describe themselves as Recognised Overseas Pension schemes, which are terms of art.

However, is it strictly correct to state that someone administering or selling such an offering is a ‘HMRC recognised provider?’ Although I don’t wish to doubt the motives of such a firm, in reality, is it much different to the Knight Wolffe example?

The Growth Support Service

I read with some interest recently that HMRC were launching its ‘Growth Support Service’.

We all know HMRC now like to call taxpayers ‘customers’ (does this mean we are free to take our business elsewhere?) but such developments might lead one to believe that HMRC have gone fully blown in to the professional services sector.

They hope to attract the estimated 170,000 mid-sized businesses operating in the UK. Their target ‘customer’ are businesses with either:

  • a turnover of more than £10 million; or
  • more than 20 employees, and undergoing significant growth

Of course, this would be an enviable client bank for any client – especially for those accountants who will no doubt be biting their fingernails over the introduction of Making Tax Digital which might have a negative impact on their business.

So, what is the service offering:

 ‘This [service] could include:

  • helping with tax queries about their growing business
  • supplying accurate information and co-ordinating technical expertise from across HMRC
  • supporting them to get their tax right first time and access relevant incentives or reliefs’

Hang on. Isn’t ‘helping’ with tax queries and to ‘get things right’ core to HMRC’s existing brief? There is also a statutory, and a non-statutory, basis on which HMRC provides a clearance service in respect of some reliefs. There are also gaping holes such as in respect of the new capital distributions in connection with a winding up where there is no clearance facility and the long awaited guidance was not fit for purpose.

It goes on to say that:

Your growth support specialist can only give you support with tax. They won’t be able to give you:

  • general business advice
  • tax planning or tax avoidance advice
  • guidance on how you should grow

Notwithstanding the fact that ‘tax planning’ is perhaps specialist support with tax, this just reasserts the position that HMRC does not ‘comment’ or ‘approve’ any tax planning arrangements.

However, that lead me to ponder whether they are missing a trick? What if HMRC did approve or clear tax planning?

A sanitised approach to tax planning in a parallel universe

Why should it be taken as gospel that HMRC should not comment or approve of tax planning?

We already have a number of statutory clearance facilities – for example in relation to corporate reorganisations and EIS. However, we also have non-statutory clearances, such as whether a transfer of an asset might qualify for Business Property Relief (for IHT purposes). We also now have an ‘advanced assurance’ procedure for Companies who are seeking to claim R&D relief.

What if in a parallel universe HMRC did clear the majority of tax planning through a much expanded clearance facility?

How in this parallel universe was it made to work?

Well they had devised a process based on the Disclosure of Tax Avoidance Schemes (“DOTAS”) rules. Someone coming up with a new piece of tax planning would set out the client background, the transactions contemplated and the tax analysis to HMRC.

An officer then reviews this and then, if they were happy with the planning, issues a scheme reference number was issued. If they wanted more information then this could be requested. Alternatively, if the planning was unacceptable or unclear then no clearance would be provided.

They found that in the parallel universe this new framework gave business owners, individuals and also accountants / advisers a degree of certainty for all but the most complex planning.

It was found that, rather quickly, a bank of clearances and reference numbers of particular types of planning was developed. It was found that making these earlier clearances and reference numbers available online helped make the process much easier.

Of course, some tax planning by its nature was much more complex. In such circumstances, HMRC had found that it did not provide a clearance. However, it found that this made clients warier of entering in to such planning for fear of challenge and reputational risk.

Of course, like our existing universe, the provision of clearance facilities was discussed at the time of the introduction of GAAR in to the parallel universe. The main objection being that such a facility would be far to resource intensive for HMRC to administer. However, over the last few years, HMRC had diverted extensive resources to teams mailshotting out Accelerated Payment Notices (“APNs”), beefing up their Counter Avoidance and DOTAS enforcement teams.  Clearly with APN’s drying up and the marketed avoidance industry dying a death, our parallel universe HMRC found it had surplus resources. In any event, they found that the database of tax planning references built up quickly.

Accountants and tax advisers had to keep client list and a note of the planning they had used which could be cross checked with the taxpayers tax return which proved useful from a compliance point of view.

It was also found that, because both advisers, taxpayers and HMRC all had to practically apply the law on a day to day basis this also massively improved the quality of tax law drafted.

If you have any queries about this article or tax planning in general then please do not hesitate to get in touch

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

By continuing to use the site, you agree to the use of cookies. more information

The cookie settings on this website are set to "allow cookies" to give you the best browsing experience possible. If you continue to use this website without changing your cookie settings or you click "Accept" below then you are consenting to this.

Close