Taxman warns 'HMRC approved' scheme users
Providers who disclose their tax-saving scheme have neither HM Revenue & Custom’s ‘approval’ nor its acceptance that the scheme legally achieves its intended tax advantage.
Writing in its tax avoidance manual Spotlight, HMRC said its mere issuing of a SRN (scheme reference number) to providers declaring a scheme does not mean it is approved or accepted.
Some of those SRN holders provide trusts and similar entities to return employees of the trusts with a lower corporation tax bill or a zero-rate liability on PAYE and NICs.
Identified as Spotlight 5, such schemes must still pose a significant problem in the eyes of HMRC, as it said “very specialised areas” and those where “not much tax loss is involved” will not be featured.
In fact, only a minority of avoidance schemes will appear in the manual, which is aimed at alerting users to the “types of arrangements or scheme which HMRC are likely to challenge.”
It follows that a scheme which HMRC has not featured may still be investigated by its officials who, in that event, could also challenge the self-assessment returns of its users.
Users and potential users with doubts about their scheme should check with a “reputable” tax adviser, though the Revenue also said that they are some tell-tale signs to “be wary of.”
• It sounds too good to be true
• Artificial or contrived arrangements are involved
• It seems very complex given what you want to do
• There are guaranteed returns with apparently no risk
• Upfront fees are payable or the arrangement is on a no win/no fee basis
• The scheme is said to be vetted by a top lawyer or accountant but no details of their opinion are provided
• The scheme is said to be approved by HMRC (it does not follow that this is true)
• Taxation of income is delayed or tax deductions accelerated
• Offshore companies or trusts are involved for no sound commercial reason
• Tax exempt entities, such as pension funds, are involved inappropriately
• It contains exit arrangements designed to sidestep tax consequences
• The scheme promoter lends the funding needed
“The inclusion of one of these features does not necessarily mean that tax avoidance is involved”, HMRC said of its list. “But the more of these features that are present, the more likely it is that HMRC would see the arrangements as tax avoidance”.