HMRC’s ‘spotlight’ casts further shadow over tax planning arrangements

Tuesday, February 02, 2010 | Posted by: Francesca Lagerberg
Categories: Protecting your wealth | Tags: tax planning, HMRC, Francesca Lagerberg, tax avoidance, EFRBS, tax evasion, scheme, arrangements, Employer-Financed Retirement Benefits Schemes, spotlights

Sue Knight’s post on 5 October 2009, EFRBS appears on tax authorities’ radar, highlighted HM Revenue & Customs’ (HMRC’s) attitude towards tax planning arrangements involving Employer-Financed Retirement Benefits Schemes (EFRBS). HMRC has now gone further and, in addition to detailing specific schemes, has issued a list of indicators that it sees as suggesting tax avoidance.

So what do HMRC say is “tax planning to be wary of”?

HMRC has recently updated its ‘Spotlights’ on tax avoidance with a list of factors it believes indicate tax avoidance. At the top of the list is the ‘it seems to good to be true’ test, but will not all good tax planning seem too good to be true in the eyes of HMRC?

The list goes on and includes tests on complexity, delaying the taxation of income and arrangements on a no win/no fee basis and HMRC states that the more of these factors that are present, the more likely it is to investigate a scheme.

This statement does not change the law in any way, it merely shows where HMRC will focus its efforts and potentially gives it the scope to use the line, ‘well we did warn you’ when they open an enquiry into a tax planning arrangement.

This will no doubt scare some taxpayers into steering clear of some tax planning, and may therefore achieve the increase in tax revenues that HMRC is after. But it is important to remember that unlike tax evasion, tax avoidance (or tax planning as we in the accounting profession like to call it) is not illegal. Taxpayers have a right to arrange their tax affairs in order to minimise their tax bill, just as HMRC has the right to challenge this where it believes the letter of the law has not been applied correctly.

With tax rates on the rise, we are seeing more clients than ever wanting to enter into tax planning arrangements. As has always been the case though, it is important to consider the viability of the tax planning and the likelihood of a challenge from HMRC before entering into it, especially if the planning is considered to be more ‘aggressive’ under HMRC’s spotlight.

Read Francesca Lagerberg’s previous posts on tax issues.

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