AS HM REVENUE & CUSTOMS gears up to take a sizeable windfall from those invested in alleged tax avoidance schemes such as Icebreaker, many in the profession will be preparing their clients for an unpleasant shock when HMRC sends its calculations through.
Now, nobody wants to pick up the tax slack just so others can drive down their liabilities, but there is concern over the harsh nature of the accelerated payments.
Again, the idea of paying the disputed tax upfront has a degree of elegance in its likely chilling effect on avoidance activity. That element is to be lauded.But the retrospective nature will be of concern to practitioners given it upsets the rules governing such disputes.
What has to be borne in mind is that not everyone involved in these schemes is high net worth. A decent portion are modestly well off, likely self-employed contractors, who have been sold tax planning schemes.
The timeframe of 90 days to pay up – and the ridiculous 30 days if any challenge of theirs fails – is completely unrealistic for all but the richest of scheme investors and likely to lead to a great many bankruptcies.
It’s doubtful many of these individuals will have fully realised what they were buying into. Indeed, Katie Melua’s case last week illustrates just that.
The jazz and blues singer admitted she was “clueless” about tax. “From what I can remember in 2008 when the Liberty scheme was presented to me it was not presented as ‘an aggressive tax avoidance scheme’. It was presented as an ‘investment scheme’ that had the potential to legally reduce yearly income tax. Totally legal and legit and my accountants and advisers would take care to complete the formalities which included dealing with HMRC. Seemed pretty straight-forward and simple, so I signed up,” she wrote on her website.
“If there is ambiguity in the law then laws should be changed to disallow schemes like this, so that they would never be presented by legitimate tax experts to less experienced people like myself in the first place.”
Some have noted HMRC will say it warned users back in 2007 that it would use all its litigation firepower in order to discourage people from entering into schemes in the first place, but I’m told that was buried away in the detail of a document on their website.
It’s likely that’s the kind of experience many had before they signed on the dotted line.
A little common sense applied to these repayments would go a long way, and potentially see greater returns than their current heavy-handed approach.
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