Guidance from Anti-Avoidance
Risk assessing: factors which may indicate avoidance
When risk assessing cases, HM Revenue & Customs (HMRC) officers will
identify a variety of risks which may require a closer look. Anti-Avoidance
Group (AAG) has drawn up a list of common features of transactions or arrangements,
known as signposts, which have been identified as unacceptable in the past.
It is not an exhaustive list since the nature of risk is constantly changing
due to developments in markets and changes in taxpayer behaviour. Building
on this, AAG also supports the risk assessment process by providing advice
to operational colleagues in respect of particular cases, either confirming
that something is innocuous thereby preventing wasted effort in pursuing
it; or providing advice on how to address transactions or arrangements that
HMRC may see as unacceptable tax planning. HMRC must stress that not all
transactions or arrangements which display one or more of the signposts
will turn out on closer scrutiny to be avoidance. Innocuous transactions
will occasionally display one or more of the features. AAG will keep this
list of signposts under review.
The aim of this guidance is to promote an effective and consistent approach
to dealing with risks arising from tax planning. This guidance is made available
to you, HMRC customers, so that you can better understand how HMRC address
these risks. It is in line with the HMRC goal from the Varney Review to
implement an efficient risk-based approach to dealing with tax and customs
matters which will lead to high risk issues being identified and resolved
List of Signposts
- Transactions or arrangements which have little or no economic substance
or which have tax consequences not commensurate with the change in a taxpayer’s
(or group of related taxpayers’) economic position. For example:
- Forex matching abuse where the position is flat in economic substance
but the benefit of hindsight can be used to choose which of two equal
and opposite positions is taxed.
- the arrangements in Ramsay (WT) Ltd v CIR (54TC101) or University
of Huddersfield (C-223/03).
- Transactions or arrangements bearing little or no pre-tax profit which
rely wholly or substantially on anticipated tax reduction for significant
post tax profit. For example:
- Dividend buying where the value of foreign tax credit more than
offsets a pre-tax loss.
- Contrived Gilt Strip losses counterbalanced by gains on exempt
assets such as options.
- Transactions or arrangements that result in a mismatch such as: between
the legal form or accounting treatment and the economic substance; or
between the tax treatment for different parties or entities; or between
the tax treatment in different jurisdictions. For example:
- rent factoring such as in John Lewis Properties Ltd v CIR (75TC131)
- conditional share schemes to disguise a cash bonus as a dividend
- arrangements such as those in CIR v Cleary (44TC399) or MacDonald
v Dextra Accessories Limited (2005 UKHL 47)
- a transaction where a payment is treated as an expense in one jurisdiction
but the corresponding receipt is not taxable income in another jurisdiction.
- Transactions or arrangements exhibiting little or no business, commercial
or non-tax driver. For example:
- Arrangements such as those in BUPA Hospitals (C-419/02) or Debenhams
(2005 EWCA Civ 892)
- Film schemes which create tax losses in excess of the genuine commercial
- Transactions or arrangements involving contrived, artificial, transitory,
pre-ordained or commercially unnecessary steps or transactions. For example:
- Acombination of options designed to generate a tax loss without
any economic loss, such as considered in IRC v Scottish Provident
Institution ( UKHL 52;  STC 15).
- Arrangements such as those in Furniss v Dawson ( A.C. 474);
Halifax and others (C-225/02).
- The use of artificial arrangements designed to take assets out
of the inheritance tax regime while allowing the former owner to continue
to enjoy the benefits of ownership.
- Transactions or arrangements where the income, gains, expenditure or
losses falling within the UK tax net are not proportionate to the economic
activity taking place or the value added in the UK - especially where
the transactions or arrangements are between associates within the same
economic entity and would not have occurred between parties acting at
arm's length and/or add no value to the economic entity as a whole. For
- The transfer of ownership of an income stream from a UK resident
company to an associated company resident in a low/no tax jurisdiction
in circumstances where the economic activity giving rise to the income
does not accompany the transfer of ownership and/or where no economic
benefit accrues to the economic entity as a whole.
- Tax law is sometimes enacted to target particular transactions or arrangements
and give them a particular tax result. Alternative transactions or arrangements
designed to sidestep the effect of such legislation, but which otherwise
achieve the same result, constitute a signpost. For example:
- Arrangements designed to give the same effect as a share redemption
without constituting one in law to frustrate the operation of section
91A or 91B FA 1996 (shares treated as debt).