'Spotlights' warns you about certain tax avoidance schemes which HM Revenue & Customs (HMRC) thinks you should be aware of. These are just some of the schemes which HMRC believes are being widely offered to help those using them to avoid tax. HMRC is currently improving Spotlights to add more schemes.
You should be wary of other types of schemes, not just those listed here. If you are offered a way to pay less tax that sounds too good to be true, it probably is and be aware, HMRC never approves any scheme.
You are responsible for making sure that your tax return is correct - so make sure you understand what you are signing up to. If you do use an avoidance scheme you will be subjected to an HMRC enquiry.
Download a briefing about how HMRC is tackling tax avoidance (PDF 954K)
If you want to report a scheme that you believe has been set up to avoid tax, you should let HMRC know.
Contact HMRC to report a scheme
The First-tier Tribunal has decided that another scheme designed to avoid Stamp Duty Land Tax (SDLT) on a house purchase does not work. The scheme involved a house purchase taking place by way of a two stage transfer in order to take advantage of the 'transfer of rights' rules. For the first step in the scheme, a company agreed to buy the house from the vendor. Then, before completion, the vendor, the company and Mr Allchin (the real purchaser) entered into a deed of novation under which Mr Allchin would take the company's place as purchaser.
The scheme was designed to make sure that most of the purchase price was paid over before the novation took effect. The scheme promoter believed this would minimise the amount on which SDLT could be charged. But the tribunal judge upheld HMRC's view that a novation wasn't a transfer of rights and that SDLT had to be paid on the full £2,450,000 cost of the property.
The tribunal judge found that even if there had been a transfer of rights the full amount of SDLT would have been payable since payment for the property had all been given directly or indirectly by Mr Allchin. In doing so, the judge accepted the tribunal's reasoning in the 'Vardy case', providing further support for HMRC's view of 'indirect payments' in transfer of rights transactions.
The tribunal judge also commented on weaknesses in the scheme and its implementation. He said 'It is clear that the use of a novation was not clearly thought out from a legal point of view....' and that there was 'no evidence that the novation actually took place [at the point the scheme required]'. HMRC will closely scrutinise the facts and underlying documents in every case. A scheme that has not been properly implemented is likely to fail even if, unlike in this case, there was a theoretical chance it may work.
You can read the tribunal decision from the link below.
Edward Allchin [2013] UKFTT 198 (TC) (Opens new window)
HMRC will continue to challenge users of this type of scheme. You can find out more about the Vardy case, and what you should do if you're using this type of scheme from the link below.
Read more about SDLT avoidance
The First-tier Tribunal has ruled in HMRC's favour in two cases involving similar products marketed by banks as investments.
The cases concern 'Flexi-notes' supplied by Kleinwort Benson and STICS (Sterling Investment in Capital Security) supplied by UBS.
Broadly speaking, the banks sold bonds which had been 'stripped' of their interest coupons to their clients at a discount. Later, their clients would either sell the bonds back to the bank at a higher price or redeem them at maturity. The banks sold the products to give a relatively safe interest-like return 'tax free' but the tribunal ruled in both appeals that the return (the profit) was taxable as income.
As a result of HMRC's enquiries, the vast majority of people who took up these products have already agreed that the income they received from these products is taxable and have paid the tax due in full. Following these tribunal decisions, HMRC will now seek full payment of the tax due plus interest from the small number of users who have yet to concede.
You can read the tribunal decisions from the links below.
Malcolm
Healey v HMRC [2013] UKFTT 176 (TC) (Opens new window)
Philip
Savva & Ors v HMRC [2013] UKFTT 211 (TC) (Opens new window)
Similar products were marketed by other banks. HMRC considers that the return made by investors in respect of all of these 'stripped bond' products is taxable as income. Finance (No. 2) Act 2005 brought in legislation which put the position beyond doubt.
If you've used this scheme and wish to minimise any potential interest (and penalties - were HMRC to find you had been careless), you should contact HMRC on either Tel 0161 261 3013 or Tel 0161 261 2193.
You can find previous Spotlights from the links below:
The schemes featured in Spotlights are generally those which HMRC considers have the widest implications and about which there is the greatest need to warn potential users. They will often be schemes that have been disclosed to HMRC and have been given a Scheme Reference Number (SRN).
Please note that the issue of a SRN does not mean either that HMRC 'approves' the scheme or that HMRC accept that the scheme achieves its intended tax advantage.
These articles are limited exceptions to the usual rule that HMRC do not comment on tax avoidance. No further comment will be made. Only a minority of schemes will appear in Spotlights. In particular, HMRC will not include schemes aimed at very specialised areas, with a limited scope or where HMRC estimate not much tax loss is involved. A scheme that has not featured in Spotlights may still be challenged. You may wish to consider it in the light of the advice above on 'tax planning to be wary of' and consult a reputable tax adviser.
Where HMRC come across tax avoidance schemes they actively challenge them, through the courts where appropriate.
There are occasions when taxpayers concede that the avoidance doesn't work rather than taking their case to litigation. This section highlights areas of avoidance where taxpayers have conceded that the tax they have sought to avoid is due.
Taxpayers have been conceding the disputed tax in the following avoidance arrangements:
