Avoidance schemes currently in the spotlight

'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

December 2013

Update on Contractor Loan tax avoidance schemes

The First-tier Tribunal comprehensively and robustly dismissed all the arguments put forward by an IT contractor to persuade them that his contractor loan tax avoidance scheme worked and the money he received was not taxable. In Philip Boyle v HMRC (Opens new window) the tax tribunal judge decided that the money paid over to Mr Boyle as loans was 'in substance and reality income from his employment' and therefore taxable.

This tax tribunal decision means that the contractor has to pay tax on the loans.

Mr Boyle argued that if he had received income from his employment, it should have been taxed under PAYE by the offshore company and that he should not have to pay. The judge dismissed that argument as well. She also decided that even if the money Mr Boyle received under the scheme was not income from employment, he would still have to pay tax as a result of specific rules to prevent tax avoidance known as the 'Transfer of Assets Abroad' rules.

Find more information on the tax tribunal decision (Opens new window)

Tax avoidance scheme promoters sold contractor loan schemes with a variety of different features but they all involved individuals signing an employment contract with an offshore company and receiving a large proportion of their income in the form of a 'loan' from their employer - either directly or through an intermediary. In September 2013 we said that we were challenging these schemes. Many people have received tax assessments, or letters opening enquiries, and we are continuing to issue more and to pursue the tax which should be paid.

Many contractors who used these schemes have already agreed to pay tax and interest on the money they received. Others have been waiting for this decision before deciding what to do. If you are one of those people who waited for the decision we would encourage you to come forward now to resolve your tax position. You can contact us by email, or by writing or calling the contact shown on the assessments or enquiry notices you have received.

Previous Spotlights

You can find previous Spotlights from the links below:

Further information

Tax planning 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.
  • There are secrecy or confidentiality agreements.
  • 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.
  • Tax benefits are disproportionate to the commercial activity.
  • Offshore companies or trusts are involved for no sound commercial reason.
  • The involvement of professional trustees is claimed to guarantee that the arrangements succeed.
  • A tax haven or banking secrecy country is involved without any sound commercial reason.
  • Tax exempt entities, such as pension funds, are involved inappropriately.
  • It contains exit arrangements designed to sidestep tax consequences.
  • It involves money going in a circle back to where it started.
  • Low risk loans to be paid off by future earnings are involved.
  • The scheme promoter lends the funding needed.
  • There is a requirement to take out insurance against the failure of the tax planning to deliver the tax benefits.

Particular schemes

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.

Highlights

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:

  • goodwill - companies acquiring pre 2002 business from a related party (Spotlight 1)
  • artificial leasing (Spotlight 2)
  • schemes to obtain trade loss reliefs ('sideways loss relief') (Spotlight 8)
  • abusive off-shoring of financial structures leading to consumption of services by European Union customers
  • arrangements to artificially boost claims to double tax relief by companies (often known as DTR rate-boosting schemes)
  • avoidance of PAYE/NICs on employment related securities by awarding employees either shares in an Special Purpose Vehicle (SPV) company or the benefit of a gilt futures contract with restrictions attached
  • VAT avoidance on promotional vouchers issued with sales of services or goods