As HMRC point out in their Issue Briefing (Sept 2012) Tackling Tax Avoidance
Tax avoidance is bending the rules of the tax system to gain a tax advantage that Parliament never intended.
In the 2012 Budget, the Government announced a range of additional measures to close tax loopholes, which will bring in around £1 billion in extra revenue and protect a further £10 billion over the next five years. The Government is also planning to introduce a General Anti-Abuse Rule (GAAR) aimed at deterring and tackling artificial and abusive tax avoidance schemes.
The Disclosure of Tax Avoidance Schemes (DOTAS) rules are a key part of our anti-avoidance strategy and oblige promoters and users of tax avoidance schemes to provide early information to HMRC.
More than 2,000 schemes were identified under DOTAS up to March 2012. This has resulted in more than 60 changes to the law, closing around £12.5 billion in avoidance opportunities.
Tax avoidance is not the same as tax planning. Tax planning involves using tax reliefs for the purpose for which they were intended. For example, claiming tax relief on capital investment, saving in a tax-exempt ISA or saving for retirement by making contributions to a pension scheme are all legitimate forms of tax planning.
‘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.
The October 2012 spotlight is Property business loss relief schemes
Previous Spotlights are listed below:
- Spotlight 12: Taxing the rewards for work carried out for a UK based employer
- Spotlight 11: Avoiding Income Tax on pay
- Spotlight 10: Stamp Duty Land Tax avoidance
- Spotlight 9: Gift Aid with no real gift
- Spotlight 8: Investments to obtain trade loss reliefs (‘sideways loss relief’)
- Spotlight 7: Avoidance using Gift Aid
- Spotlight 6: Employer-Financed Retirement Benefits Scheme
- Spotlight 5: Using trusts and similar entities to reward employees – PAYE and NICs, Corporation Tax and Inheritance Tax
- Spotlight 4: Contrived employment liabilities and losses
- Spotlight 3: Pensions schemes artificial surplus
- Spotlight 2: VAT artificial leasing
- Spotlight 1: Goodwill – companies acquiring businesses carried on prior to 1 April 2002 by a related party
- Business Spotlight 2: VAT Supply splitting avoidance
- Business Spotlight 1: VAT Relocation of telecommunication service providers, Internet service providers and broadcasters
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.