Tax avoidance is not illegal. Some commentators may regard it as immoral, but using an artificial scheme that is fully disclosed to HMRC, to reduce one’s tax bill, is not against the law.
If the tax scheme fails to achieve the promised tax savings, the scheme users will have to pay the tax avoided plus the cost of fighting HMRC in the Courts. Interest and penalties may also be due where the tax is paid later than it would otherwise have been.
This is the situation that Gary Barlow and his colleagues, among others, have found themselves in. The First-tier Tax Tribunal decided the scheme they used did not produce relievable tax losses, so further tax may be due. However, the individuals can appeal to the Upper Tax Tribunal and the higher Courts, so it could take many years to finalise their tax bills.
In the meantime the taxpayers will suffer a good deal of worry and uncertainty about what tax will eventually be due, and how much they will have to pay in legal costs. HMRC are also unhappy about unfinished business, as in general they can’t get their hands on the disputed tax until a case has concluded.
However, the Government is about to change the law to force taxpayers who use marketed tax avoidance schemes to pay the tax avoided up front. Later this summer HMRC is expected to write to around 16,000 people who have used registered tax avoidance schemes, demanding they pay the tax avoided because a similar scheme has been found not to work by a tax court. The taxpayers will not be able to appeal against this HMRC ruling and will have to pay the tax due until they can prove the scheme passes scrutiny by all levels of the Courts.
If you have been approached directly to become involved in one of these schemes like some of our clients, have then please give us a call to talk over it before proceeding.