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HMRC launches ‘settlement opportunity’ for users of tax avoidance schemes

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HMRC is inviting ‘some participants’ in certain tax avoidance schemes to settle their tax liabilities by agreement, without the need for litigation. The schemes ‘generally seek to create tax relief much greater than the real economic cost borne by the participants’, it said.

‘We believe that this settlement opportunity offers both the taxpayers and HMRC the best opportunity to resolve these disputes in a way which is cost-effective and consistent with the law. Where people decline the settlement opportunity, we will increase the pace of our investigations and accelerate disputes into litigation,’ the department announced today.

Last month HMRC wrote to 1,500 users of one scheme warning them that the department’s specialist investigations unit would investigate their tax affairs. An extract of one HMRC letter, published by BBC News, said: ‘Paying your taxes in full is the right thing to do. Not paying tax reduces our public finances. We all lose out on essential public services such as roads, the NHS and schools.’

HMRC intends to contact by the end of January all those who are ‘eligible’ for the offer, which has been made ‘in accordance with’ the Litigation and Settlement Strategy.

HMRC said it will advance ‘all available arguments’ if disputes are litigated: ‘As well as continued uncertainty, delay in resolution, additional costs and potential reputational damage, taxpayers who choose the litigation route may end up with a worse tax result than they would obtain under the settlement opportunity.’

The settlement opportunity will apply to participants in schemes seeking to:

  • ‘use generally accepted accounting practice (GAAP) to write off expenditure or the value of assets to create losses either for sole traders, or individuals or companies in partnership’;
  • ‘access the film relief legislation for production expenditure’;
  • ‘create losses in partnerships through reliefs such as first year allowance, payments made for restrictive covenants, specific capital allowances’.

HMRC considers that the schemes fail to provide the relief claimed ‘either because the majority of the funds employed in the business are not used for relevant expenditure or because the schemes do not meet the requirements for sideways loss relief so that the full relief claimed is not available to the participants’.

Last week, in a summary of responses to its consultation Lifting the lid on tax avoidance schemes, HMRC said it was ‘rolling out’ a programme of communications alerting the public about the risks of engaging in tax avoidance. There was broad support, HMRC said, for building on financial services mis-selling rules ‘in response to promoters who market high-risk avoidance schemes’.

It added: ‘HMRC will continue to work with those professional bodies who regulate members’ conduct to ensure compliance with those rules. HMRC will share information with those bodies through existing gateways [and] work with the relevant regulatory bodies to increase awareness of how the promotion of tax avoidance schemes is subject to the rules on financial products, consumer protection etc. and the civil, and in some cases criminal, sanctions for failure to comply with those rules.’

The government plans to consult next year on penalty and information powers, ‘specifically targeting the behaviour that is characteristic of a high-risk promoter’.

The last few years have seen a ‘marked increase’ in professional negligence claims against solicitors, accountants and tax advisers in relation to ‘clever tax saving schemes’ that have been found to have flaws, said Elaine Heywood, partner at solicitors Blake Lapthorn.