Is it time to withdraw from tax avoidance schemes?

HMRC have recently won 3 tribunal cases against tax avoidance schemes. The objective of these schemes was to save substantial amounts of tax by claiming artificial losses by exploiting perceived loopholes in the employment income and CGT legislation, in particular with respect to ownership of shares in a trading company. However, there are frequently fundamental flaws in the logic of these arrangements which gives HMRC ammunition to shoot down the schemes in the courts.

We have recently assisted clients who have participated in high profile schemes. It is noticeable that HMRC often offer participants of such schemes settlements on favourable terms should the individual agree to withdraw their claim for the derived tax advantages. Typically, participants will not be penalised for their involvement as long as they pay back any tax that was saved by the scheme, and any associated interest charges.

Penalties for those who unsuccessfully take disputes to the courts could be an equivalent amount to the tax that the scheme was designed to avoid. HMRC have made it very clear that fighting tax avoidance will be a priority for years to come, and as such they will be utilising significant resources to ensure further success is obtained when challenging tax avoidance schemes.

Please let us know if you are concerned about your involvement with a tax avoidance scheme. We will be happy to help!