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HMRC Report Details Tax Avoidance Scheme Industry in the UK

HMRC Report Details Tax Avoidance Scheme Industry in the UK

A report released last week by Her Majesty’s Revenue and Customs (HMRC) detailed the tax avoidance scheme setup currently operating in the UK.

In an effort to get a better understanding of tax avoidance in the UK, HMRC, in collaboration with Kantar Public, interviewed a dozen of accountants and financial advisers who spoke about who and what is driving this industry.

As reported by FT Adviser, the research shows that “the tax avoidance supply chain was being driven primarily by clients themselves and a small number of well-known promoters” who have “a "long history of operation in the UK and who were well known to HMRC.”

More specifically, the study found that “a consistent picture of the avoidance marketplace supply chain emerged across the course of the research, with supply seen to be driven primarily by a small number of well-known promoters and demand driven largely by clients themselves.”

The most common tax avoidance scheme being used by individuals were remuneration plans.

As explained by FT Adviser, remuneration plans such as “employee benefit trust schemes are those in which money is placed into a trust and used to remunerate employees in the form of a loan,” in turn, “[avoiding] NI and PAYE deductions.”

Furthermore, the article added, “contractor loan schemes involve individuals that are employed by an offshore entity that only pays the minimum wage, with the remaining remuneration paid as a loan which is then written off.”

Several other schemes were highlighted including ones involving property where “money was paid into an offshore trust and then taken out as a loan to re-invest in property sites,” “investment in government designated Enterprise Zone Syndicates,” and capital gains tax and insurance plans.

Tax Avoidance Schemes in the UK

Tax Avoidance Schemes in the UK Drop in Popularity

In another recent survey of individuals involved in the financial services industry, HMRC found that tax avoidance schemes are now less prevalent than in the past.

As explained by International Adviser, the surveyed professionals “credited the regulation and political actions taken throughout the last decade as having significantly reduced the options available to make tax avoidance possible.”

HMRC said: “Despite different levels of exposure and understanding, there was a common perception that the marketplace in avoidance products had peaked in popularity and was now in decline, a change that was dated back to the financial crisis of 2008 and a subsequent shift in the public and political mood.”

However, financial advisors and other professionals in the field have made the point that it is now unclear as to what is and isn’t permissible behavior when it comes to offering recommendations to their clients.

These professionals have also asked HMRC to involve them in lawmaking and draw on their experience when drafting up new regulations.

HMRC confirmed this by stating that the report’s “findings suggest that [our] activity in this area has been successful at shutting down incentives to operate in the marketplace.”  

“However, this has created the risk of alienating some within the agent community, who would like to see a more consultative approach from HMRC, taking greater account of how agents are affected by changes and making greater use of their expertise,” HMRC concluded

Speaking to International Adviser, Rachel Griffin, a tax and financial professional at Quilter, warned, however, that taking this fight against tax avoidance too far might eventually put an end to financial planning.

Griffin said: “Despite the high-profile clampdown on evasion and aggressive tax avoidance, it is important to remember most tax planning techniques are entirely legitimate and the vast majority of insurance-based schemes are mainstream, vanilla tools that the Revenue are comfortable with.”
“The government is focussed on tackling some of the more esoteric tax arrangements, but that should not put people off normal tax planning methods,” she concluded

These studies come at a time when HMRC is warning NHS professionals to stay away from tax avoidance schemes being pushed in their direction.

MP Ruth Cadbury MP, who co-chairs the Loan Charge All Party Parliamentary Group (APPG), said: “It’s appalling that even now brave frontline workers in our NHS are being mis-sold schemes by some unscrupulous umbrella companies, which HMRC must tackle as a matter of priority.”

“The fact that people, including key workers, are still being lured into schemes, shows how badly the loan charge has failed in stopping promotion of schemes as well as being unfair and retrospective,” Cadbury added.