HMRC Enquiry Settlements: some flexibility is allowed

The High Court held that HMRC’s decision to reach a settlement with Goldman Sachs in relation to outstanding national insurance contributions (NICs) and interest thereon was not unlawful, as had been challenged through Judicial Review.

This is a welcome decision as, if the decision had been different, it would have set a precedent that could have impacted greatly on the scope to flexibly resolve outstanding tax enquiries with HMRC.

The point in question is whether HMRC had to charge interest on an amount of unpaid NICs later found to be due. HMRC deviated from the standard approach taken in reaching settlement.

The court found that the guidelines in HMRC’s own settlement strategy were not applicable because the situation was unique and was not contemplated in the strategy. Goldman Sachs had threatened to withdraw from the code of practice for banks if HMRC required it to pay interest on outstanding NICs due which was thought could give rise to embarrassment to the Chancellor of the Exchequer. The court found that HMRC would in any event have approved the settlement which involved waiving the interest. The court also found that HMRC was correct to consider its relationship with Goldman Sachs and its wider reputation when approving the settlement.

The court’s decision is not surprising as many expected that the judicial review application would be dismissed. However, it has caused a lot of embarrassment for HMRC with the court acknowledging that “the settlement with Goldman Sachs was not a glorious episode in the history of the Revenue”.

HMRC has since reviewed and strengthened its governance processes and the fact that the case was taken has led to a more cautious approach being taken by HMRC in discussing the scope of any settlements.

For assistance in negotiating HMRC settlements please contact Leanne Hathaway, our in house Chartered Tax Adviser. The above decision was reported on 16 May 2013.

Edward Hands & Lewis have offices at Leicester, Loughborough and Market Harborough.

GAAR: General Anti-Abuse Rule (Tax) – 17 July 2013

The general anti-abuse rule, or GAAR, came into force on 17 July 2013 as the Finance Act 2013 received Royal Assent. The GAAR applies to abusive tax arrangements that do not pass what has become known as ‘the double reasonableness test’ having regard to all the circumstances, including the principles on which the legislation was based and whether the planning was intended to exploit any shortcomings.

There is a clear message for individuals considering schemes that seek to generate more in tax refunds than the original investment, and HMRC may well challenge these.

The message for businesses, however, is less clear as the complexity of business transactions and our existing law will produce an element of uncertainty. Tax is often only one factor when determining how to structure business affairs and this makes a reasonableness test difficult to apply.

Businesses and their advisers will need to assess whether planning is reasonable in the context of the legislation and their own particular commercial position. The GAAR guidance should help define what is, and what is not, acceptable.

HMRC and the independent GAAR advisory panel will need to continue to provide guidance on where the GAAR applies and where it does not. It is not envisaged that the GAAR will impact on everyday simple tax planning, but is directed at aggressive structures. However, care needs to be taken to review on a case by case basis and those advising on or deciding a case may need to refer not just to the legislation but to explanatory notes, ministerial statements and other evidence.

For independent tax advice or a second opinion please contact Leanne Hathaway at Edward Hands and Lewis.

Tax Avoidance Scheme Promoters: Government Closes In

Users of failed tax avoidance schemes will face penalties, and government will clamp down on high-risk promoters under proposals put forward in a newly launched consultation (see the Government announcement here this week – https://www.gov.uk/government/news/government-closes-in-on-high-risk-tax-avoidance-scheme-promoters

This consultation will focus on two main issues:

i) tackling the behaviour of high-risk promoters of avoidance schemes, and

ii) penalties for users of failed avoidance schemes.

It is reported that there are 20 or so firms who develop and promote aggressive tax avoidance schemes nationally and the Consultation aims to seek feedback on whether naming “high-risk promoters” publicly will distinguish them from mainstream tax advisers, and ensure that their clients know who they are dealing with.

There are some clear challenges with this approach; not least who will be deciding who is considered to be “High Risk” enough to be publicly named and shamed, and it is hoped that this would not be taken lightly as there are many tax advisers who offer tax planning that does not border on illegality and whose business could be greatly impacted by being named.

Know who you are dealing with

It can be difficult to know who to trust as, unlike with Solicitors, “Tax Adviser” is not a restricted term. There are, however, a few simple steps you can take to help decide whether you are comfortable with your tax adviser:

1. The Chartered Institute of Tax and the Chartered Tax Adviser (CTA) qualifications show that your adviser has strong tax knowledge and has committed to working within professional guidelines.
2. The Solicitors Regulator Authority (SRA) further regulates those firms that are registered as Solicitors.
3. Meet your adviser at their premises if possible.
4. Ask for confirmation of indemnity insurance being in place.
5. Ask whether any tax advice is subject to the DoTAS regime (this is the requirement for certain tax planning to be separately notified to HMRC)
6. Check whether any tax planning has a “smoke and mirrors” element to it – tax planning should not be reliant on no-one ever finding out about it.

If you want a second opinion on any planning you have been presented with, our Chartered Tax Advisers at Edward Hands and Lewis offer this as a standalone service.