I have a brand new tax planning idea, when do we start fighting?

It is worth designing and implementing a new tax planning structure! I have some ideas and technically they would work although the Courts are hell bent on finding ways to scupper efforts. The idea (actually ideas), would work and it would be very difficult for HMRC to challenge. I would earn lots of money and probably end up living abroad. I might be inclined not to design something super annoying if the Government would just give us a few years without causing us a load of grief.

I would be very mindful of the new measures against promoters. You see, I was reminded of them by the little-known Jesse Norman (The Finance Secretary to the Treasury) who made a statement in the House of Commons on 20 July 2021. The statement was regarding draft legislation and associated documents further to the announcements at the Budget or in Tax Policies and Consultations (CP404, published on 23 March 2021). The new measures announced by the Government will be legislated for in the next Finance Bill and seek to:

• tackle offshore promoters through hitting any associated UK entity with harsh penalties;
• support taxpayers to steer clear of tax avoidance schemes, or get out of tax avoidance quickly, by giving taxpayers more information on the false reality of what is being sold to them;
• clamp down on promoters who dissipate or hide their assets, by ensuring HMRC can protect its position and secure a promoter’s assets to pay any relevant penalties; and
• give HMRC tougher powers to shut down promoters that continue to promote schemes and sidestep the rules designed to restrict their activities and stop them from setting up similar businesses.

Those measure don’t apply to me and my idea and even if HMRC thought they might, it would not bother me. HMRC published a consultation (23 March 2021): Clamping down on promoters of tax avoidance. The consultation sought views on proposed new measures including additional HMRC powers and strengthened sanctions:

• A security payment or asset freezing order. The measure is aimed at preventing promoters from dissipating or hiding their assets ahead of paying penalties charged as a result of them breaching their obligations under the anti-avoidance regimes.
• Allow HMRC to make a UK entity enabling the promotion of tax avoidance by offshore promoters subject to an additional penalty, up to the value of the total fees earned by all those involved in the development and sale of the tax avoidance scheme.
• A power to enable HMRC to present winding-up petitions to court and a new ground for director disqualification related to tax avoidance.
• Enable HMRC to name promoters, the websites they use and the schemes they promote at the earliest possible stage, sharing that information publicly to warn taxpayers of the risks and help those already involved to get out of avoidance.        

The consultations on the draft legislation will run until 14 September 2021. My professional body has responded to the consultation and there appear to be a few issues.

However, returning to my idea, let us assume:

1. It is technically not an avoidance scheme.
2. If its not an avoidance scheme, there would not be a promoter.
3. I wouldn’t need to hide assets but just to make sure I would include an elaborate mechanism to move assets away from harm.
4. There probably would be a UK entity promoting my idea, which is not an avoidance scheme so there shouldn’t be an additional penalty and if one got levied, we’d argue or fold or ignore.
5. Winding up and disqualification again shouldn’t be in point but if that somehow happened, it would be fine so long as my assets are protected.
6. Given my idea is not tax avoidance, HMRC shouldn’t name me, the website nor warn taxpayers but if they did, I would probably have done enough business by then.

My idea is not an avoidance scheme although it does have the advantage of avoiding tax (potentially). I will send you details soon….

Jesse’s announcement also included powers to tackle electronic sales suppression (‘ESS’). ESS is where a business deliberately manipulates electronic sales records. The result of the manipulation is to hide or reduce the value of transactions thereby reducing turnover (but not for real) and the corresponding tax liabilities. The ‘manipulation’ occurs by using software or by misusing electronic point of sales systems. The type of manipulation referred to amounts to tax evasion. New powers are being introduced to tackle the possession, making, supplying and promotion of ESS software and hardware. HMRC will also gain specific information powers aimed at identifying those supplying the software or hardware as well as accessing the developer’s source code and structure of data within a system.

Another announcement related to the notification of an uncertain tax treatment by large businesses. The Government will soon publish a response to the consultation relating to the proposed requirement for large businesses to notify HMRC where they have adopted an uncertain tax treatment. The notification will apply to returns due to be filed on or after 1 April 2022. Inevitably, those making such a notification will expose themselves to a thorough interrogation of the tax treatment thereby expediting the conclusion of a tax treatment. The Treasury has identified that the legal interpretation tax gap is £4.9bn, which probably indicates a few things:

• It is already decided that the uncertain tax treatment notifications will result in additional taxes.
• The Treasury is really bad at writing tax legislation because it results in uncertain tax treatment.
• HMRC and the Treasury still do not quite understand the marketplace.
• By default, if there is uncertain tax treatment, there certainly is merit in my idea which is not an avoidance scheme but does have an advantage of avoiding tax (potentially).

My idea lives on……

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