Tax traumas are not simply the preserve of high profile individuals
Brian Burke, a director at business rescue and recovery specialists Quantuma, highlights the plight of those caught up in the Government’s latest tax clampdown through arguably no fault of their own.
Tax clampdown causing pain in Middle England
Tax traumas are not simply the preserve of high profile individuals – film stars, comics, footballers et al.
They receive the publicity because of their fame.
Jon Thompson, chief executive of HM Revenue & Customs, told politicians in the Public Accounts Committee that some footballers and entertainers have income from image rights paid into offshore accounts without tax deducted.
Jennie Grainger, HMRC’s head of enforcement, revealed that 43 players, eight agents and 12 football clubs were under investigation over their use of offshore image companies.
Noting that the tax office had a dedicated team looking at image rights, football, other sports, and the entertainment industry, she went on: “Just on football itself, in the last two years, that team, and wider across HMRC, has brought in £158 million in yield.”
But now what I would categorise as Middle England, relatively affluent professionals, are hurting too.
Often all parties have more in common than they might think.
Tax evasion has long been illegal and is an offence. There can be no sympathy for those who indulge in it, or indeed outright money laundering, salting their ill-gotten gains in remote tax havens.
There are some who will always feel the taxman is fair game – a bit like the black economy. Everybody does it, don’t they? But tax evasion is stealing from you and me, those who do pay their dues.
Conversely, everyone is allowed by the authorities, and at times has even been encouraged by them, to minimise their tax bills, taking advantage of whatever the state is prepared to green light.
The question is – how far was and is it reasonable to push it?
Tax avoidance has always to some degree been tolerated despite being consistently challenged by HMRC where clever schemes were established to utilise the legislation although not in the manner that it was meant to be used.
High net worth individuals pay for advice to ensure they are on the right side of the line.
But now the goal posts are constantly moving and the net is getting ever wider. Those who would never consider themselves tax dodgers are being caught in the net.
Worse still, they are finding themselves under some degree of threat both financially in paying the sums demanded, having now found they are in considerable debt; threatened by debts that will become due in the coming years; and additionally potentially having their careers and employability or reputations threatened.
In some cases, life changes such as a divorce or investments that have gone badly during the credit crunch and financial crisis, this has left them in a situation where they simply do not have the means to meet years of tax liabilities.
Or, in others they have assets but would need to find a way to realise their value to be able to repay all or most of their debt, putting them at the mercy of HMRC in terms of reaching agreement.
This is becoming the fate of many Middle Englanders, who would never consider doing something knowingly illegal, and have not done so, but they are coming to terms with debts they never believed that they would owe stretching back over a decade and more to a very different time. Most tax avoidance schemes simply do not work according to HMRC, and those who engage in them can pay more than the tax they attempted to save once HMRC has successfully challenged them.
The Tax avoidance schemes themselves vary considerably from those seen as relatively reasonable to others considered downright aggressive. In the words of HMRC it often involves contrived, artificial transactions that serve little or no purpose other than to produce this advantage. It involves operating within the letter, but not the spirit, of the law.
Accountants who help tax evaders use offshore accounts can now be fined and publicly named under new sanctions which came into effect from 1 January.
Any individual or corporation who deliberately aids the evasion of tax will face fines of up to 100 per cent of the amount they helped evade, at a minimum of £3,000. The law means HMRC can charge civil penalties on those providing planning, advice and other professional services, or who have physically moved funds offshore to evade tax. Many will question the benefit of these new sanctions as the consequences for those caught assisting evasion are already very serious so a financial penalty seems to add a limited further deterrent.
On the other side of the line there are estimated to be some 40,000 individuals who have benefitted from tax avoidance schemes and these have taken many forms.
Overall there are around 5,000 DOTAS (Disclosure of Tax Avoidance Schemes) registered and possibly 7,000 unregistered. These schemes incorporate many variants from film investment, enterprise investment zones, remuneration trusts, carbon credits, employee benefit trusts, employer financed retirement benefits scheme, VAT exemptions for sporting or educational training/supplies, business premises renovation allowances and Gift Aid with no real gift.
All of them are designed to reduce or minimise taxation and there are a considerable number that are highly similar in the majority of their technical aspects. HMRC believes these are being used to avoid paying the requisite tax.
In a range of instances there are ongoing judicial reviews which have tied up the legality of these positions in court for many years and recently a number of high profile cases have been found in HMRC’s favour. Meanwhile legislation has been brought in to allow HMRC to reclaim the benefit received to ensure they are the custodians of the benefit derived by way os issuing Accelerated and Partner Payment Notices (APN’s/PPN’s), something that is also being challenged in court.
Individuals and companies who have entered into schemes can be asked to pay very substantial sums in a relatively short period. In addition, the Finance Bill 2017 will in April 2019 introduce a PAYE and NI charge for outstanding loans that is designed to capture those not caught by the current APN legislation and as such those who are currently not directly affected need to be planning ahead.
These schemes have been used in a whole variety of environments including those that are now Financial Conduct Authority-regulated industries; subject to the Senior Management Regime in banking, and even in government agencies where professionals have been employed on projects so much more widely than the media, sports and business personalities often reported upon.
In the business environment there are a goodly number of businesses, often owner managed, where schemes have been employed that may now threaten the solvency of the business and potentially employee jobs and livelihoods.
In most instances, it appears clear that the individuals concerned were relying heavily on advice as it is highly unlikely they would have understood the technicalities of the scheme concerned. In some instances they most likely gave a blanket mandate to their advisers or moved from one variant to another as they continued to ply their trade or sell their expertise and services.
In some areas the adoption of schemes was part of the way which they were advised/required to work. Individuals typically retained on a fixed term contracts by a company or public sector organisation for a skilled piece of work maybe with a background in IT, banking or accountancy amongst many others.
This type of work could ultimately go on for years with individuals having their contracts extended or moving from one project to another and therefore they would move from one scheme to another. They are now being presented with advanced payment notices for multiple years of participation which can equate to several hundreds of thousands of pounds.
HMRC’s rhetoric is very robust as is their determination to outlaw tax avoidance however most individuals do not feel they have done anything wrong as they followed best advice and were assured all was legitimate. In the future they would modify their behaviour, and many have already. HMRC recognise that some taxpayers will be unable to afford what will become due but there is no will to compromise. Their impact assessment on individuals, households and families says that the government anticipates that some of these individuals will become insolvent as a result. This measure is not expected to have a material impact on family formation, stability or breakdown.
In many cases, this includes professionals married with families, business owners, home owners, investors some with property including buy-to-let investments or holiday apartments, others investing in new start businesses and enterprises; those Middle Englanders who have invested and spent their money in the UK economy and feel they contribute to society. The 40,000 estimate only accounts for those that have participated in schemes, so what is the real number and impact when you add family members, employees, etc. Those directly affected could realistically be closer to 100,000, maybe 150,000, maybe more!
Some involved are now expats and interestingly others can be foreign nationals who were attracted to the UK to fill skilled professional roles, some having now come to base themselves here and put down roots, others having returned home.
HMRC never accepted these schemes, clearly feels ignorance is no excuse and individuals should have been on their guard – after all, things that sound too good to be true usually are.
In the current climate, many of those ensnared are now faced with larger bills than the original tax benefit received along with increasing interest and penalties plus the possibility of being taxed on the gross sums inclusive of fees already paid or the application of additional taxes such as inheritance or the transfer of assets abroad.
None of this will be cleared up in a hurry.
But there is one thing for sure – plenty of people are experiencing long spells of angst and worry with the prospect of emerging on the other side very much the poorer.
Ends (1,287 words)
For further information, please contact:
Andy Skinner, Managing Director, ASAP PR – 07990 978257
Marie Wadeson, Head of Marketing,
Quantuma LLP, Vernon House, 23 Sicilian Avenue, London, WC1A 2QS
Tel: 07464 545678
Notes to Editors
Quantuma LLP is a leading restructuring and insolvency practice delivering partner-led solutions to businesses and individuals facing financial distress with offices in London, Southampton, Marlow, Watford, Brighton and Bristol.