[UK] Reports reveals ‘hard-core’ group behind tax avoidance

HM Revenue & Customs has released a research report containing details of tax avoidance schemes flagged by advisers and accountants over recent years, FT Adviser reports.

The research report - carried out for HMRC by Kantar Public and published on April 23 - gave details of schemes flagged to HMRC by tax agents interviewed in 2017, as part of the government's efforts to learn more about the tax avoidance marketplace. 

The research consisted of interviews with 12 accountants or advisers with market proximity. It appeared to demonstrate that the tax avoidance supply chain was being "driven primarily" by clients themselves together with a small number of "well-known" promoters. 

The information gathered in 2017 reportedly revealed that the tax avoidance sector was being maintained by a "hard-core" group of as many as 20 promoters who were well known to HMRC and had a "long history of operation" in the UK. 

According to advisers and accountants HMRC interviewed, these promoters would "constantly come up with new schemes", pro-actively marketing them by sending out glossy promotional materials and trying to engage directly with clients.

The report said, "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."

On the demand side, the tax agents featured in the research claimed the marketplace was largely driven by clients who approached their accountant or tax adviser with a "desire for some kind of short-term financial gain".

Additionally, the report noted that these clients were often "operating under considerable financial pressure" and with a need for a short-term boost in profits. 

HMRC provided an overview of the types of tax avoidance schemes flagged by advisers and accountants in 2017. Remuneration schemes were the most commonly referenced.  

Remuneration schemes 

Employee benefit trust schemes are schemes under which money is placed into a trust and used to remunerate employees in the form of a loan. By doing so, this type of scheme avoids NI and PAYE deductions. 

Contractor loan schemes involve individuals employed by an offshore entity which pays only the minimum wage. The remaining remuneration is paid as a loan which is then written off.

Also on HMRC's radar were schemes attempting to reduce NI payments by structuring bonuses received by directors as dividends and schemes in which shares were bought and sold in a company created specifically for the purpose, to claim tax allowance and avoid PAYE. 

Other schemes 

Also mentioned were property-based schemes used by property developers, in which money was first paid into an offshore trust and then taken out as a loan to re-invest in property sites.

One of the flagged schemes related to capital gains tax and saw a client buy an insurance scheme and then report sustaining a loss, against which a claim was made.

HMRC was also made aware of schemes relating to investment in government-designated Enterprise Zone Syndicates. Such schemes are aimed at incentivising investment in deprived areas in order to receive tax breaks.

The taxman was informed about clients who had “unintentionally” become involved with the tax avoidance supply chain after being persuaded by “unscrupulous” promoters offering their products as legitimate services. 

Part of the controversy surrounding HMRC’s loan charge - which has been levied since the start of the last tax year on those who were beneficiaries of ‘disguised remuneration schemes’ - is that a lot of employees claim they only agreed to the schemes after taking expert advice.

HM Revenue & Customs has released a research report containing details of tax avoidance schemes flagged by advisers and accountants over recent years, FT Adviser reports.

The research report - carried out for HMRC by Kantar Public and published on April 23 - gave details of schemes flagged to HMRC by tax agents interviewed in 2017, as part of the government's efforts to learn more about the tax avoidance marketplace. 

The research consisted of interviews with 12 accountants or advisers with market proximity. It appeared to demonstrate that the tax avoidance supply chain was being "driven primarily" by clients themselves together with a small number of "well-known" promoters. 

The information gathered in 2017 reportedly revealed that the tax avoidance sector was being maintained by a "hard-core" group of as many as 20 promoters who were well known to HMRC and had a "long history of operation" in the UK. 

According to advisers and accountants HMRC interviewed, these promoters would "constantly come up with new schemes", pro-actively marketing them by sending out glossy promotional materials and trying to engage directly with clients.

The report said, "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."

On the demand side, the tax agents featured in the research claimed the marketplace was largely driven by clients who approached their accountant or tax adviser with a "desire for some kind of short-term financial gain".

Additionally, the report noted that these clients were often "operating under considerable financial pressure" and with a need for a short-term boost in profits. 

HMRC provided an overview of the types of tax avoidance schemes flagged by advisers and accountants in 2017. Remuneration schemes were the most commonly referenced.  

Remuneration schemes 

Employee benefit trust schemes are schemes under which money is placed into a trust and used to remunerate employees in the form of a loan. By doing so, this type of scheme avoids NI and PAYE deductions. 

Contractor loan schemes involve individuals employed by an offshore entity which pays only the minimum wage. The remaining remuneration is paid as a loan which is then written off.

Also on HMRC's radar were schemes attempting to reduce NI payments by structuring bonuses received by directors as dividends and schemes in which shares were bought and sold in a company created specifically for the purpose, to claim tax allowance and avoid PAYE. 

Other schemes 

Also mentioned were property-based schemes used by property developers, in which money was first paid into an offshore trust and then taken out as a loan to re-invest in property sites.

One of the flagged schemes related to capital gains tax and saw a client buy an insurance scheme and then report sustaining a loss, against which a claim was made.

HMRC was also made aware of schemes relating to investment in government-designated Enterprise Zone Syndicates. Such schemes are aimed at incentivising investment in deprived areas in order to receive tax breaks.

The taxman was informed about clients who had “unintentionally” become involved with the tax avoidance supply chain after being persuaded by “unscrupulous” promoters offering their products as legitimate services. 

Part of the controversy surrounding HMRC’s loan charge - which has been levied since the start of the last tax year on those who were beneficiaries of ‘disguised remuneration schemes’ - is that a lot of employees claim they only agreed to the schemes after taking expert advice.