Guidance

Misleading claims from tax avoidance scheme promoters (Spotlight 29)

Updated 16 May 2022

HMRC are seeing a number of avoidance schemes and arrangements being marketed to individuals and businesses that try to reassure users that the schemes and arrangements being offered are legitimate tax planning.

Such schemes are often marketed as wealth management products or dressed up as exciting investment opportunities.

The nature of the schemes and arrangements may be different, and on first glance some products may appear as genuine investment opportunities.

However they all try to reduce the amount of tax and National Insurance contributions due on your income through contrived or artificial transactions that serve little or no commercial purpose other than to produce a tax advantage.

Promoters marketing these avoidance schemes and arrangements use a variety of terms or statements to reassure the potential user that the products they are marketing are acceptable.

Such statements are often short and snappy and made without context so could be misleading.

There are a wide variety of claims and statements made but some examples include:

• these arrangements fall outside the scope of tax avoidance
• the scheme is not disclosable to HMRC and leading Tax Counsel (QC) have agreed this
• the scheme has been disclosed and therefore you cannot be penalised
• we have been offering these schemes for years and have not been challenged
• you can receive tax-free payments that are compliant with tax law
• we have won all previous court cases in relation to these arrangements
• HMRC will write you a few letters and then give up and go away
• the arrangements are recognised by HMRC as not an avoidance scheme
• we have a successful track record of implementation
• leading Tax Counsel have advised that the arrangements are legal and work
• penalties can’t be applied as you have relied on advice of Tax Counsel
• you can earn more and mitigate tax and do so using tax efficient structures fully compliant with the law
• the product is low risk
• you’re fully insured against any defeat
• HMRC has approved the scheme - they’ve given it a reference number

Such claims are made without context and are usually misleading.

HMRC never approves avoidance schemes. Assertions that HMRC has never challenged schemes of a particular type, or claims that a scheme produces tax free payments that are compliant with tax law, are often simply incorrect.

Saying ‘the scheme has been disclosed and therefore you can’t be penalised’ doesn’t mean that you won’t have to pay the disputed tax, interest and possibly penalties.

Similarly, saying ‘leading Tax Counsel have advised that the arrangements are legal and work’ does not necessarily mean the scheme works.

Counsel may be advising the promoter on the basis of assumptions which may not turn out to be correct when the scheme is implemented.

And whilst Counsel may have advised that the scheme works, their advice is only one opinion. HMRC has a strong track record on avoidance and wins around 80% of all avoidance cases taken to court.

Some promoters may appear to claim that any tax, interest, penalties, fees and other costs are fully insured so, if you lose a dispute with HMRC and have to pay the tax, you won’t be out of pocket.

We have seen instances where these claims are misleading. Often, they are made alongside a claim that the scheme is fully compliant with tax law, or strongly backed by Counsel’s opinion, which may make you wonder why insurance against failure is needed.

If you are tempted by any of the products you see in such marketing material you need to pause. Read our published guidance Tempted by Tax Avoidance.

Don’t be fooled by such statements - if something looks too good to be true, it probably is.

We are relentless in tracking down and countering tax avoidance - and you need to be aware of the pitfalls - read our Ten things a promoter of tax avoidance schemes won’t always tell you.

Remember, avoidance schemes are complex and they can give rise to unintended additional tax consequences.

Some people who entered into tax avoidance schemes have ended up paying far more tax than they would have if they had not entered the scheme in the first place. And many are now getting out of tax avoidance and putting the past behind them.

Anyone who has entered a tax avoidance scheme and wants advice on how to settle their affairs should contact HMRC.