Guidance

Ten things a promoter of tax avoidance schemes won’t always tell you

Published 1 February 2016

1. Most schemes don’t work

You may be told that avoidance is legal, but if the scheme doesn’t work you’ll have made an incorrect tax return which is not in accordance with the law. You are legally obliged to pay tax that is due and you may be charged penalties if you try to avoid it.

2. It could cost you more than you bargained for

Avoidance schemes are complex. They can give rise to unintended additional tax consequences, and the fees you pay the promoter do not count as tax paid. So you could end up paying much more than just the tax you’re trying to avoid.

If the scheme is taken to litigation, you’re likely to have hefty legal fees to pay. Your promoter may ask you to pay into a ‘fighting fund’ up front.

4. You could face criminal conviction

If you deliberately mislead or conceal information from HM Revenue and Customs (HMRC) you could be prosecuted and convicted.

5. You could face publicity as a tax avoider

If you are named in court papers when the case is litigated, or in public registers, you could be reported in the media as a tax dodger.

6. Your scheme is never HMRC approved

Getting an avoidance Scheme Reference Number from HMRC doesn’t mean the department has cleared the scheme. HMRC issues these numbers when a scheme has signs of being designed to avoid tax. If a promoter is claiming that their scheme doesn’t need to be disclosed then HMRC are probably challenging that.

7. You could be marked out as a high-risk taxpayer

Use of a scheme could mark you out as a high-risk taxpayer, which means that all of your tax affairs will be closely scrutinised in future, not just your claim for relief.

8. HMRC is likely to beat your scheme in court

HMRC wins around eight out of ten cases where taxpayers take avoidance schemes to court, and many more concede before that stage.

9. The risk is normally all your own

It’s unlikely that a promoter will give you a guarantee that a scheme will work. And they probably won’t be around to support you once HMRC starts investigating your tax affairs. Some promoters set up simply to sell the scheme, and then disband.

10. You’ll have to pay the tax up front anyway

You won’t get a cash-flow advantage while HMRC investigates a scheme. You will be issued with an Accelerated Payment Notice, requiring you to pay the disputed tax up front.