The following gives a brief summary of something that most people, including many accountants and tax advisers, will know very little about: HMRC “Spotlights”!
Spotlights have been around for some time and are all about tax avoidance. According to HMRC “it has a 'consumer protection' role in helping you to avoid unwittingly entering into arrangements that HM Revenue & Customs (HMRC) are likely to see as tax avoidance”.
Spotlights identify the types of arrangements which HMRC are likely to challenge and they aim to do this by helping taxpayers to understand how they distinguish between artificial avoidance schemes and ordinary sensible tax planning. There is, however, no explanation by HMRC as to what they mean by “ordinary” tax planning.
Through Spotlights HMRC aim to do the following:
- Provide some advice on tax planning to be wary of, listing some indicators that HMRC see as suggesting
that a scheme may involve tax avoidance and which it is likely to investigate.
- Identify specific schemes which, in HMRC’s view, are not likely to deliver the tax savings advertised. HMRC will potentially challenge such schemes.
The following are some of the indicators included on HMRC’s list to be aware of. The more indicators that are present, the more likely it is that HMRC will view the arrangement as tax avoidance and challenge your self assessment:
- It sounds too good to be true
- Artificial or contrived arrangements are involved
- It seems very complex given what you want to do
- There are guaranteed returns with apparently no risk
- There are secrecy or confidentiality agreements
- Upfront fees are payable or the arrangement is on a no win/no fee basis
- Offshore companies or trusts are involved for no sound commercial reason
- It involves money going in a circle back to where it started
- There is a requirement to take out insurance against the failure of the tax planning to deliver the tax benefits
This is not an exhaustive list of the indicators that HMRC publish but they give a snap shot of what HMRC are looking for.
The right of taxpayers to arrange their affairs to minimise tax was affirmed in The 1936 Duke of Westminster case. However, the boundary between what is acceptable tax mitigation and unacceptable tax avoidance can often be unclear and the governments approach to making everyone pay their ‘fair
share’ is directing more attention towards tax avoidance.
It advises taxpayers on the sorts of planning they should be wary of; pointing out that just because one factor is present it doesn't make it tax avoidance. HMRC also advises the taxpayer to be wary of planning where taxation of income is delayed or tax deductions accelerated — but surely these concepts are at the heart of many instances of “sensible tax planning”?
By issuing its Spotlights HMRC is trying to influence the behaviour of the taxpaying population and steer them away from avoidance which they deem to be unacceptable. However it should be noted that just because HMRC doesn't believe that the planning works doesn't necessarily mean it is right.
To date there have been 12 Spotlights issued in connection issues ranging from Goodwill to EBT’s to Stamp Duty Land Tax and are available on HMRC’s Spotlights page on their website www.hmrc.gov.uk/avoidance/spotlights.htm
This also now provides contact details and an online form for anyone wanting to tell HMRC about suspected tax avoidance.
In summary therefore the ‘Spotlights’ give us an opportunity to be aware of the areas targeted by HM Revenue & Customs and therefore ensure that our tax mitigation planning is not viewed as aggressive tax avoidance. Forewarned is forearmed!
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