Posted by Mark Hambleton, Partner
Tax Avoidance Schemes are the latest saga to hit the headlines
Thousands of companies could be at risk of prosecution from HMRC for engaging in tax avoidance schemes which could amount to hefty fines imposed and serious repercussions.
Accountancy firm PricewaterhouseCoopers is the latest accountancy firm to be accused of assisting and promoting tax avoidance schemes, on a so say “industrial scale”. Of course the allegations have been strongly denied and these investigations are likely to be challenged but they follow a string of recent case law in other related matters where companies have been successfully prosecuted who will be looking to recover their losses from their accountant.
The recently decided case of Hearn v Revenue and Customs Commissioners involved an arrangement whereby a partnership transferred a golf club business and a leased golf course to a linked non-profit making company which paid turnover rent to the partnership, leaving the company with a token profit, this amounted to an abusive practice.
The court found that the arrangements between the partnership and the company were “wholly artificial” which did not reflect the economic and commercial reality of the relationship between the partnership and the company that would have resulted in a tax advantage contrary to the provisions of VAT regime with the aim of obtaining a tax advantage.
This case highlights the broad approach applied when investigating these types of claims and any company could be subject to a full investigation, not just the corporate giants diverting profits to tax havens like Luxembourg.
The government has announced that it is in the process of introducing a new provision, “diverted profit tax”. This will mean that any company profits made after 1 April 2015 and diverted from the UK to other countries (often with a low tax jurisdiction), will be taxed at 25% with the express aim of discouraging such practices. Many of the current procedures are legal and some tax planning techniques have allowed companies to pay under 0.01%, which is a far cry from the main rate of corporation tax in the UK of 21%. How these new introductions will be received is yet to be seen but it demonstrates the serious approach being taken against tax avoidance.
In relation to the highly publicised tax avoidance claims involving large multinational companies and accountancy firms, the Public Accounts Committee have said that it is now down to HMRC to challenge the advice given to the companies and this could result in an influx of new professional negligence claims against accountancy firms who advised their clients to enter into these schemes.
The HMRC’s warning is simple, “if you are offered a way to pay less tax that sounds too good to be true, it probably is and be aware, HMRC never approves any scheme”. Where HMRC come across tax avoidance schemes they actively challenge them which can mean court action where appropriate.
If you think you have been misadvised by an account in relation to a potential tax avoidance scheme and have suffered a loss as a result, contact the Professional Negligence Team for independent specialist advice.