HMR&C Assessment of High Risk Tax Avoidance Schemes

In May 2011 HMR&C published a consultation document entitled “High Risk Tax Avoidance Schemes” in which they consider contrived arrangements which seek tax advantages in circumstances where they are not intended to be available. They believe that users of such schemes obtain an advantage over other HMR&C ‘customers’ because disputes over perceived underpayments of tax can take years to resolve and in that time the user has possession of the money that constitutes the underpayment which he can then invest. Such an investment could allow the user to profit from it i.e. make a financial gain before being forced to repay the additional tax.

The proposed objective is to describe (“list”) specific high risk avoidance schemes in law, thereby attaching consequences for both users and providers. This will apply to all areas of taxation where there is already an avoidance disclosure regime in place i.e.:

I.        Income Tax

II.        Capital Gains Tax

III.        Corporation Tax

IV.        Stamp Duty Land Tax

V.        Inheritance Tax

VI.        VAT

Each scheme would be listed and allocated a Listed Scheme Number which the user would need to quote, ideally when submitted a tax return. If an individual uses a listed scheme but does not report the fact they would be subject to a penalty which would be imposed by HMR&C.

Users of a listed scheme would be advised to make payment of tax assuming that the scheme provides them with no advantage; if they fail to do so, and the scheme is proven not to work, an additional charge would be due.

Any additional charge that became payable would not just be payable for a single tax year but for all the time that the individual had been taking advantage of the scheme.

A calculation has been suggested for the additional charge and is shown here:

A person P uses a listed scheme in tax year 2012-13 which purports to reduce their income tax liability from £275,000 to £125,000. P sends in a self-assessment for tax due of £125,000 and makes a payment for that amount before the deadline in Jan 2014. HMR&C query the return and an additional £150,000 becomes payable and is finally settled in August 2017.

P would be liable to additional charge of (X)% per annum of the tax underpaid starting from 31st Jan 2014 and ending on 15th Aug 2017 (42 months later). Therefore the additional charge would be (X)% of £150,000 x 42/12

The idea of the proposal is to remove any cash flow benefit from using an avoidance scheme so one could assume, conservatively, that (X) would be in the region of, say, 5%. This means, working on that basis that the additional charge would be 5% of £150,000 x 42/12 or, in other words £26,250.

Therefore the total payable for 2012-13 becomes £301,250 rather than the figure due without using the scheme which was £275,000.

We would emphasise that this proposal is not yet enshrined in legislation but it is a good indication of HMR&C’s future intentions.

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If you would like to discuss registering, you can contact a member of our team on 01206 713 680 or email us at