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Mark McLaughlin CTA (Fellow) ATT TEP highlights HM Revenue & Customs' 'Spotlights' and 'Signposts'.

Introduction

It is no secret that HM Revenue & Customs (HMRC) is taking a tougher line against tax avoidance. Indeed, there is a degree of openness about the type of tax planning arrangements that HMRC regards as unacceptable, or which are not considered to work as intended.

HMRC has an ‘Anti-avoidance Group’ section on its website, which sets out HMRC’s strategy against tax avoidance, ( see Spotlights ).

In the Spotlight

Part of HMRC’s process of informing taxpayers and agents about their approach to certain forms of tax planning is to publish ‘spotlights’ in part of the above anti-avoidance section of its website. Spotlights are broadly schemes or arrangements which are discouraged on the basis that HMRC is ‘…likely to challenge’ them, and which in HMRC’s view ‘…are not likely to deliver the tax savings advertised’.

There are presently eight spotlights:

1. Goodwill - companies acquiring businesses carried on prior to 1 April 2002 by a related party;
2. VAT artificial leasing;
3. Pensions schemes artificial surplus;
4. Contrived employment liabilities and losses;
5. Using trusts and similar entities to reward employees - PAYE and National Insurance contributions (NICs), Corporation Tax and Inheritance Tax;
6. Employer-Financed Retirement Benefits Scheme ('EFRBS');
7. Certain schemes that seek to generate Gift Aid and Gift of Shares tax relief claims.
8. Investments to obtain trade loss reliefs / 'sideways loss relief'

HMRC publish additional spotlights periodically (Spotlight 8 was added on 8 February 2010), so it is important to check this area of HMRC’s website on a regular basis for any updates. Of course, HMRC’s technical analysis of spotlighted anti-avoidance schemes is only their view, and just because HMRC considers an arrangement to be ineffective does not necessarily make it so. However, some schemes (e.g., 1 and 4 above) have subsequently been the subject of legislation to counter them. In addition, it should not be assumed that schemes not included in the list of spotlights are effective or accepted, as HMRC warns that ‘A scheme that has not featured in Spotlights may still be challenged.’

Signposts to Trouble?

The Anti-Avoidance group section of HMRC’s website also lists a number of ‘signposts’. These are broadly transactions and arrangements which have been identified as unacceptable in the past.

Examples of such transactions or arrangements broadly include those which:

• have little or no economic substance;
• exhibit little or no business, commercial or non-tax driver; or
• involve contrived, artificial, transitory, pre-ordained or commercially unnecessary steps or transactions.

Examples of transactions or arrangements which HMRC considers to display signposts are listed on its website. Whilst it does not automatically follow that tax planning which HMRC treats as high risk will be ineffective, taxpayers and their advisers need to think carefully in advance about the potential implications in terms of additional tax, interest and penalties if HMRC successfully challenges any such scheme or arrangement used.  

The above article is reproduced from Practice Update (January/February 2010), a tax Newsletter produced by Mark McLaughlin Associates Ltd. To download current and past copies, visit: Practice Update