'Hallmarks' of VAT Avoidance?

17/03/2005, by Mark McLaughlin CTA (Fellow) ATT TEP, Tax Articles - VAT & Excise Duties

6618 views

Rate:

Rating: 0/5 from 0 people

VAT Voice by Andrew Needham

Andrew Needham, Director of VAT Solutions (UK) Ltd, outlines the rules on disclosure of VAT schemes, and the potential implications for businesses.The Budget 2004 saw Customs introduce 'new measures to combat VAT avoidance'. This basically boiled down to making businesses tell him what avoidance schemes they have!

Disclose – or else!

The rules work like this; businesses with a turnover of £600,000 or more will have to disclose the use of specific avoidance schemes that Customs have published in a statutory list contained within the new VAT Notice 700/8 published on 1 August 2004 (referred to as 'listed schemes'). Disclosure will be required within 30 days of the first return affected by the scheme. Failure to do so will result in Customs imposing a penalty of 15% of the tax avoided - and we thought tax avoidance was perfectly legal!

Larger businesses with a turnover exceeding £10million must disclose details of schemes that have "certain of the hallmarks of avoidance" (whatever that means!). The new Notice states that these 'hallmarked' schemes contain one or more features of VAT avoidance designated in the legislation. Disclosure must again be made within 30 days of the first affected return. Failure to disclose such schemes will incur a flat rate penalty of £5,000.

So how will this affect most businesses? The answer is not a lot. If your turnover is less than £600K, you won't have to do anything. Even if your turnover is above this limit, it is unlikely that you will have a VAT avoidance scheme in place, but check the list anyway. It gets more difficult if you turnover more than £10m, as you will have to tell Customs about anything that has one of the hallmarks listed in the new Notice.

Avoidance hallmarks

The hallmarks of avoidance are:

- When you obtain tax advice and have to sign a confidentiality agreement with your adviser before they explain how the 'scheme' works.

- If there is sharing of the 'tax advantage' between the person promoting the scheme and the one to whom the advantage accrues. A 'promoter' is anyone who in the course of their, trade, profession or business provides tax advice.

- If you are charged fees that are contingent on the success of the scheme.

- If the scheme involves prepayments between connected parties.

- Where funds for the supply of goods or services made between connected parties is provided by inter-company loans or the subscription of share or other securities between the connected parties.

- Property transactions between connected parties were they make both taxable and exempt supplies.

- Finally, what are described as 'off-shore loops' where supplies of certain specified services are made via off-shore companies.

Most companies are below the £10m threshold. However, for those over that limit, they should consider any tax advice that they have received in light of the above published 'hallmarks'. If any tax planning that you have implemented does not have one of these characteristics, you need not inform Customs.

Andrew Needham
Director, VAT Solutions (UK) Ltd
Email: andrewneedham@vatsolutions-uk.com

VAT Solutions (UK) Ltd
11 Winmarleigh Street,
Warrington,
WA1 1NB

(T) 01925 242497
(F) 01925 242498
(M) 07810 433927
(W) www.vatsolutions-uk.com

VAT Solutions (UK) Limited is an established independent firm of Chartered Tax Advisers, formed by Andrew Needham and Steve Allen. The company has a cross-section of clients from multi-national companies through to medium-sized and numerous smaller regional firms of accountants and solicitors. They produce a regular publication 'VAT Voice', which can be downloaded directly from the Internet via the following address: www.vatsolutions-uk.com/newsletter.doc

About The Author

Mark McLaughlin is a Fellow of the Chartered Institute of Taxation, a Fellow of the Association of Taxation Technicians, and a member of the Society of Trust and Estate Practitioners. From January 1998 until December 2018, Mark was a consultant in his own tax practice, Mark McLaughlin Associates, which provided tax consultancy and support services to professional firms throughout the UK.

He is a member of the Chartered Institute of Taxation’s Capital Gains Tax & Investment Income and Succession Taxes Sub-Committees.

Mark is editor and a co-author of HMRC Investigations Handbook (Bloomsbury Professional).

Mark is Chief Contributor to McLaughlin’s Tax Case Review, a monthly journal published by Tax Insider.

Mark is the Editor of the Core Tax Annuals (Bloomsbury Professional), and is a co-author of the ‘Inheritance Tax’ Annuals (Bloomsbury Professional).

Mark is Editor and a co-author of ‘Tax Planning’ (Bloomsbury Professional).

He is a co-author of ‘Ray & McLaughlin’s Practical IHT Planning’ (Bloomsbury Professional)

Mark is a Consultant Editor with Bloomsbury Professional, and co-author of ‘Incorporating and Disincorporating a Business’.

Mark has also written numerous articles for professional publications, including ‘Taxation’, ‘Tax Adviser’, ‘Tolley’s Practical Tax Newsletter’ and ‘Tax Journal’.

Mark is a Director of Tax Insider, and Editor of Tax Insider, Property Tax Insider and Business Tax Insider, which are monthly publications aimed at providing tax tips and tax saving ideas for taxpayers and professional advisers. He is also Editor of Tax Insider Professional, a monthly publication for professional practitioners.

Mark is also a tax lecturer, and has featured in online tax lectures for Tolley Seminars Online.

Mark co-founded TaxationWeb (www.taxationweb.co.uk) in 2002.

Back to Tax Articles

Comments

Please register or log in to add comments.