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How to spot a tax avoidance scheme - HMRC guidance

Published on Jan 11, 2010 |

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Following several attempts to clamp down on tax avoidance in recent years, HMRC has published advice on how taxpayers can identify such schemes.

In the recently issued guidance, HMRC has provided a list of indicators which could suggest that a scheme may involve tax avoidance, and which is therefore more likely to be investigated.

HMRC points out that the inclusion of one of the following tax planning features doesn't necessarily mean that tax avoidance is involved, but the more features that are present in a scheme, the more likely the scheme and any individuals using the scheme will be challenged.

HMRC's list of tax planning features to be wary of

- 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.
- The scheme is said to be vetted by a top lawyer or accountant but no details of their opinion are provided.
- The scheme is said to be approved by HMRC (it does not follow that this is true).
- Taxation of income is delayed or tax deductions accelerated.
- Tax benefits are disproportionate to the commercial activity.
- Off-shore companies or trusts are involved for no sound commercial reason.
- A tax haven or banking secrecy country is involved without any sound commercial reason.
- Tax exempt entities, such as pension funds, are involved inappropriately.
- It contains exit arrangements designed to sidestep tax consequences.
- It involves money going in a circle back to where it started.
- Low risk loans to be paid off by future earnings are involved.
- The scheme promoter lends the funding needed.

You can find out more in this HMRC article.