Dec 10 2012 By Mike Parkinson
TAX avoidance versus tax evasion is very much in the news, with the former just about still acceptable. But the question of when avoidance becomes evasion is becoming increasingly less clear.
Itemerged recently that the Her Majestys Revenue and Customs(HMRC) is sending letters directly to around 1,500 people who havesigned up to a particular tax avoidance scheme.
Although thescheme has still to be legally challenged, the HMRC is getting itsretaliation in first, giving tax payers the opportunity to get out ofthe unnamed scheme before such a challenge is mounted.
Asan accountant I have mixed feelings around tax avoidance schemes. Whilst everyone should have the right to organise their affairs asthey see fit, the use of schemes is fraught with danger. Anyoneusing a scheme needs to do so with their eyes wide open andunderstand that the HMRC will almost certainly look to challenge.
Therole of the HMRC is to make sure that schemes do not stray from taxavoidance to tax evasion and I fully support their right tovigorously investigate anything proposed.
Historically though,the inspectors have investigated schemes by contacting the promotersof the scheme, rather than the individual investors, to tell themthey will be challenging. Frankly, I suspect that by contactingthe investors directly HMRC are hoping to scare or bully some of theminto withdrawing and I do have concerns over the use of such tactics.
Apparentlyone version of the letters says: You are in a small minority ofpeople who have made the deliberate choice to avoid taxes. Wefocus our resources on this small minority.
"The choice you havemade changes the way we view your tax affairs.
Clearly theimplication is that not only will investigators inquire into theinvestment in the scheme but that by remaining in the scheme, aperson is almost guaranteed to be the subject of a detailedinquiry. These can be complex, expensive and stressful forindividuals
Anotherextract explains how the revenue service is happy to use the courtsand to challenge tax avoidances. If it does, they write, there willbe years of uncertainty about your tax affairs.
Whilst this isundoubtedly true and users of these schemes need to be aware of this,I do not feel it is the role of HMRC to warn investors, particularlywhen the advice feels like a threat.
Inorder to justify using a tax avoidance scheme it is likely that theinvestors are reasonably financially sophisticated or will payadvisers to be sophisticated on their behalf, so I would not expectthese threats to be taken too seriously or significant numbers towithdraw from the scheme in question.
But sending out letterssuch as this one does however beg a question: where will this tacticstop?
Ifit is subsequently shown that some people were bullied by the HMRCinto withdrawing from a perfectly legal scheme then clearly thiswould be an unacceptable abuse of power.
Additionally if thistactic is used more frequently in the future it will increase thechances of unnecessary stress being caused to innocent individuals.
Mike Parkinson is a partner with accountants Barnes Roffe of Cowley Mill Road, Uxbridge