Anyone who has invested in, promoted, or advised on any form of tax mitigation scheme may be feeling slightly nervous following the latest announcement from HMRC concerning the on-going saga of tax avoidance. And understandably so.
On 15 July, HMRC published a list of 1,200 investment schemes which, it suspects, were designed to help investors avoid paying tax, as opposed to being legitimate investments.
The schemes on this list have been earmarked for accelerated payment, whereby HMRC will require payment of any allegedly outstanding tax, prior to any dispute over the legitimacy of the scheme being resolved.
We understand that HMRC will begin sending letters this month to members of the 1,200 schemes detailing the tax payable. Following receipt of these 'Accelerated Payment Notices', which cannot be appealed, individuals will have 90 days to pay any amounts deemed due. It has been reported that the Government expects to raise around £7.1bn through these accelerated payments of disputed taxes from 43,000 taxpayers over the next two years.
This announcement is yet another example of the Government's increasing desire to clamp down on any potential tax loopholes and to ensure that it recoups as much revenue as possible.
In March 2013, the Government announced it was providing HMRC with a £4.6 billion package to "crackdown" on tax mitigation schemes. As a result, in the last 12-16 months HMRC has taken an increasingly hard line approach to any form of tax mitigation, which has resulted in closure notices being issued to various Film Finance, Enterprise Zone, and Enterprise Investment schemes.
The crackdown seems to be paying dividends too, with HMRC apparently netting an additional £23.9 billion in tax, in the 2013/14 financial year, as a direct result of its aggressive approach to tax avoidance schemes. In light of such successful results, it seems unlikely that HMRC's approach will soften over the coming months.
Wave of litigation?
The unwinding of these schemes has had a significant financial impact on a large number of investors. Not only are individuals faced with unexpected, and often large, tax liabilities (possibly with interest), but in many cases, the investors themselves have had to fund any legal proceedings to challenge HMRC's rulings on the efficacy of schemes.
This situation has seen the rise in the number of claims handling firms which ostensibly specialise in handling complaints against scheme promoters, IFAs and accountants who were involved in the promotion of such tax avoidance schemes. At RPC, over the last 12 months, we have seen the impact of that recent rise even though the original advice was usually given in the last decade.
It has been reported that a number of firms which advised investors in relation to some of the schemes named by HMRC may have already issued warnings to their clients that they are likely to be asked to repay all the tax they saved as a result of the investment.
As a result, we expect to see an increasing number of complaints being made as investors attempt to recoup some of the losses they have incurred.
We also expect that many claimants, backed by claims handling firms which often don't charge fees (they usually take a percentage of any award), will refer their complaints to FOS.
As we have previously commented, public and judicial opinion may not be in favour of claimants who invested in such schemes to avoid paying taxes. However, it is important to note that not everyone involved in these schemes is a celebrity or professional sportsman. A significant number of the investors include doctors, lawyers, architects, surveyors and self-employed business owners who were attracted by the low capital requirements.
The FOS is known for taking a consumer-friendly approach but, before respondent firms consider settling complaints to avoid the risk of a precedent-setting decision, we should wait and see whether FOS sympathises with tax avoiders.