Tax avoidance schemes that go wrong

I like to pay taxes, with them I buy civilisation”. These  words were attributed to Oliver Wendell Holes Jnr, the great American judge, by his fellow US Supreme Court justice, Felix Frankfurter.  They are, apparently, engraved over the entrance to the US Internal Revenue Service in Washington. What the great man actually said in his judgment in a case decided in 1927 was:-

Taxes are what we pay for civilized society, ………”

These  sentiments are redolent of an age of lighter taxation. Few would say that now. Now most people seek to minimise tax. Indeed, the government uses the urge to avoid tax to encourage us to use our money in particular ways.  There are government sponsored tax saving schemes such as venture capital trusts (VCTs), enterprise investment schemes (EIS) and individual savings accounts (ISAs). The Government also promoted the Finance (No 2) Act 1992 sections  of which offered tax advantages to  investors in  British films.

Unsurprisingly schemes have been promoted to take advantage of tax breaks  of various kinds. Films, certainly, but also carbon credits and other ingenious arrangements. The Government is now tightening up. There have been reports of people in the public eye being made to pay tax and penalties. Lots of people have been caught out.

I have some tax expertise, but do not  compete with tax specialists  on pure tax issues.  My skills are in the area of professional negligence with an emphasis on financial matters. If you face a claim by the  Revenue that your tax mitigation scheme is not valid   I definitely can help in a number of areas.

  1. A taxpayer involved in a tax mitigation scheme under investigation by HMRC needs to ask if he was warned this was a risk.
  2. Some of these schemes are collective investment schemes, and as such affected by the Financial Services and Markets Act 2000.
  3. Some of these schemes involved sham trading i.e. they pretended to trade, but did not.
  4. It may not be just a matter of paying tax and penalties to HMRC – many of these schemes were “geared” i.e. they involved heavy borrowing. The lenders still want their money.

I have no one size fits all answer, but  there will almost always  be some professional or statutory standards for advice on or for the promotion of these schemes. It depends on the kind of professional involved in promoting the scheme, and the kind of scheme. In some  the promoters’ greed led to arcane schemes of great complexity and  precarious benefits. Some were downright fraudulent.

It is important to take advice from someone not associated with the promotion of the scheme. Moreover, if the scheme is in liquidation, the liquidator or his solicitors should not be thought of as representing the investors. They don’t.

Any problem like this is a nightmare. It costs nothing to enquire if I can help, and I am happy to talk.



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