Ten things you need to know about tax avoidance

hmrcHM Revenue and Customs (HMRC) has issued a list of ‘Ten things a tax avoidance scheme promoter won’t always tell you’.

The list sets out the risks that people face when they sign up to a tax avoidance scheme. These include not only the possible monetary costs and reputational damage of tax avoidance, but also a potential criminal conviction.

Proving tax avoidance is present in the heating and plumbing industry. Earlier this year, a 36-year-old plumber from the Stockport area was arrested on suspicion of failing to pay the correct personal and business taxes for almost ten years.

The man also continued to receive tax credit payments despite earning a suspected £100,000 a year from his plumbing business and undeclared income from rental properties. An investigation into tax and benefit fraud by HMRC identified suspected fraud of around £120,000.

The list is being published as HMRC writes to the first promoters who will be caught by new High-Risk Promoters rules. If they don’t change their behaviour, HMRC could name them publicly and fines might be imposed of up to £1 million.

The Financial Secretary to the Treasury, David Gauke, said: “The government has taken unprecedented steps to clamp down on the selfish minority who practice tax avoidance, because we are firmly on the side of the vast majority of taxpayers who play by the rules. As a result, tax avoidance is now very high risk.

“On top of a substantial fee to join a scheme that will almost certainly fail a challenge by HMRC, tax avoiders will also have to pay the tax they dodged, plus interest and penalties.

“To help protect taxpayers from unscrupulous promoters we have put in place new High-Risk Promoters rules, but people need to be aware of the dangers. So I would strongly advise anyone thinking of signing up to a scheme, which they have been told will legally reduce their tax bill, to carefully consider today’s list of things a promoter may not tell you.”

The ten things a promoter won’t always tell you:

1. Most schemes don’t work
You may be told that avoidance is legal, but if the scheme doesn’t work you’ll have made an incorrect tax return, which is not in accordance with the law. You are legally obliged to pay tax that is due and you may be charged penalties if you try to avoid it.

2. It could cost you more than you bargained for
Avoidance schemes are complex. They can give rise to unintended additional tax consequences, and the fees you pay the promoter do not count as tax paid. So you could end up paying much more than just the tax you’re trying to avoid.

3. You may have significant legal fees to pay
If the scheme is taken to litigation, you’re likely to have hefty legal fees to pay. Your promoter may ask you to pay into a ‘fighting fund’ up front.

4. You could face criminal conviction
If you deliberately mislead or conceal information from HMRC, you could be prosecuted and convicted.

5. You could face publicity as a tax avoider
If you are named in court papers when the case is litigated, or in public registers, you could be reported in the media as a tax dodger.

6. Your scheme is never HMRC approved
Getting an avoidance Scheme Reference Number from HMRC doesn’t mean the department has cleared the scheme. HMRC issues these numbers when a scheme has signs of being designed to avoid tax.

7. You could be marked out as a high-risk taxpayer
Use of a scheme could mark you out a