This interesting report entitled – Tax avoidance: tackling marketed avoidance schemes is, in some ways, quite revealing. It contains some interesting statistics:
For example, over 100 new avoidance schemes have been disclosed under DOTAS in each of the last 4 years – its interesting that the number has not been decreasing despite the greater difficulty in putting together effective schemes. It also reports that since September 2007, HMRC has opened 365 enquiries where it suspects that Promoters have not complied with the disclosure rules but a measly 11 penalties (GBP5000) have been successfully applied so Promoters apparently have little to fear from failing to disclose anyway. HMRC estimates that there are currently between 50 and 100 active promoters of schemes – this is clearly a guess as its such a broad estimate, which would indicate that they haven’t researched their target market very carefully.
In terms of popular schemes – HMRC estimates there are 30,000 users of partnership loss and employment intermediary schemes (a la Jimmy Carr) and also that HMRC has a ‘stock’ (their words not mine) of 41,000 ‘open’ avoidance cases.
So what’s the risk of a ‘punter’ ending up in court ? Well, since April 2010 – which is what ? – two and half years ago HMRC has commenced litigation on 110 avoidance cases – so, based on the 40,000 ‘stock’ estimate, this is a litigation rate of 0.275% (mmm – so that’s not much a deterrent is it ?) – having said that, it should be noted that the chances of ending up in a tax dispute (investigation) with HMRC are much higher than this. Further, many of those 110 are considered ‘lead’ cases by HMRC because they have wider applicability than for those parties who are actually being litigated.
There is confusion…and lots of contradiction…which illustrates how badly understood this topic is. For example..Para 20 of the exec summary states – “It is inherently difficult for HMRC to stop tax avoidance as it is not illegal” – how illuminating..why is HMRC trying to stop avoidance which isn’t illegal ?
But as well as the statistics, there are recommendations…these are illuminating, firstly because, they could indicate possible future strategic direction and secondly because, reading between the lines they critique HMRC’s performance and effectiveness to date (poor performance and ineffective)
a. HMRC should increase its efforts to understand and influence the market of promoters of avoidance schemes.
b. HMRC should act on the results of its ongoing consultation to strengthen its powers to enforce compliance with DOTAS, including its ability to apply penalties to those who don’t comply.
c. HMRC should monitor its progress in addressing the stock of open avoidance cases and set out how it will reduce it.
d. HMRC should create a qualitative framework to evaluate the success of its anti-avoidance work.
e. HMRC should improve its management information and its costings to better direct its anti avoidance effort.
So overall – are the days of tax planning over ? Not at all – I think there will remain to be a place for bespoke tax planning – if HMRC can’t even muster resources and organise itself to effectively tackle the schemes – which surely is the easy bit 🙂 then I think that bespoke planners should sleep soundly in their beds.