No doubt you have all heard about Gary Barlow and the other members of Take That who are facing a tax bill of about £20m following HMRC’s success in challenging a “tax avoidance” scheme that they entered into.
Basically, the scheme made use of perfectly legitimate tax reliefs that are available on investment in intellectual property. However, this scheme used bank borrowings to massively increase the amount “invested”, and the tax returns were prepared on this basis. HMRC argued, and the Court agreed, that these borrowings were essentially used to repay the borrowings rather than to invest in the tax deductible assets. This in turn meant that the “investments” were circular in nature and as result were non allowable to tax purposes. The Court held, therefore, that the claim for tax relief on the amounts “invested” with the aid of bank borrowings should be disallowed.
The lesson to be learnt from this is simple. Do not indulge in fancy tax avoidance schemes unless you can afford to not only meet the substantial fees that the promoters of these schemes charge but also the tax, interest and penalties that will result if the schemes fail (rumour is that Take That will need to make another European Tour to meet their liabilities, an option probably not available to you)!
WatkinsonBlack have never been in favour of these artificial schemes, and have always tried to dissuade clients from even considering them. As we have always said – if it seems too good to be true then it probably is.
This does not mean, of course, that we agree with HMRC’s definition of the “right” amount of tax, which is that it means the maximum amount of tax that could be payable. Instead, we try to find out what you are trying to achieve, and then work with you to find the most economical way to achieve it and therefore make the most post-tax profit.
We also agree with those Members of Parliament who have opposed the latest “draconian” proposals to allow HMRC to steal taxpayer’s money.
At first glance the proposals seem fairly reasonable; if you don’t pay your tax then HMRC can take it from your bank account without any recourse to the Courts or any other judicial body. However, HMRC make so many mistakes, and ignore not only equitable justice but also their own procedures so frequently, that this power will undoubtedly lead many cases of funds being removed without due cause. HMRC will then, no doubt, require the taxpayer to show why they are wrong in taking the funds before they make a repayment!
Big Brother may be 30 years late, but beware. He is coming at last!