To quote from the Duke of Westminster case of 1936 “Every man is entitled if he can to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be”
Some might say that his enshrines tax avoidance as being legitimate. Others may take up Individual Savings Accounts (ISAs) which are specifically designed to avoid UK tax.
The Counter Avoidance Directorate
HM Revenue & Customs (HMRC) set up the Counter Avoidance Directorate on 1 April 2014 and consists of approximately 800 people split into 22 different sections to deal with specific tax avoidance schemes or promoters.
The mass marketing of tax avoidance schemes has made HMRC seek ways of combating those they believe to be the most aggressive. The introduction of DoTAS in August 2004 and more recently Accelerated Payment Notices (APNs) and Follower Notices has demonstrated their resolve. The Counter Avoidance Directorate was instrumental in offering taxpayers a number of Settlement Opportunities, most of which are now closed.
Onshore or offshore
Tax avoidance can involve more than one tax jurisdiction. For example, the structure being used can be funded from the UK but be administered offshore with the intention of being opaque to HMRC. The Automatic Exchange of Information and the Common Reporting Standard being adopted by many tax jurisdictions around the world is seen as a mechanism to identify tax avoidance so that it can then be challenged.
Tax avoidance schemes often rely upon the failure of tax legislation to interact as the tax legislators intended. Investigations into tax avoidance require the production of documentation and information to ensure the correct implementation of any scheme or arrangement.
Investigations under Code of Practice 8
HMRC have been following their Litigation and Settlement Strategy. In doing so, taxpayers are being investigated under Code of Practice 8.
HMRC have suggested that there are 65,000 users of tax avoidance schemes. Arguably there is more than 10 times this number of participants when you consider all the Employee Benefit Trusts and Film Partnerships that were created. This has led to a large number of legacy cases that may even pre date DoTAS.
It is not illegal to have offshore assets or offshore structures that may include trusts and companies with a view to protecting a family’s wealth for example. However, more and more the tax jurisdictions are wanting taxpayers to disclose their existence even if there is no suspicion of tax avoidance.
Further legislative changes are anticipated under the current government.